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MSG - The Madison Square Garden Company

saltybit

By saltybit
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stockspinoffinvesting Newbie

stockspinoffinvesting

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I think it looks really interesting. One thing I struggle with in the SOTP analysis is whether the Madison Square Garden (real estate) value is embedded in New York Knicks and Rangers.

 

Most SOTP analysis that I've seen (I attached JPM's SOTP analysis from its initiation in 2017) assumes the Rangers and Knicks are worth a premium to the latest Forbes Valuations, $3.6BN and $1.55BN, respectively. And then add $1.0BN to $1.2BN for the real estate (most notably Madison Square Garden). However, the Forbes valuation includes $518MM of stadium value for the Rangers and $828MM of stadium value for the Knicks.

 

Thus, is this approach double counting?

 

Any thoughts would be greatly appreciated.

MSG_JPM_SOTP_Initiation.thumb.PNG.47c2519f01a48c73412c35c962a9e69f.PNG

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vpagano Newbie

vpagano

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Like any MSG shareholder, I too have my own mini model I maintain for SOTP valuation ($380ish or whatever). Your question is a valid one on double counting but I don't think it's the case. If you look at the Forbes page for my hometown team the Sixers they assign stadium value BUT they do not own it. Any value increase to that component Forbes piece seems to come from renovations and the like.

 

https://www.forbes.com/teams/philadelphia-76ers/

 

To me, this means the operations inside the venue itself and is not then owned real estate. That said, you would then add the value for the Arena. This jives with SOTP from other analysts I see such as this one, where I don't think such a mistake would occur.

 

https://www.benzinga.com/analyst-ratings/analyst-color/18/08/12236711/madison-square-garden-trading-at-discount-to-intrinsic-

 

 

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fareastwarriors Newbie

fareastwarriors

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Is the Knicks’ James Dolan the Worst Owner in Professional Sports?

 

The team has the worst record in the league this century, and a culture so dysfunctional that it’s now actively repelling the game’s best talent.

 

https://www.bloomberg.com/news/features/2019-07-26/is-the-knicks-james-dolan-the-worst-owner-in-professional-sports?srnd=premium

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Spekulatius Newbie

Spekulatius

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Do you have any thoughts on the CEO departure?  Is capital allocation done by Nolan?

 

I am going to have to watch this one from the sidelines for the time being but I suspect you will do well on this one.  It seems that as the US gets richer and richer the number of sports teams is relatively static.  So you have competition for a rare asset.  It might not make sense to a value investor but I think it is likely that the valuations gradually (or not so gradually) work their way up.  I mean if someone will pay $400m for a painting why not $2b for a major sports team.

 

From my understanding it is the Board, with the general direction nudged by Dolan. The CEO departure was a little surprising, but if there is a company where the management team really isn't all that important to me, it is this one. Its never going to be an EPS darling. Operationally they never really make a ton of money. It's solely about one of a kind assets and being given by my estimates, at least a 30-50% discount. I've been a part of this basically since the spin from Cablevision. I still own MSGN and added to it recently. Thats the cash flow monster. I almost feel as if the split of MSG and MSGN was a stupid short term move done to appease the Wall Street jerk offs. Sperately, MSGN is a machine, but boring. MSG is exciting and unique but really doesnt make much money. As one they were kind of perfect IMO because they each balanced out the weaknesses of the other.

 

I'd also mention, that for all the crap Dolan gets for being a whacko, the part about him being anti shareholder is a classic misconception. Take a peak at how you'd have done being invested in any of the Dolan companies or spin outs. The track record is pretty awesome. MSG is his baby.

 

I know my comment to your post, but as a recent shareholder (with just a small starter position), I feel that the current structure of splitting MSG and MSGN makes now sense. The split certainly hasn’t created much shareholder value. MSG got a big cash dowry and the cash flow monster MSGN carries some debt, but this seems an inefficient structure. If the two were combined, there wouldn’t be much debt left and whatever is needed could be dealt with a cheap mortgage and the cash flow from MSGN could be used to reinvest in the business. This probably would result in a more tax efficient structure.

 

Anyways I don’t own enough worry much about it, but it’s s Great asset and I hope Mr Market gives me and opportunity to acquire more shares some day.

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Gregmal Newbie

Gregmal

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Do you have any thoughts on the CEO departure?  Is capital allocation done by Nolan?

 

I am going to have to watch this one from the sidelines for the time being but I suspect you will do well on this one.  It seems that as the US gets richer and richer the number of sports teams is relatively static.  So you have competition for a rare asset.  It might not make sense to a value investor but I think it is likely that the valuations gradually (or not so gradually) work their way up.  I mean if someone will pay $400m for a painting why not $2b for a major sports team.

