Apple – Knicks owners flirt with Humpty-Dumpty capitalism
New Yorkers may not all love the way the Dolan family manages their hometown sports teams, Manhattan athletic icons the Knicks and Rangers. Now some on Wall Street are growing uneasy with the way the Dolans run the companies behind the cable networks that broadcast their games, legendary venue Madison Square Garden, and even Radio City Music Hall’s kick-dancing Rockettes.
Having unraveled a conglomerate that included these Big Apple goodies into three public companies under their control, the Dolans are now trying to crunch two of them together again. On Monday, Dolan proxies tried to explain the merits of reuniting MSG, the stadium, with its associated TV stations. So far, it has not been a fan favorite: The values of MSG Networks (MSGN.N) and MSG Entertainment (MSGE.N) have shed 23% and 28%, respectively, since talk of the merger – unveiled on March 26 – leaked.
It’s an about-face for the Dolans, who had been busy dismantling their empire. In 2015, they hived off the sports teams and entertainment entities from the networks, which carry Knicks and Rangers basketball and hockey games, respectively. Last year they split the teams from their venues, restaurants and nightclubs, leaving them with three companies: MSG Sports (MSGS.N), MSG Networks and MSG Entertainment, in which they hold less than a third of the economic value and over 70% of the vote.
To see them cramming another reshuffle down investors’ throats is harder to watch than another failed Rangers playoff run. It’s not clear, for example, why putting the cable channels back with the entertainment venues makes sense, though their cash flow of more than $200 million may shore up MSG Entertainment, which lost $250 million last year thanks to the pandemic.
Minority investors who’d like to see MSG’s companies focused on their individual businesses, rather than assisting the Dolans’ other forays, are stuck in the bleacher seats. They’ve watched as MSG Entertainment stock woefully underperformed rival Live Nation Entertainment (LYV.N) over the past year. Like a poorly coached hockey team that never wins the Stanley Cup, that may just be the price spectators pay for crummy governance.
Follow @jennifersaba on Twitter
– Madison Square Garden Entertainment held an investor meeting on May 10 regarding its proposed acquisition of MSG Networks.
– The two companies announced on March 26 they planned to merge in an all-stock, fixed exchange ratio transaction. MSG Networks shareholders would receive 0.172 shares of MSG Entertainment Class A or Class B common stock for each share of MSG Networks Class A or Class B common stock they own.
– The exchange ratio is 4% above the ratio of the unaffected closing stock prices of the two companies on March 10, the last day before press reports speculated a potential transaction.
– In 2015, Madison Square Garden spun off its sports and entertainment businesses from its media business and changed its name to MSG Networks. In 2020, Madison Square Garden Sports completed its spinoff of MSG Entertainment.
– The companies are controlled by the Dolan family. A special committee of independent directors at MSG Entertainment and MSG Networks negotiated and approved the deal.
– For previous columns by the author, Reuters customers can click on
Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.