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Jonathan Boyar on the “Dolan Discounts” at MSGS and MSGE

Jonathan Boyar was a guest on Andrew Walker’s Yet Another Value podcast where he discussed the investment case for both Madison Square Garden Sports and Madison Square Garden Entertainment. Both were recently featured in our recently released Fresh Looks: A Special Opportunity Issue.

To read/view more of Andrew’s fantastic content, please visit his substack page.


Click Here to Read the Interview Transcript

Andrew Walker: Hello. Welcome to Yet Another Value podcast. I’m your host, Andrew Walker. If you like this podcast, it would mean a lot if you could listen, rate, subscribe, and review it, wherever you’re listening to it. With me today, I’m happy to have on, Jon Boyar. Jon is the CIO at Boyar Research. John, how’s it going?

Jonathan Boyar: Thanks for having me. Things are going really well.

Andrew: Thanks for coming on. I’m excited to have you on. I think this is your 4th appearance, actually. But I’ll get to that in a second. Let me start the podcast the way I start every podcast. First, a disclaimer to remind everyone who’s listening. Nothing on here is investment advice. Please do your own research. Consult a financial advisor. We’re going to talk about two of my favorite companies to follow. One of my favorite sports out there today. So I’ll be a little more fun than normal but please remember all of that. And then second with the pitch for you, my guest, people can go listen to your prior three appearances for a whole pitch. But you’re on today because for people on YouTube, I’m holding up right now. You came out with a Fresh Looks, which has about 15 or 20 stock companies that just reviewing them.

And the thing that was interesting to me, I put it in my monthly note last year and we were talking about before, the last time you did like an inch or a year Fresh Looks, I believe was April 2020, and then you come out with one towards the end of July 2022, which I think the markets up like 10% since then. Obviously, the markets just raced since April 2020. And I was kind of joking, “Hey, when Jon puts out a Fresh Looks, read it, don’t read whatever you want to do, but just go buy stocks because that’s when things are getting pretty hairy out there.” I read through the Fresh Looks and really enjoyed it. The thing I wanted to talk about the most in it and I think the thing you want to talk about the most in it was the Dolan discount stocks. Two of my favorite stocks are MSGE and MSGS. And I’ve rambled a lot. I’ll just pause there. Why should investors be paying attention to MSGE and MSGS right now?

Jon: Once again, thanks for having me on this. This is a lot of fun. In terms of why should they be paying attention to MSGE and MSGS, stocks are cheap. There are catalysts. They’re really high-quality assets. They’re the definition of assets that really can’t be replicated, which is something we like a lot at the Boyar Value group. Just to a quick step back for those of you who don’t know the Boyar Value group really has two arms. We manage money as an RIA, we also sell research. A Fresh Looks is one of the pieces that we recently did. These are stocks that we liked MSG just by way of background is a company that we have been following for years. Literally, since it was before I was born.

The reason why I say that is MSGS and MSGE were part of a company called Cablevision, which was one of the largest cable companies in the US and was sold to Altice, I think 2016 at a price we never thought we would get. But as I said, it was part of that conglomerate, I guess, for lack of a better word. In 2010 or so, they decided to spin out MSG from Cablevision. What’s really interesting thing to note while I was looking back, we profiled it. And Andrew, I’m happy to send you the report. We profiled MSG in March or so of 2010. The enterprise value of MSG at the time was $1.5 billion. Essentially, it consists of what is now MSGS and what is MSGE and the enterprise value of those two businesses now is roughly $8 billion.

So there’s been a lot of value that’s been created. But I still think there’s a long, long way to go. One of the reasons why these stocks are cheap, and I guess, I probably should take a quick step back and just explain what those assets are. MSGS owns the Knicks and Rangers, essentially. That’s their main asset. MSGE owns and we’ll talk about this because it’s a little more nuanced, owns what is Madison Square Garden. It owns the air rights above Madison Square Garden. It owns Regional Sports Networks. It has long-term leases and things like Radio City Music Hall. It has the Rockettes franchise, and something called the Sphere in Las Vegas. That’s just putting everything kind of on the table. Both of these companies are selling at significant discounts tool. We perceive that they’re actually worth it due to something that people on Wall Street call the Dolan discount.

And that is perceived to be the Dolan family as extremely unfriendly to minority shareholders. There are certain aspects of that that are 100% true. But over the long run investors who have invested alongside the Dolans have been rewarded. They just have to be patient, which is a problem that most people on Wall Street seem to have. I went on Bloomberg this morning, I was just kind of curious. So I looked, and it looks like Cablevision went public in 1986 and was sold as I mentioned earlier to Altice in 2016. If you include dividends, that’s Cablevision stock increased in value by 3585% percent roughly versus the S&P, which increased in value by 1900% roughly. So it’s been significant. I am not saying the S&P is necessarily the best gauge. I guess, it could’ve done a media index or whatnot, but it shows that over the long run, value has been created.

