MSG Fiscal Year Earnings: $1.56B Revenue, $141.6M Net Income

MSG – MSG Sphere London Rendering
The venue would be located in Stratford, close to London Stadium and not far from the O2

Proving the big can always get bigger, The Madison Square Garden Company grew revenue 47 percent to $1.56 billion in the fiscal year ended June 30, 2018. 

Net income improved to $141.6 million from a net loss of $72.7 million a year earlier. This year’s financials were greatly helped by MSG’s purchase of a controlling interest in hospitality company TAO Group in February 2017. TAO Group owns and operates high-end restaurants and clubs in New York, Las Vegas, and Sydney, Australia. Only two months of TAO’s financials were included in MSG’s fiscal 2016 earnings. 

MSG shares fell as much as 2.6 percent to $301.80 in Thursday morning trading. The stock had recovered and rose into positive territory before noon. MSG’s 52-week high is $330. 

MSG’s concert business is being helped by artists’ financial incentive to tour, said MSG CEO Andy Lustgarten. Of course, it helps that MSG owns iconic venues in the country’s biggest markets. MSG’s “multi-venue, multi-booking strategy has paid off,” Lustgarten said, pointing to Phish’s 13-show run at Madison Square Garden and Billy Joel’s 100th sellout show at the famed Manhattan arena. (Phish’s 13 concerts sold 227,000 tickets and grossed $15 million.) Lustgarten’s suggestion that artists make their money through concerts came a week after a controversial report by Citi that shined a favorable light on the concert business. After comparing revenue sources such as streaming, purchases, and licensing, Citi stated “it’s clear that concerts have, by a wide margin, contributed most significantly to the growth in an artist’s income.” 

The MSG Sphere project in Las Vegas is “full speed ahead,” said Lustgarten. MSG Sphere is currently slated to be a 360-foot tall, 580,000-square-feet spherical venue that would provide an innovative experience. 

Lustgarten called the Las Vegas Sands Corporation, the casino and resort company, “a great partner” that has helped MSG acquire the proper permits. Sands has given MSG a 50-year lease and $75 million to help with the constructing the Sphere construction as well as a pedestrian bridge to link the Sphere to Sands properties. Rather than pay a fixed rent, MSG will pay 25 percent of after-tax cash beyond a certain threshold. The Sphere in Las Vegas is slated for a launch in MSG’s fiscal 2021. A Sphere in London is expected soon after.

A question hanging over the earnings call is a possible cleaving of the company. Last year MSG announced it was exploring the idea of spinning off its entertainment division from its sports division. Donna Coleman, EVP and Chief Financial Officer, said the company is still in exploration stage and would choose an option that would “give ourselves financial flexibility.” Reports have said the entertainment division would hold about a third of the sports company’s stock. Whatever happens will depend on a variety of factors such as stock prices and the companies’ financial needs, she added. 

Breaking up the company could create two companies worth more than MSG’s value today. A Jeffries analyst believes MSG’s scarce entertainment properties are undervalued and has a $350 price target on MSGE stock. MSG Entertainment and MSG Sports had almost identical revenue in fiscal 2018 – $780.8 million for MSG Entertainment and $778.7 million for MSG Sports. But MSG Sports’ operating income was almost 1.5x greater than MSG Entertainment, $126.6 million to $86.0 million. 

Each division is filled with unique assets. MSG owns a portfolio of entertain brands and properties including Madison Square Garden and Radio City Music Hall in New York, and the Forum in Los Angeles. Madison Square Garden ranked No. 2 in Pollstar’s Top 200 Arenas list for 2017 – behind London’s O2 Arena – with 1.12 million tickets reported sold. The Forum ranked ninth with 791,000. Radio City Music Hall was No. 3 on Pollstar’s Top 200 Theatre Venues list for 2017. 

MSG’s sport division includes the NBA’s New York Knicks, the NHL’s New York Rangers, and the WBNA’s New York Liberty. Fortunately for MSG, professional sports leagues maintain a fixed number of franchises and grants expansion teams infrequently. Only seven teams have joined the NBA since 1988. The NHL has added only one team, the Las Vegas Golden Knights, since 2000. Teams are rarely bought and sold; the last acquisition was $2.2 billion paid for the Houston Rockets. Similarly, Madison Square Garden is one of just two arenas in New York City and the only one in Manhattan.