James Dolan, the owner New York sports fans love to hate, last year sent hearts racing and his company’s stock soaring when Madison Square Garden Co. said it would spin off the Knicks and the Rangers into a separate corporation by the first half of 2019.
Some analysts speculated – and fans fervently hoped – that the spinoff would be a prelude to Dolan selling part or even all of his stake in the beleaguered basketball and hockey teams. Dolan insisted he had no intention of selling. Last October, MSG said it had made “important progress” with the spinoff by filing a confidential registration statement with securities regulators.
But summertime has come and nearly gone with no sign of Dolan easing his grip.
MSG, however, did today report higher-than-expected construction costs for a cutting-edge entertainment venue and lower-than-expected revenues due in part to the Knicks and the Rangers missing the playoffs again.
“The higher budget and the lack of MSG Sports spinoff details … may temporarily weigh on MSG shares,” wrote Evercore ISI analyst David Joyce in a client report.
Weigh they did. MSG’s stock dropped by 9% today, hitting its lowest point since early January.
MSG said it remains firmly committed to spinning off the teams early next year. "We know this is taking longer than expected," President Andrew Lustgarten said on a conference call.
The big headline to emerge from the Garden’s quarterly earnings report, at least for the financial community, was that the company has budgeted $1.2 billion to build the MSG Sphere in Las Vegas, or up to $400 million more than Wall Street had expected and below the $1.7 billion estimate of contractor AECOM. The MSG Sphere is an 18,000-seat performance palace whose look owes a debt to Buckminster Fuller’s geodesic domes. A second sphere is planned for London.
Assuming it ultimately costs $2.8 billion to build both, Joyce said, Dolan could pay for the projects with MSG’s existing funds and by raising another $1.8 billion by selling one-third of both the Knicks and the Rangers. In other words, the more expensive the spheres get, the more likely Dolan would be to raise cash by selling his teams, putting fans who want him out in the odd position of rooting for project-cost overruns. It's not easy being a Knicks fan.