Andrew: But let me just hop in there because I think this comes to, I want to talk about all aspects, MSGE and MSGS. MSG has been a popular topic on this podcast. Chris McIntyre came on with a very concentrated pitch on them. You and I talked about when MSGE was buying MSGN and how that deal made no sense. So we’ve talked about that. But I want to start with that first point you made, right? Like, people give MSGE and MSGS a Dolan discount, and investors who have invested in the Dolan’s over time have done very well. You mentioned Cablevision, that performance is insane. MSG from 2010 to 2021 has done great. I think it’s easy to look at and say, “Hey, if we just invest and close our eyes and forget that James Dolan is terrifically mismanaging the Knicks on the court product, we will make money over time.”

Yes, that has worn out, but there’s a part of me that also wonders like Cablevision was mainly James Dolan’s dad. I also wonder if the assets are just so good. Warren Buffett’s got the thing. You want to have a company that’s so good that even a monkey can run it. Because one day a monkey will be running it, right? There’s this ham sandwich open crew but I won’t go into it. But I do wonder if these assets were just so good that they’ve just overcome how bad the Dolan’s are? And kind of blinded us to that. I’ll give two examples, Cablevision, guess what? Having the cable rights in the greatest cable boom of all time from the 80s to early 2010s and kind of tri-state area, one of the richest areas in the country, yeah, that’s probably going to be a really good business.

For the Knicks, okay, from 2010 to today, the stocks are up about 10x, I think. That’s great, but I’m just looking at the average NBA franchise value in 2010 was 350 million. In 2022 it was about 2 billion, I believe? It hasn’t really outperformed the average franchise. Five times the league’s flagship franchise kind of 10 times. It doesn’t seem it’s really outperforming just how good these assets are. Does that make sense?

Jon: Absolutely. But yeah, it’s really the only way to buy those types of assets and play that trend, at least in the public markets. I guess, if you have money, you can invest in a company called Archos, which is a PE firm that buys these things. I’m not saying that this is John Malone/Warren Buffett that is not.

Andrew: I got some problems with John Malone these days. [inaudible] [crosstalk] talking about that another time.

Jon: I’m not saying he’s Barry Diller. I’m not saying he’s whoever named your really good capital allocator. But I don’t think he’s as bad as people think. One of the things that are really worth noting is, myself included have been saying sell the teams, you’ll create value. I did a hashtag sell the team or whatever that create some traction on Twitter. But the best move he could have made or he did make is not selling the teams. He could have taken that check at getting $3 billion or whatever could the Knicks, whatever he would have gotten in 2013, 2014, or 2015. But he saw the value of sports media rights. Obviously, he could’ve seen sports gambling. That kind of came out of nowhere to some extent but that’s the sports media rights of the 2020 kind of decade. I think that’s going to really increase value.

Yes, it’s the only real way to buy these franchises. If we had a different owner, would there be this discount? I highly doubt it but that’s the opportunity. Sometimes we found that, I’m not saying he is, but some of our best investments have been investing in companies that are horribly managed because that leaves an opportunity. Not to go on a sidetrack, but just, for example. We’ve talked about Warner Brothers Discovery, right now, I don’t want to get started but one of the opportunities there is Warner Brothers has been mismanaged for, I don’t know. It’s part of AT&T. They don’t know how to run a media company and then they were part of Legacy Time Warner. They were being propped up for sale.

So that creates opportunity for Zazzle and Company who I think know how to run a media company. They’ve done it. Again, I don’t want to get sidetracked.

Andrew: I can get very sidetracked on Warner Brothers Discovery.

Jon: Yes but it’s just an example. An ideal situation is to buy, get something really cheap, great asset with a great cap allocator. How many times do you really get that? You have to kind of be willing to give on one of those things.

Andrew: Well, I think if it works for you, we’re going to talk about both MSGS and MSG. But let’s start with MSGS because I think the story is they’re simpler. I have two questions on MSGS. I’ll make it three questions. I think it’s a very simple story we talked about. Let’s just do quickly, again, for the forgotten 40 people, there’s a nice little chart here that I can cheat off of. But let’s just quickly talk to MSGS some of the parts. Basically, MSGS owns two things. They are in the Knicks and the rangers. They have a very little bit of net deck but they own the Knicks in the Rangers. At today’s share price, they’re trading about $170 per share. We can say the enterprise value there, market cap at low for billions. Let’s say 4.3 billion to make a nice even number. When I buy 4.3 billion, I’m paying for the Knicks and Rangers, what am I actually getting there?

