As Madison Square Garden Explores Spin-Off, Jefferies Sees Opportunity

Madison Square Garden Co’s MSG large collection of entertainment holdings is underappreciated by investors, according to Jefferies.

Besides its namesake arena, the company counts the New York Rangers, New York Knicks, TAO Group and Radio City Music Hall among its assets. 

The Analyst

Jefferies analyst John Janedis upgraded Madison Square Garden from Hold to Buy and raised the price target from $233 to $350.

The Thesis

The company’s potential separation of its sports and other entertainment businesses is expected to be the catalyst that reduces the stock’s discount to fair value, Janedis said in a note. Of Jefferies' $350 price target, $133 is attributed to the future MSG Sports, with the rest coming from MSG Entertainment.

Recent ownership transactions in the sports world “highlight the value of these scarce assets,” the analyst said. Besides the value of teams, broadcast rights for athletic events at the Garden — which range from basketball and hockey to boxing and e-sports — are also expected to fetch higher prices upon renewal, he said. 

On the entertainment side of the business, Janedis sees TAO and The Forum to be key growth drivers over the next few years. The Sphere, a futuristic concert venue in Las Vegas that broke ground earlier this year, has the potential for tens of millions in sponsorship revenue alone, Janedis said. 

Assuming the company moves forward with its proposed spin-off plan for MSG Sports and MSG Entertainment, the latter will retain a 33-percent stake in the former.

“MSG Entertainment could sell a portion of [that] stake to raise capital to help fund the Sphere, or swap shares in MSG Sports for [MSG Entertainment] as an effective buyback,” Janedis said. 

Price Action

Madison Square Garden was trading 10.5 percent higher in the $294 handle during Thursday’s late-morning session.

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The Forum in Inglewood, California. Photo by Ritapepaj/Wikimedia.