 

From my understanding it is the Board, with the general direction nudged by Dolan. The CEO departure was a little surprising, but if there is a company where the management team really isn't all that important to me, it is this one. Its never going to be an EPS darling. Operationally they never really make a ton of money. It's solely about one of a kind assets and being given by my estimates, at least a 30-50% discount. I've been a part of this basically since the spin from Cablevision. I still own MSGN and added to it recently. Thats the cash flow monster. I almost feel as if the split of MSG and MSGN was a stupid short term move done to appease the Wall Street jerk offs. Sperately, MSGN is a machine, but boring. MSG is exciting and unique but really doesnt make much money. As one they were kind of perfect IMO because they each balanced out the weaknesses of the other.

 

I'd also mention, that for all the crap Dolan gets for being a whacko, the part about him being anti shareholder is a classic misconception. Take a peak at how you'd have done being invested in any of the Dolan companies or spin outs. The track record is pretty awesome. MSG is his baby.

 

I know my comment to your post, but as a recent shareholder (with just a small starter position), I feel that the current structure of splitting MSG and MSGN makes now sense. The split certainly hasn’t created much shareholder value. MSG got a big cash dowry and the cash flow monster MSGN carries some debt, but this seems an inefficient structure. If the two were combined, there wouldn’t be much debt left and whatever is needed could be dealt with a cheap mortgage and the cash flow from MSGN could be used to reinvest in the business. This probably would result in a more tax efficient structure.

 

Anyways I don’t own enough worry much about it, but it’s s Great asset and I hope Mr Market gives me and opportunity to acquire more shares some day.

 

It makes sense short term because you force the market to assign values. It is like the upcoming split with MSG and the entertainment company(which I love btw bc the entertainment biz is a capital intensive shitshow that does have substantial upside, but an entirely different profile than what I want to be investing in here). But anyhow, right now, you've got 6.5B or so in market cap. Give the $1B cash to the less valuable company, and keep the sports teams by themself. Do the Knicks and Rangers combined with the real estate trade for under $5B? Does the entertainment and ~$1.2B cash trade for less than $1.5? If so you have clear mispricings and if not you make money from here. But longer term you loses synergies.

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Spekulatius Newbie

Spekulatius

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So what is the thesis for this to be valued at a lesser discount to SOTP? Conglomerates always trade at a discount so what is it?

 

Cardboard

 

Dolan is an idiot is basically the discount rationale.

 

Collections of assets will trade at a discount to fair value most of the time, whether they are run by an idiot or not. FWIW, I just bought more MSG just now.

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Foreign Tuffett Newbie

Foreign Tuffett

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I, for one, am shocked that one of Dolan's schemes isn't going according to plan. As Gregmal referenced a little earlier in this thread, Dolan is an idiot.

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Spekulatius Newbie

Spekulatius

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You have the greatest entertainment venue in the world, in the most desirable location in the world, and your plan is to.... build giant TV's in areas with sketchy demand profiles....

 

The plans and cost estimates for these spheres are indeed concerning - $1.7B for the on in Las Vegas and then plan for a second one in London is not exactly small change.

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Foreign Tuffett Newbie

Foreign Tuffett

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I, for one, am shocked that one of Dolan's schemes isn't going according to plan. As Gregmal referenced a little earlier in this thread, Dolan is an idiot.

 

Anyway, I don't have any particular opinion on this stock. Just thought it was worth reiterating that the prime mover here is none other than the least talented member of "JD and the Straight Shot"

 

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Gregmal Newbie

Gregmal

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I think the concerns regarding Dolan are warranted, but overblown. I've made a small fortune over the years investing in the Dolan universe. Perhaps this is similar to TPL where the assets are just so great even bad management can't ruin them, or perhaps he's not as bad as everyone thinks. Look at what you have now if you had Cablevision a decade ago or so. AMCX, MSG and MSGN, with Cablevision getting sold at peak valuation, just before the whole sector blew up.

 

That said, I am glad they are spinning this little project off, and just hope it goes public at a reasonable valuation so I can sell it.

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DTEJD1997 Newbie

DTEJD1997

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Oh man...was just looking at the press release.  Anytime you get management talking about "smelling" something, I think investors are in for a rough time.

 

“We’re going to be taking people places where they’ve never gone before, both experiencing it visually as well as feeling it, smelling it and hearing it,” MSG president Andrew Lustgarten said in response to a pointed question about returns.

 

Oh oh

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Spekulatius Newbie

Spekulatius

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Oh man...was just looking at the press release.  Anytime you get management talking about "smelling" something, I think investors are in for a rough time.

 

“We’re going to be taking people places where they’ve never gone before, both experiencing it visually as well as feeling it, smelling it and hearing it,” MSG president Andrew Lustgarten said in response to a pointed question about returns.

 

Oh oh

 

Yeah, the strongest smell is typically coming from the restroom area.

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