Jon: You’re getting the Knicks and the Ranger. Believe it or not, peoplepy attention to Forbs, values, and now there’s a rival company, forgot the name of it. Basically, Forbes journalists went in and they valued the Knicks at six billion dollars. How they come up with that valuation of somewhat of black box but they come up with it. As I said, this is actually used in negotiations. In many many instances, the Forbes value ends up being extremely conservative. So for 4.7 billion or whatever it is now, you get the next which are worth well in excess of six billion dollars at least in my opinion or in our opinion. And then you get the Rangers which Forbes values at two billion dollars. I believe it’s two billion dollars. You’re basically getting paid to own the team.

So there’s some cost basis and tax issues there which we adjusted our valuation. But it’s essentially the way we look at it. It’s pretty much a double from here maybe we’re being a little aggressive, I don’t know. Time will tell. But there are things that are going to help unlock that value, I think sooner than we think. So it’s a really kind of interesting situation.

Andrew: So I think I don’t disagree with you. So I used to be very long MSGS and I kind of moved on but I always still follow it just because I don’t disagree with that Math. But when I was along it, one of the things I did was exactly what you did. I took, “Here’s the Forbes value for every sports team that has traded in the past.” I think I was 12 years at the time. “And here’s what they actually went for.” The average premium was around 28%, you mentioned 30%. The really interesting thing was the larger the city that it traded the bigger of a premium of went for. Because if you had the option if you had unlimited money and somebody said, “Hey, you can own the Knicks, or you can own the Oklahoma City Thunder.” You’re going to pay up more for the next because then you’re the face of the league.

Right now, the Thunder have a lot of draft picks though so it might be a little more fun running them. I think you see what I’m saying there. But I guess the question I would have on just a sales price is, look, if you’re talking five billion dollars plus 20% premium, a six billion dollar check, that’s different than seven years ago when it was a two billion dollar check. There just aren’t a lot of people who could write a six billion dollar flat-out check. So I guess my one question would be, on that premium, are there people around who can actually write checks that big and pay that premium? Or are they going to start running into a situation where, “Hey, the value is so big, like they just can’t get the premium that they would kind of want and deserve because there’s just not enough money out there?”

Jon: Yeah, no, that’s a great point and a fair question. One of the things that could happen is that as I mentioned earlier, private equity firms that are involved. I think I have to wait a 20% of a team in the NBA after [inaudible] what it is in the end.

Andrew: I believe that’s correct. I believe that’s correct.

Jon: So they could take stake in the team, which would help put a marker on it, which I think would help unlock value. That’s one thing that can happen. Worth noting, you look at the shareholder base of Madison Square Garden sports right now. Silver Lake, the private equity firm owns 9% of the company. I can’t pronounce his name but he’s an Egyptian billionaire. He’s an Egyptian billionaire. He owns six percent of the company. You have the Bill and Melinda Gates Foundation that up the stakes from one-and-a-half percent to 3%. And then, you have KKR owns I think one and a half percent of the company.

There are people there who as a group combined maybe it’s not one person who buys it. It’s group the way I think the 76ers went about where you get a group of people who buy this and I don’t think there’s any shame in going halfsies or thirds with [inaudible].

Andrew: What was that Jay-Z own point, one percent of the nets for a while and everyone would call him a Nets minority investor even though his ownership rounded down to what you and I have known of the nest?

Jon: Yeah, I mean, these things could happen. These are clearly big checks. There’s also people who now just have massive amounts of wealth. If Steve Ballmer wanted to buy a team today, I don’t know his financial situation, he probably could do it. He’s never said he’s shoulder share of Microsoft stock.

Andrew: Bomber owns the Clipper.

Jon: No, absolutely. I’m saying if he was going to do it again. There are people out there who could do it or you do it as a group. And I’m not saying Bill Gates doesn’t seem like that’s his personality is going to buy the team. I think it’s interesting to see that all of these long-term-oriented investors who are not necessarily trying to beat an index but are trying to make money. Silver Lake to some extent, but Egyptian guy, the KKR and these others, and Bill Gates for the foundation’s money are taking these long term use. To me, the hardest thing about investing is people because their investors for them to take short-term views and that’s why a lot of people get frustrated and put their put their hands up and will avoid the stock. But if you’re able to have that luxury of time, you could make a lot of money.

Andrew: Again, I don’t want to spend too long on MSGS because I want to talk MSG but there’s one thing that will change issues but I do just want to ask the other question on. MSGS is the big ten over, I believe it was over this weekend just got a massive massive contract from a bunch of different people. If you listen to the most recent MSGS call, I’d encourage anyone to go listen to it. It’s really interesting. They talk about great business momentum. Renewals are up 9%, double-digit increases in cap spending during the season. I think the Knicks will be better this year. The Rangers coming off a deep playoff run, I think it’s going to be really good. Sports betting is just going to be this is the first year where it’s going to be there in full. But the most interesting thing to me is if you think back to when all of the NBA teams really inflected, it was in the mid 2010’s when first Steve Ballmer bought the clippers for two billion dollars, which was way more than anyone would thought they would go for.

