Madison Square Garden (NYSE:MSG) stock jumped more than 10% last week after the company announced that it would divide its sports and entertainment segments into two distinct entities.
The company, of course, is named for the iconic New York arena where the Knicks and Rangers, both owned by MSG, make their home. The site has also hosted many famous concerts and other artistic events over the years.
The firm’s board of directors is now exploring methods of creating a separate company for its sports businesses, including the Knicks and Rangers. MSG currently owns the New York Liberty women’s basketball team as well, but it has been looking to sell that asset.
The other product of the split would concentrate on the entertainment business. In addition to the Garden itself, MSG owns New York’s Radio City Music Hall, the Forum outside Los Angeles, the Wang Theatre in Boston and the Chicago Theater. All of these venues have attracted top entertainment talent for many years.
MSG chief James Dolan said splitting the company in two “would provide each company with enhanced strategic flexibility, its own defined business focus and clear investment characteristics.”
Neither the Knicks nor the Rangers have seen great success in their respective sports. The Knicks have been near the bottom of the NBA for years, and the Rangers have only won the Stanley Cup once in the last 60 years.
Nonetheless, both franchises attract fanatical supporters and have prospered in the lucrative New York media market. The value of the Knicks has been estimated at $3.6 billion, and the Rangers at $1.5 billion.
Dolan says that splitting into two companies will allow each one to pursue expansion opportunities aggressively. On the entertainment side, management is aiming to open a new venue called MSG Sphere in Las Vegas by the end of 2020, with a similar project planned for London.
The long-term future of MSG stock seems rosy, but its price-earnings ratio is now a steep 68. The new arrangement will allow shareholders to independently evaluate each group of assets as they move forward.
As of this writing, Thomas Scarlett did not hold a position in any of the aforementioned securities.
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