November 2, 1975.
As a pre-adolescent youth, my world had been rocked three days earlier. I was a New York Rangers fan. Still am. My dad took me to the games at Madison Square Garden. We sat up top, in the area once known as the "blue seats."
My favorite player had always been the goalie, Ed Giacomin. He was the best. It did not matter if he had grown old, and his skills had declined. He was the best... Understand?
The Rangers were bad that year. Giacomin had been placed on waivers in a salary dump to be claimed by the Detroit Red Wings.
The night he came back to the Garden, I hid under my covers, my brother under his. The Garden had been brought to our bedroom through a transistor radio. The fans cared. They really cared. I still hear them chant his name.
I would suffer through seeing Walt Frazier return to the Garden as a Cleveland Cavalier, and Tom Seaver return to Shea as a Cincinnati Red, but innocence had been lost. Sports were a business.
That night, from a quiet bedroom in Queens, New York, two young boys, brothers, silently sobbed, and rooted for the away team's goalie.
There's a Plan
For that last quarter, ended September 30, MSG posted a loss of $3.36 per share. That missed expectations by nearly a full dollar. Revenue came in at $214.7 million, down 1.5% year over year, and also below consensus.
MSG is set to report second-quarter numbers in about a week. February 7. Wall Street is looking for a solid quarter... this time around.
For the second quarter, ended December 31, the consensus is for EPS of $2.63 on revenue generation of $639.4 million. This quarter is expected to be a bright spot, before performance moderates somewhat over the remainder of fiscal 2020 (June).
The shares, though not heavily traded, have trended ever higher since last summer. Just what gives?
Back in early November, the board of Madison Square Garden approved and the company notified the SEC of a plan to separate the sports business from the entertainment business through a spinoff.
The plan is structured in such a way as to be a tax-free split that would leave shareholders of MSG common stock with an interest in both new companies. This deal, at that time, expected to be completed sometime in the first quarter of 2020, would leave the Dolan family with majority voting control over both the sports business and the entertainment business. Both sides would, however, trade as separate public companies.
No word yet on the future role of James Dolan, who is the current CEO and Executive Chairman of MSG.
For those wondering, Madison Square Garden Co. is about a lot more than an NBA basketball team (New York Knicks), an NHL hockey team (New York Rangers), and their shared Manhattan arena (Madison Square Garden).
The entertainment business will include Madison Square Garden itself, along with Radio City Music Hall, the Radio City Rockettes, the Beacon Theater, the Forum in Inglewood, California, the Chicago Theater, a state of the art venue in Las Vegas currently under construction known as MSG Sphere, as well as a planned second MSG Sphere venue in London, England.
The sports business will include the Knicks, the Rangers, the minor league Westchester Knicks and Hartford Wolf Pack, Knicks Gaming (NBA 2K eSports franchise), a majority interest in Counter Logic Gaming (eSports), as well as the pro sports team training facility in Greenburgh, New York.
I have seen "sum of the parts" type models that value the company's businesses in aggregate as high as $9.8 billion. Even with the late 2019 rally, the shares trade at roughly $298 for a market capitalization of $7.12 billion.
According to Forbes, both the Knicks and Rangers are indeed the most valuable franchises in their respective leagues, despite the fact that both teams have regularly underperformed expectations. The Knicks, not to be cruel, for years now, have played at their own, incredible level of awful, rarely even appearing in the NBA's playoffs.
According to these valuations, the New York Knicks are worth an estimated $4 billion, and the New York Rangers are worth an estimated $1.6 billion. All by themselves. Not including any other corporate properties. Imagine if they actually won something, even just occasionally.
James Dolan was quoted back in December as saying that he would not rule out selling the Knicks if the right offer came along, and that he had seen "feelers" in the $5 billion range.
I don't know about you -- if I had anything that regularly brought upon me the anger of New York sports fans that I could sell for $5B… Sold to you. In a heartbeat. Maybe, that's the kid under the blanket writing this article. Let's be honest, I am still the kid under that blanket.
I am also the long-suffering New York Sports fan, born to a National League family, so I don't have the Yankees.
Sell the team, Jim. No, wait, sell the teams, Jim.
Indeed, that was the chant last night at the “World’s Most Famous Arena,” as the Knicks were embarrassed on their own court by the Memphis Grizzlies, a fight broke out and the Knicks best player Marcus Morris made things worse for the team when he stuck his foot in his mouth.
What Does Wall Street Think?
Early in December, David Miller of Imperial Capital maintained an “Outperform” rating on MSG, while increasing slightly his price target to $360 from $357.
Then, two weeks later, Jefferies analyst Khoa Ngo, initiated MSG with a “Buy” rating and a $370 price target. In his work, he highlights the "previously obscure" asset value that could possibly be recognized due to such a spinoff, as well as the sports betting optionality that could end up benefiting both the sports and entertainment sides.
Last week, Oppenheimer's Ian Zaffino, who is highly rated as an analyst, initiated MSG with his own “Outperform” rating, while setting a $365 price target. Zaffino sees the potential spinoff as "one of the only pure-play ways for public investors to own a set of American sports franchises." He also opines that perhaps even at elevated valuations that sports may still have an upside.
Hey, the Knicks are positioned for a top pick in the coming NBA draft. Again. Shaking my head.
The shares right now, do seem undervalued. This would be especially true if Dolan does put the Knicks and Rangers, or even just the Knicks, up for sale. If the right investor showed interest in this badly underperforming franchise, who knows what the sale could draw?
Even if they could just play a few home games in the playoffs -- once in a while -- what kind of revenue would that drive? How much more "stuff" could they sell?
Ever see New York City in the spring when the Knicks are good? It's been a long time, but I do remember.
This town wants to be a "basketball town.
What I see with MSG is a stock currently in a battle to maintain trend (the orange pitchfork). Positive earnings on February 7 would help. So would rumors of a sale of either sports team for a huge dollar amount. Even with just a spinoff, with the Dolans running both businesses, there is certainly momentum.
What happens if earnings stink, or there is no payday on the way in the short-term?
The stock’s 50-day simple moving average (SMA) currently stands at $288.73, the 200-day SMA at $283.47, with a 38.2% Fibonacci retracement level hiding at $284.91, right in the middle. That is where I would look for technical support.
Know what? I think I may have just talked myself into buying a few of these shares. I do want to own a small piece of "the Garden" even if my teams stink. I will wait for you to read this first.
Eddie!! Eddie!! Eddie!!
At the time of publication, Guilfoyle had no positions in the securities mentioned.