And then within a year, the sportswriters renewals came in with the TNT ESPN contract, and they like, tripled and no one realized how high they were going to go. And if I remember correctly, MSGS is stock. It was MSG at the time was up like 30% in three months or something on the heels of this news. I do just keep wondering. Big Ten just got that massive increase, NBA sports rights are coming up in the 25 26 season. They’re probably going to get renewed in the next 18 months. Everyone I listen to, I’m a big NBA fan, thinks that it’s going to be a big number. I wonder if the markets are a little bit sleeping on in the next two years you get a massive renewal and then Forbes comes out and says, “Hey, our value of the Knicks isn’t six billion anymore. It’s nine billion because sports rights have gone through the roof.” So I’ll just pause there and let you comment on kind of that overall environment.

Jon: Yeah, no. They get a share, I believe it’s pro-rata of the leak deals. It’s a prime beneficiary and these are big, big, big numbers. Yeah. I think that sports and news are obviously what people watch live and that’s extremely valuable for folks when they’re paying off for it will content spending moderate. I don’t know. I think it probably will. I just don’t know if it will for sports. I think if the days of, hey, a comedian 40 million dollars or whatever for a special are long gone. Netflix is not going to be doing that anymore. But these things are really valuable and that’s one of the things that’s going to drive the price of these things I think higher and higher. So that’s also another Cal. So yeah, I think it’s 2025 2026 but that will happen before then the number will be announced well in advance, etcetera or they’ll be whispers of what’s going to happen. Look what happened with the Cricket stuff in India. I mean these are huge numbers.

Andrew: Yeah, it’s the last thing where you get it and people have to appointment view it. It’s definitely the last thing where people were bothered to watch advertisements. Because you watch a game, there’s natural breaks, you kind of have to sit through it. Whereas if I’m watching Hulu, the other day, I was at my in-law’s house and Hulu with ads, and I have Hulu without ads and we’re trying to watch something at night and an ad popped up. My wife and I were like, “What is happening here?” It just totally discombobulated. Only place you’ll watch ads. Only place monoculture. Only place you bring it and 10 million hardcore NBA fans are going to subscribe to your service day one. It’s the best cost leader out there.

All right, let me do a transition question for MSGS to MSG. You mentioned Steve Ballmer and you hear lots of complaints with Steve Ballmer. His check book is so big. The Clippers can spend way too much money. The other thing is the Warriors. The Warriors and the Clippers do not care about the luxury tax apparently. For the Warriors, it’s because they built the Chase Arena and apparently that thing just mince money. So my transition question from MSGS to MSG is like MSG owns the Garden, the Garden most of the value in it, it comes from New York City. But a lot of value got the Knicks and Rangers everything. As you think longer term, I know we’ll talk air rights and I know were talking about all this. But one day, the Garden, will it be like the Chase Center where they redo it and it’s just this absolute money-making, money printing machine. Not that it’s even doing poorly now but it’s there that kind of optionality down the road.

Jon: There’s definitely an option down the road. One, they redid it. In some ways, it’s analogous to the sphere, which we’ll talk about in a little bit, where they want massively over budget and people got all upset. I think that was
around the financial crisis. I could be wrong.

Andrew: They redid it 2010 into 2011, a billion dollar spend and people were furious at the time. And I think nowadays they say, hey it was probably like a 15% IRR and everybody’s pretty happy with a 15% IRR.

Jon: So they have experience in doing this. There’s a lot of things that could happen. It seems crazy now that people are not as with New York City in the state of it, that they may be building things around Penn Station. It’s a little too complicated or too much to probably go into the whole details of what’s going on there. But there is the possibility of the Garden potentially being moved at some point in time as part of a larger strategic move. So a lot of things could happen. So, yes, you could have a redo of the Garden at some point in time.

The answer is I don’t know, but it’s certainly a possibility and that will help. Although it’s worth noting the MSG called talking about how food and beverage is really doing extremely well. All these things are doing really well. It’s now a 12-year-old arena, so it’s not the shiny new thing anymore and there could be value.

Andrew: Yeah. MSGS another thing they call out is they talk premium and I do think if you redid MSG today especially in New York City, I think there would be like just kind of more devoted to the sweets and the really high-end stuff where the money is really made. I’m no expert in stadiums. I think MSG is designed for a little bit of an older model and yes, they’ve redone it. But I think you can do a lot more with sweets especially in a city just as rich with as much finance and media, as much entertainment spend as New York City had, that would be my thing.

But let’s turn over to MSG. MSG, you and I are talking straight just under $60 per share. We can talk some of the parts. We can talk everything. The last time I think I had you on was we’re decrying how crazy the MSG NMS GE merger was. I still think it was crazy but we actually were going to record this podcast last week and then we said, “Oh, earnings are coming up. Let’s wait>” It’s a good thing we waited because MSG said they might do a spin-off coming off. There’s all this stuff going on. I’ll pause there. What’s going on with MSG? How are you thinking about that these days?

