Matt Franz : Zealous For Knowledge

Update On Madison Square Garden

Earlier I posted a sum-of-the-parts valuation of Madison Square Garden. A significant portion of the company’s value are the New York Knicks and the New York Rangers. Forbes estimates the value of pro sports franchises like these annually, and the new numbers are out. The Knicks¬†are said to be worth¬†$3.6 billion (+9% y/o/y) making them the most valuable basketball team. The Rangers are likewise the most valuable hockey team at $1.5 billion (+20% y/o/y).

MSG’s year-end 10-Q showed cash and equivalents of $1,125 million and long-term debt totally $105 million. Previously I said the MSG area is worth between $1.07 and $1.20 billion based on its total construction costs and tax assessment. Using the historical construction cost is more conservative, so I’ll stick with that.

There are 23.8 million shares outstanding.

Value (millions) Per Share
Knicks 3,600 151
Rangers 1,500 63
MSG Arena 1,070 45
Cash 1,125 47
Long-Term Debt -105 -4
TOTAL 7,190 302

Net, that brings the updated intrinsic value of MSG to about $300 per share. It currently trades for $210. This is about 6% higher than my previous valuation. The stock is down a hair since then.

In my last post I also estimated that the value of of MSG’s other businesses was worth about $10 per share. They really aren’t material though – no matter how you cut it, MSG is trading at 2/3rds of its intrinsic value – if you trust the Forbes valuations. Historically, teams have traded hands at a premium to their Forbes valuation.

Forbes values the Knicks at 8.5x revenue and 26x operating income. They value the Rangers at 6.1x revenue and 16x operating income. These are lofty multiples but aren’t necessarily unreasonable. You won’t find Warren Buffett bidding at these prices, but these teams represent unique, one-of-a-kind trophy assets in one of the most important cities in the world. The person who buys these will not buying them for the earnings yield.

The question is, will MSG sell these teams? And if they are, what will MSG do with the cash? Repurchase shares? Make an acquisition? Pay it out in a special dividend? I don’t have these answers, but it will be a fun story to follow if a deal does get made.

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