Madison Square Garden Co. To Spin Off Sports, Entertainment Into Separately Traded Entities

MSG – MSG Sphere London Rendering
AEG voiced concerns that that the venue may cause congestion in the East London area

The Madison Square Garden Company, citing changes to its timeline for constructing the MSG Sphere in London, will now spin off its entertainment businesses into a separately traded public company and retain no equity interest in the sports company, a major revision of its previous plan to separate its sports and entertainment businesses.

The company announced the change, which its board of directors unanimously approved, Nov. 7. The previous plan was to spin off approximately two-thirds of its economic interest in its sports businesses to shareholders, with the entertainment company retaining an approximate one-third interest in the sports company.

MSG notes that while “significant progress” has been made on the MSG Sphere project in Las Vegas, which it has a goal of opening in 2021, the Sphere in London is still moving through an application process that is now expected to run into 2020. As MSG plans to incorporate what it learns from the process in Vegas to the project in London, “it is no longer possible for the London venue opening to be one year after the opening of MSG Sphere in Las Vegas,” according to a statement.

Because of the moving timeline in London, MSG says it “now believes the standalone entertainment company would have sufficient financial flexibility to pursue the venue expansion plans without the need for the retained equity interest in the sports company. In addition, the revised structure would eliminate any potential tax leakage associated with the sale of the retained interest in the Sports company.”

MSG Executive Chairman and CEO James Dolan said, “The spin-off would create two distinct companies for MSG shareholders, each with a defined business focus and clear investment characteristics. One company would be a leader in live entertainment that would take advantage of significant opportunities to grow rapidly within the changing entertainment landscape. The other entity would be a sports company with marquee assets that would enjoy steady growth and strong free cash flow.” 

The change reflects the company’s belief that a “pure-play” sports company would “reflect the strong and steady financial performance of MSG’s sports business driven by the [NBA’s] Knicks and [NHL’s] Rangers franchises, while the entertainment company would capitalize on opportunities for growth, most notably through venue expansion as the company moves forward with its MSG Sphere initiative.

“The newly revised transaction would be structured as a tax-free pro rata spin-off to all MSG shareholders,” the company said in a statement. “Each shareholder would continue to own their current economic interest in both the sports and entertainment businesses. The Company continues to believe that the proposed separation of the sports and entertainment business would enable shareholders to more clearly evaluate each company’s assets and future prospect, while allowing each company to have a capital structure and capital allocation policy most appropriate for its business.”

The proposed sports company, as revised, would include the New York Knicks and its Westchester Knicks development team; the New York Rangers franchise and its Hartford Wolf Pack development team; Knicks Gaming, the NBA 2K esports franchise of the Knicks; and company’s professional sports team training center in Greenburgh, N.Y. 

The entertainment company will include, in addition to the MSG Sphere venues, Madison Square Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall and Beacon Theatre in New York; the Forum in Inglewood, Calif., and the Chicago Theatre. It will also include MSG’s booking business including that of the Knicks and Rangers as well as college and boxing events; productions including Radio City Rockettes and the Christmas Spectacular, majority interests in TAO Group and Boston Calling Events, and will retain approximately $1 billion in cash on hand.

The transaction is still expected to be completed during the first quarter of 2020, and is subject to conditions including league and final MSG Board approvals.