Jon: Yeah, it was very interesting. It was Thursday night going to the city with my family. I get this alert saying MSGE is now looking to do a spin-out. Essentially what they’re doing. I think it makes a lot of sense is you’re having… Basically, what I talked about with Sphere which I encourage anyone just to Google the Sphere Las Vegas. See what it is. It’s basically a state-of-the-art entertainment system. the greatest sound system and light system in the world that’s coming out in Vegas that’ll come out in the second half of 2023 it looks like at this point. It looks like it’s going to cost two billion dollars to build. I wrote out an article many years ago saying, I wish they never did this, but it is what it is. This is what you get with the Dolan sometimes.

So what they did was MSGE is separating the two companies. You’re going to have the Sphere, it’s something called Town Nightclubs, which is going to be one company, which will actually, I believe will be the MSGE company. I’m not 100% sure.

Andrew: Ton and the Sphere will stay in the current ticker is my understanding. We can talk about this is an interesting structure. They’ll spin out 2/3 of the other assets which is mainly the Garden, the Rockettes,
and the long-term lease on Radio City. I think those are the main assets that may be missing one. They’ll spin out 2/3 of that to shareholders and that will be in a new company that they’re calling I think that’s the Live Entertainment company.

Jon: Yeah, they haven’t had a name on it like that. I don’t know why they didn’t seem to call the other one MSG Sphere and this MSG entertainment. Whatever it is. But you also, in what I consider MSG entertainment would also be the RS and the Regional Sports network is another kind of major assets. I don’t think I haven’t seen where they’re putting the air rights.

Andrew: Say that again.

Jon: I haven’t seen or they haven’t announced I believe where they’re putting the air rights that MSGE…

Andrew: I could not imagine that you would spin out the Garden and not include the air rights with the actual physical property. I just couldn’t imagine you would do that but I guess there’s a chance they keep it inside.

Jon: Yeah. They just didn’t specifically call that out. I would say the logical.
It also wasn’t logical than doing the MSGN deal. There are certain things that I just rather assume nothing and just see what happens. So essentially everything in MSGE except for the Sphere and Town Nightclubs is one entity, and the other asset is the other structure.

Andrew: Yes, so let me just talk about this structure first. So they said, “Hey, we’re going to spend two-thirds of Garden, Rockettes off to shareholders and we’ll keep one-third at the Spear and Tau company.” That’s a really strange way to do it. Companies do two-thirds one-third spins. It’s more 80/20 sometimes, but it’s just strange to spend two-thirds up. Am I remembering correctly that’s originally how they were going to structure the MSG SMSGs spin and then they called it off and just did a full spin?

Jon: I don’t remember what the proportion was but I do look at it and the research service did a big report and spinouts maybe five or six years ago. Companies that retain portions on the spinouts actually do significantly better.

Andrew: Interesting. And I’m just remembering the big asset that they’re going to spin out with the Garden that we were forgetting was Networks. They’re putting Network sits in with the Garden as well but yeah.

Jon: Yeah. So I think maybe they’re keeping it. One they can always spin it out further later on optionality. If they need more cash later on, this is an asset that they could sell. I would hope that wouldn’t be the case. But they’re claiming that the MSG Sphere which is exactly going to cost about two billion dollars to build. They’re exploring for future ones more for cap light ways of doing it. I don’t know. Franchise model is the way I would put it. This is not a Burger King but I think it just might give them some optionality.

Andrew: Let’s stick with thi Sphere then because I know I’ve got a lot of smart friends who are long MSGE and the maths just hit you over the head. This is a three billion dollar EV company. A lot of the debt is at the MSGN level, not the corporate level. So they’ve got about 1.7 billion of debt. About 1 billion of that is networks that which I’m not even sure if networks covers the debt these days but we can talk about that later. But the math hit you over the head when you say, “Hey, this is a three billion dollar enterprise company.” They’re going to spend 2 billion on the garden, 1.5 of that’s already on Sphere. The Gardens almost certainly worth 2 billion. Networks, if we’re giving them full credit for the debt is worth probably 500 to a billion. Rockettes are worth 500. The math starts hitting you over the head.

So I’ve got a lot of friends here longer than just the math hit you over the head thesis. We didn’t even talk air rights there. But then I’ve got a lot of friends who are shorted on, “Hey, these guys are putting two billion dollars into the Sphere and they think they’re going to be more Spheres beyond this, what world are they living in?” This is awful capital allocation. Originally, they thought it was going to cost one point three billion dollars and it would have been a bad investment there. So I guess I just want to ask like, my two friends, some people look at asset value. Some people look, this is just lighting money on fire left and right, like how do you look at the MSGE?

