MSG updates on Sphere projects as spin-off plan revised

The Madison Square Garden Company (MSG) has revealed that its board of directors has approved a revised plan for the proposed separation of its sports and entertainment businesses, while its planned MSG Sphere arena in London is expected to open later than initially planned.

The sports and entertainment giant, which owns the eponymous Madison Square Garden arena in Manhattan, is planning new arenas in Las Vegas and London. MSG said “significant” progress has been made on the Las Vegas project, which it hopes to open in 2021, but the London arena – set to be located near the Olympic Park in Stratford – continues to move through the planning application process.

MSG said it remains focused on incorporating learnings from the Las Vegas project in London and as a result it is no longer possible for the latter to open a year after the Vegas Sphere arena.

The company added that the evolving timeline for the London project will enable its new standalone entertainment company to provide the necessary financial flexibility to pursue venue expansion plans without the need for the retained equity interest in the sports company, while also eliminating any potential tax leakage with the sale of the retained interest in the sports company.

MSG is pursuing a spin-off of its entertainment businesses into a separately traded public company and the proposed transaction is expected to be completed during the first quarter of 2020, subject to certain conditions.

MSG had previously been exploring plans to spin off around two thirds of its economic interest in its sports businesses to shareholders, with the entertainment company to retain an approximate one-third interest in the sports company. Under the revised plan, the transaction would be structured as a tax-free pro rata spin-off to all MSG shareholders, through with each shareholder would continue to own their current economic interest in both the sports and entertainment businesses.

James L. Dolan, executive chairman and chief executive of MSG, 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.”

MSG owns the New York Knicks NBA team and the New York Rangers NHL ice hockey franchise, which both play at the Manhattan arena. MSG also owns The Forum, a multi-purpose arena in Inglewood, California.

MSG hopes the new pure-play sports company will reflect the financial performance of its sports businesses, which are driven by the Knicks and the Rangers. The entertainment company would capitalise on opportunities for growth such as venue expansion relating to the Sphere initiative.

The sports company would include the New York Knicks and its development team the Westchester Knicks; the Rangers and its development team the Hartford Wolf Pack; Knicks Gaming, the esports franchise of the NBA team; a majority interest in the Counter Logic Gaming esports organisation; and MSG’s training centre for its professional sports teams in Greenburgh.

As well as the planned MSG Spheres, the entertainment company would include the Manhattan arena, Hulu Theater at Madison Square Garden, Radio City Music Hall and Beacon Theatre; The Forum; The Chicago Theatre; the company’s bookings business, which would include the bookings of the Knicks and Rangers; productions, which include the Radio City Rockettes and the Christmas Spectacular; majority interests in the TAO Group hospitality company; Boston Calling Events; and around $1bn (£781m/€906m) cash on hand.

Image: AECOM