Madison Square Garden Wins New Fans With Proposed Entertainment, Sports Split

Madison Square Garden Co (NYSE: MSG) announced June 27 it was exploring a spinoff of its sports business from its live entertainment segment to create two publicly traded companies.

The consideration bolstered the bullishness of Jefferies and Macquarie.

The Rating

Macquarie analyst Amy Yong on June 29 upgraded Madison Square Garden from Neutral to Outperform and raised the price target from $302 to $350.

The Thesis

Yong said she was unsurprised by the pending reorganization. (See the analyst's track record here.)

“The board’s announcement to explore a spinoff is not too surprising, given recent clues including discussions around funding needs for the upcoming [Sphere concert venues] and increased private equity interest,” the analyst said. 

MSG’s entertainment portfolio will soon expand with the Vegas and London Spheres, an expected aggregate cost of about $1.5 billion that’s only 80-percent financed so far, according to Macquarie. 

Yong expects the new venues to present significant upside to entertainment revenue, with a 2019 compound annual growth rate of 27 percent. The separation of entertainment assets from sports is also seen to unlock value in MSG’s various venues, bookings, productions and joint ventures.

On the sports side, ticket pricing power, media rights revenue and sponsorships could drive 25-percent compound annual growth in 2019. Legalized sports gambling could provide another revenue channel or boost team worth, Yong said. 

“We see its pure-play sports assets including the Knicks/Rangers continuing to rise in value on the back of appraisals/transactions,” the analyst said, estimating an aggregate asset value around $5.1 billion.

Price Action

At time of publication, MSG shares were trading up 2.9 ercent at $319.27.

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Photo By Rich Mitchell/Wikimedia.