Jon: When we did our valuation of the Sphere, we value it at a 50% of the construction costs. Then we put a big haircut on the cash. I forgot what percent of it to account for. As I said earlier, actually I wrote an article for Forbes three years ago saying I didn’t like this thing? I wish they didn’t do it. They have the best assets in the world minus the Sphere for entertainment? Why are they doing this? But let’s take the contrarian article part of it and maybe James is correct building the state-of-the-art menu, 20,000 seats in Las Vegas that has the world’s greatest sound, greatest lights, huge sponsorship opportunities, huge utilization. Maybe he’s right. I mean, I don’t know if it’s officially announced but it floated that U2 is going to be the opening act and that do a residency there.

Vegas is if you pick a venue for this would be the perfect one. There’s no
ROI given is I don’t think they know what it is. I think this is not good capital allocation, I fully agree. But based on kind of what you said before, they just have so many great assets that it’s hard to ignore unless you also as a physician you put it kind of accordingly. Doesn’t have to be a 10% position in a portfolio. There’s a lot of up potential upside where it could become a 10% position if all things go well. So it’s a different way kind of looking at it. So I think there are certainly issues there, but as I said earlier, the issues create the opportunity.

Andrew: Yeah. Let’s talk about another piece that has issues inside of it and that’s MSG and networks, right? So the last time you were on, they were merging MSGE into MSGN and I think both of us thought that was a terrible deal. The reason was MSGN has been a standalone RSN forever. Our argument was that makes absolutely no sense. They need to sell to a bigger company that’s kind of got an umbrella where they can go negotiate and say, “Hey, you drop us, you’re not just losing MSGN, you’re losing ESPN, you’re losing Disney,” something along those lines. There would have been massive synergies and said they sold it. They did a related party transaction, MSG MGN merge. I think they said on the queue for a call. They said, “Hey, MSGN has done its job. It got us a lot of cash flow that we directed into the Sphere.” Oh my God, I can’t believe they said the quiet part out loud.

But today, you look at MSG networks, Comcast drop them in October of 2021. Once one person drops you, you’re always worried that someone else is going to drop you. They say MSGN is going to release a direct-to-consumer standalone app, I believe in the second half of the NBA regular-season, NHL regular season. I just look at that and I say, “The best time to release an app is before the season starts.” I think there are some restrictions on why they can’t do that but I look at that, I look at Comcast dropping them, and I say “MSGN seems mismanaged these days and it seems like a really terminal asset.”

Jon: Interestingly, I think MSGN was the first Regional Sports networks or back to where you said, Charles whose 95 years old, the patriarch of the family was responsible for that. Yeah, it’s a challenge business but I would say that sports gambling is this will help them tremendously both in terms of sponsorship opportunities. It’s now I believe for MSGS their largest kind of advertising. It sports game. It’s sports gambling. Even if the Knicks are terrible, which is a good assumption. People watch games if they bet on them, higher advertising fees. I think they increased by $10 million this past year and it was a shortened season. It was the last season which was shortened.

So there’s a lot to like. I realize also your the bear case will be that DraftKings, etcetera, won’t spend as much money going forward. But, I think the sports gambling is going to surprise people on the upside for them. We talked about it before, I fully agree that MSGN they should never have done it. It was inappropriate, it’s bad use of funds. It’s just different shareholder base, but it is what it is. I mean, the only good thing to say is I own shares in both. So I kind of got both but I didn’t like it. It’s kind of funny also, I don’t know if you saw anyone who was involved, any of the plaintiffs lawyers involved in that or not allowed at Madison Square Garden.

Andrew: Say again?

Jon: Any of the plaintiffs lawyers who were suing them, are actually banned from Madison Square Garden.

Andrew: Oh, that’s hilarious. Devon Charles Oakley can’t.

Jon: Yeah.

Andrew: Banning the plaintiffs lawyers does make sense. MSGN, I am worried that it is a terminal assetb ut as you said, like, sports betting is so huge for these guys and we still haven’t even started really touching into the sports betting where like the real in-game stuff where you’re watching the game and you can just press, “Hey, I think Julius Randle is going to score a bucket on the next game.” Once you start getting that in there, the feast will be so high and like look at us, MSGN and guess what? It’s still called MSG Network, right? Every other RSN that I’m aware of, I’m sure there’s someone missing but the major RSN I’m aware of, have all rebranded to Bally’s Regional Sports networks or whatever.

It seems like there’s a hundred million dollars of very easy value going to Caesar’s DraftKings and FanDuel and saying, “Hey, right now, highest winner. We’re going to rebrand MSG Network to FanDuel Network for the next seven years. Highest bidder wins. Let’s go.” It seems like there’s 100 million of value easy there. There’s lots of value. And the one good thing that I’ve always liked about MSGN, every other RSN has about five year contract rights. If I remember correctly, MSGN has the Knicks and Rangers locked up till about 2035. That’s still 13 years, that’s a lot longer. It’s in a major market, it’s so great.

One thing I want to talk that, I think you’ve done more work than most we have talked on, the air rights for the Garden. I don’t think we’ve really talked about air rights on this show. So the Garden is on fire right now. They talked about Harry Styles going to do a 15 day tour, I think it’s the best gross that they’ve ever done in 2022. They were having the best gross, just sell out every night. So the Garden is on fire, but nobody really talks about air rights. So I just want to ask you what are we talking about wwhen we say, “Hey, the Garden’s air rights.” What’s the value? What’s the plan to develop those?

Jon: For those who haven’t really seen it or what not be, the garden is a relatively low building. They have the rights to build up. I forgot how many feet but they have 2.5 million I think of buildable feet. So they have the right to do that. Realistically, you’re not going to do that, you’re not going to have condos in touch of Madison Square Garden, I think it’ll be a little weird.

Andrew: It would be kind of cool though if you had the 30th floor apartment and during games, you were feeling the crowd scream as things are- that’d be kind of cool.

Jon: Yeah, you can. The in-laws are convoluted and I’m just doing this in a very basic sense, but you can essentially transfer or sell your rights to other people. There’s a whole movement to develop that area. The governor wants to do it. Vornado wants to do what they want to build the office towers. To me, it seemed a strange time to build office towers. It’s been going once [inaudible] city. But maybe that’s up being more forward thinking that I’m being. These are rights are very valueble. You literally can sell air. And it’s not like this is pie in the sky. There’s been transactions through the years on these things especially churches and other places of worship have sold these. So that’s something that you look at. I’ve looked at some of the sell-side reports on MSPE and this is one of my criticism of the sell-side. There’s no word of air rights mentioned there. They’re valuable. They could be worth hundreds and hundreds of millions of dollars.

When they monetize them? I don’t know. Will they? I’m not sure but it’s certainly possible. One of the things I fully agree with you, I mean, I think the MGM MSG Network kind of has a somewhat nice ring to it, but they’ll go to the highest bidder. Not saying they would do this but just think what would naming rights of the Garden go for. I mean, just think about how crazy what do they pay for I hope they got paid in advance by the way.

Andrew: Yeah. I think got 300. When crypto went through, I did the math and I was like, “Oh, the Garden would go for something for quite a bit. But I do think, you never know.

Jon: I’m not saying it’s going to happen, it’s not.

Andrew: I do think the Garden they like it kind of as a brand rightly or wrongly but it is Madison Square Garden presented by something if I remember correctly, right? It’s like MSG presented by Chase or something. I can’t remember.

Jon: They have big sponsorship with Chase but as I said, I think that’s
not going to happen but it just shows the value of it.

Andrew: I’m from New Orleans, I remember for years. It was the superdome, right? I could have never imagined this was the Superdome maybe from New Orleans over blue, but at the time was the biggest thing. It hosted some of the biggest things. And then guess what? Mercedes came along with a really big check. And they said, “Oh, now it’s the Mercedes-Benz Superdome or something.” This could be the Bindle Madison Square Garden or something. So it can definitely happen.

Jon: It’s just there’s just so many things that could go right. People are just focusing on the negatives. So that’s where…

Andrew: When I look at your valuation, you’ve got the air rights for MSG 2.5 million billable square rights at $300 per square foot, that comes out to 800 million dollars which that is a lot of money against, as I said, this is an enterprise value company of about 3 billion. So just want to ask, where did that $300 per square foot number come from?

Jon: We just look at comparable transactions that happened. Obviously, it’s a weird time to be in New York right now. The way that might be aggressive, probably is, but we also valued, as I said, the cash balance is 75% of the current cash balance. We valued that Sphere basically half of it what it cost to build. That part of it, who knows? But it’s worth a lot of money and it will one day I think be monetized and will be pretty interesting.

Andrew: Just real quickly. So, we’ve talked networks, we’ve talked Garden, we’ve talked to air rights. The other big piece, I mean I don’t think Tau is worth that much. I know they like to say, Vegas reopening it’s going to be an international business. I don’t think tells worth that much these days but the Rockettes are real brand. Every now and then, we’ll like glimpse a little bit of their financials, but what do you think the raw the Rockettes are worth inside of MSGE?

Jon: We don’t have an exact value of it but your writing is substantial. Part of their results why they weren’t nearly as good as they could have been for the years, seems like a long time ago, but a large percentage of the Rockettes shows this year were cancelled because of Omicron. [inaudible]

Andrew: It’s so easy to forget, it’s like forever ago. But I remember when the press release came out, it was like December 7th or something and said, “Hey, we have to cancel the rest of the Rockettes show for Omicron.” The Rockettes run from November to December. They don’t run a huge amount of time. They make a lot of money in that time, but they don’t run very long. So if you cancel those shows, that’s peak earning season gone.

Jon: Yeah, there’s other things I guess you put another cities. I’m not sure what what you would do. Obviously, you want to keep it special in New York. But the Rockettes are valuable. There’s just so many assets under there. They have a stake in DraftKings. They have a stake in a kind of a micro cap company called [inaudible].

Andrew: Yes, I know [inaudible] media. Yeah.

Jon: Which we own full disclosure and full disclosure in MSGE and MSGS. I’d imagine after this conversation, you would think I do own it, but there’s a set full disclosure. So this is a lot of assets there. James could be more sinister reasons for doing it but is I think help highlighting that value of some of these assets. It’ll be interesting to see what happened and it was fascinating that post-market the MSPE was up about 16% that Thursday night. It’s now giving back more those gains then some. Bottom line’s to cheap stock.

Andrew: No, disagreement there. Let me write this up with one last question, just switching back to MSGS site. I know you cause a little bit of a stir. You went on CNBC and said, I think for years, people have kind of whispered, “Hey, Dolan’s putting the feelers out that he’s going to sell the team.” We went through MSGS and how much more value there would be if they sold the team. But you went on CNBC, and got a little bit of traction where you said, I think he might sell a team. A bunch of Knicks fan said, “Hashtag, sell the team.” I believe Dolan had leaked to the New York Post, “We’re not selling the team right now.” But if I asked you, what are the odds you and I are sitting here talking in three years, five years, seven years, and the Knicks and Rangers are still inside of MSGS as a publicly traded company with James Dolan control. What would you kind of say the odds of that are?

Jon: I don’t know what the family dynamics and how everything works in terms of estate tax but Charles is 95 years old. His family owns a substantial amount. There could be a state reasons for them to sell. It is certainly a chance but I think if you give me a seven-year number, I would say that it is well above 50% that they would sell it. But it’s hard to put probabilities on it. But I think there’s a significant chance that they sell it and I think there’s even more of a significant chance that they sell part of the team to a private equity firm to put a value on it. At the end of the day, he controls everything. But what if someone comes in and then buys a real substantial stake of 15, 20% of the team or whatnot and tries to agitate for things. I mean, it makes it very uncomfortable for him.

Andrew: I don’t disagree with anything but the most interesting thing you said in there, which I hadn’t really thought about is Charles is 95. After he passed away, the most common things and family ownership when you own a sports team is after kind of the patriarchy pass away, a lot of agitation for change and especially, I mean, I think the Dolans have plenty of money after the Cablevision sale. But that MSGS take is going to be worth a lot, and it doesn’t pay out any cash flow, right? Well, the Dolans pay themselves pretty nice board fees, but that pales in comparison to what if they sold and they didn’t have to have all their friends being like, “You guys suck as owners” behind their back all the time. There could be some really interesting family dynamics there and I’d almost be curious to go higher or like inheritance lawyer or something to go dig through and say, “Hey, how vulnerable is James going to be once dad passed away?” Because you see that a lot. I mean, the bus family had a lot of dynamics there, they managed to Lebron’s Lakers but there were some weird dynamics there.

Broncos sold or maybe will sell after their patriarch had died. Even the Allen Family, rumors a lot of those assets for sale. And trust me, the Allen family was not hurting for money.

Jon: Yeah. There’s a bunch of siblings there. I think James has veto rights on it. I could be wrong,but I believe that’s how it’s set up. But their family dynamics can create a lot of strange things. So there’s a lot of optionality there. As I said before, this is not an instant gratification stock, but for people who are patient and you look at some of the investors in both MSG MSDS, besides the ones I name, you have Mario Gabelli. You have the folks at aerial, some of the best investors that I know. Very long-term patient investors. Those are the top shareholders and one or both companies. So I think it’s worth if you have more than a year time frame. It’s worth taking a look at.

Andrew: Are you basketball fan?

Jon: I am, I mean, I watch but not a huge fan.

Andrew: I was just going to ask. Do you want the Knicks to trade for Donovan Mitchell? And you can say I’m not super up to date on that.

Jon: I’m not up to it, I couldn’t give you an intelligent answer. It’d be nice if Lebron James was on the team. Besides that, I…

Andrew: You just reside with the Lakers so I don’t like that’s happened. But I know my listeners only listen to me for my takes on basketball. I will be apoplectic if the next trade all of the graphics and everything for Donovan Mitchell, but I think is very overrated. I’m willing to wait one more year and play out free agency next year but that is just. It wouldn’t be bad to make a playoff run but I would not be a big fan of that, but cool.

Hey Jon, this was great. Again, Jon came on because he just put out a fresh look on through the link, to it in the show notes. If anybody wants to check that out, everybody should follow Jon because he follows especially if you like, as I’ve said many times, if you like quality companies at reasonable prices like that is Jon’s wheelhouse. That is what Boyar does all the time. MSG, MSGS, they’re more than quality, I would say. And they’re probably more than cheap, but there are management questions. But Jon, thanks so much for coming on and looking forward to chatting with you soon.

Jon: Great. I thank you for having me. It was a lot of fun


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