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Madison Square Garden

Investment Thesis

Madison Square Garden (NYSE: MSG) is a publicly traded holding company. MSG owns: the Knicks, , Madison Square Garden Arena, the MSG & MSG+ cable networks, the Radio City Rockettes, and several other sports and entertainment assets. MSG is an opportunity to own world-class assets at a significant discount to fair value. Our valuation is based on a sum-of-parts asset valuation, with an upside value of $107, base case value of $83, and downside value of $59. We purchased shares at $55 or a 34% discount to base case value; current stock price is $62 per share. We believe the market is mispricing MSG due to temporary factors and concerns that management will not fully realize the asset values. MSG has downside protection given its valuable assets, leading to a favorable risk-reward tradeoff.

History

MSG’s history dates back to 1879 when the first Madison Square Garden arena opened in . Over the ensuing decades, new versions of the Garden opened, as well as other owned venues. In the 1920’s, the Rangers became an NHL franchise and won its first . In the 1930’s the Knicks became an NBA franchise. Between the 1960’s and 70’s, MSG launched its first cable network, the Knicks won its first NBA championship, and the Garden hosted the “Fight of the Century” between Muhammad Ali and Joe Frazier. In the 1990’s and 00’s, the WNBA’s , , Wang Theatre, and the joined MSG. In February of 2010, Madison Square Garden was spun off from as a publicly traded, standalone company.

Advantages

 World class assets including the NY Knicks and NY Rangers  Recently completed the $1 Billion “Transformation” of Madison Square Garden  Significant barriers to entry with MSG media networks & sport franchises  100% Ownership of MSG Arena, land, & air rights  Strong balance sheet; no debt Risks

 Capital allocation decisions of management; focused on reinvesting in growth, not returning capital to shareholders  Unknown motives of the controlling shareholder, the Dolan family  Work stoppages in the NBA and NHL  Unequal voting rights for non-controlling shareholders elgethuncapitalmanagement.com 1

Madison Square Garden Segments

MSG Sports (31% of Revenues)

MSG owns four sports franchises: the (NBA), the New York Rangers (NHL), the New York Liberty (WNBA), & the (AHL). The Knicks are the most valuable NBA franchise and the Rangers are the 2nd most valuable NHL franchise (source: Forbes). New York is the largest media market in the U.S. and the ability for a new NBA or NHL franchises to enter the New York market is extremely limited, giving these franchises a tremendous competitive advantage with the high barriers to entry.

MSG Sports also produces other famous athletic events, including championship boxing, NCAA tournaments, the NFL draft, the Jimmy V classic, and the BNP Paribas Showdown tennis event.

MSG Media (50% of Revenues)

MSG Media primarily consists of the MSG and MSG+ cable networks. These networks showcase games from seven franchises: the Knicks, Rangers, Liberty, , Devils, , and the NY Red Bulls. MSG is the regional network for the (NFL) as well as the cable provider for top NCAA football and basketball conferences. MSG Media delivers over 700 live sporting events and 3,100 hours of live programming each year. These networks reach 8 million subscribers in the New York region.

MSG Media is the most valuable asset of the company. MSG and MSG+ have a tremendous advantage in broadcasting the best sporting events in the New York area, allowing the company to leverage the popularity of its sports franchises and live events. The New York media market is a valuable market given the of subscribing viewers as well as the excellent reputation of the Knicks and Rangers.

MSG Entertainment (19% of Revenues)

MSG Entertainment produces some of the most popular live entertainment events in the U.S. The most popular event is the Radio City Christmas Spectacular, featuring the Rockettes, which is the top grossing live holiday show in North America. MSG operates Radio City Music Hall and owns Madison Square Garden Arena, the Theater at Madison Square Garden, the Beacon Theatre, the Forum in Los Angeles, and the Chicago Theatre. These venues have incredible brand recognition and familiarity. MSG uses these venues to host music and live events, ranging from Bruce Springsteen, Sesame Street Live, Wheel of Fortune, the Tony Awards, & Cirque du Soleil.

MSG just completed the “Transformation”, involving a $1 billion investment into Madison Square Garden Arena. We believe the investment will drive future revenue and profits. The temporary drop in earnings due to the Transformation has been one reason the company has traded below intrinsic value. We believe the renovation will drive growth in cash flow.

Overall, these segments highlight a critical part of any investment: the quality and sustainability of the assets that generate earnings and cash flow. We believe the replacement value of MSG’s assets are well above stated balance sheet value. In addition, these assets are hard to replicate and competitors will find it extremely expensive and challenging to enter with a new franchise, cable network, or venue in the New York Area.

Management

MSG is majority owned and led by the Dolan Family. Collectively, the family owns 69% of the voting . MSG has two share classes, and the Dolan family owns 100% of the Class “B” shares and 1.7% of the class “A” shares. The Executive Chairman, James L. Dolan, is also the CEO of Cablevision, the former parent of MSG. We think it’s a clear positive to see the family own such a large stake in the company. Although there are downsides to a large majority owner, we applaud that the family has “skin in the game” and is subject to similar upside/downside as shareholders. In our opinion, the best alignment of interest is to have management own a significant equity stake in the company.

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Balance Sheet/Downside Protection

MSG’s has a solid balance sheet. The company carries no long-term debt, has $1.3 billion in PP&E, and just under $1.0 billion in intangible assets. The balance sheet undervalues MSG’s major assets as the balance sheet value for all MSG’s sports franchises is under $100 million while we estimate the value of the Knicks alone to be nearly $2 billion. The land and buildings listed on the balance sheet have a book value of $873 million while we estimate the value over $2 billion. The company funds all capital expenditures with organic cash flow. Given the completion of the “Transformation”, future free cash flow generation should accelerate, further cementing an already strong balance sheet. We place significant value on assets that exists today, rather than relying on future growth that may not materialize.

Conclusion

MSG is a unique collection of assets and realizes incredible benefits from owning all three drivers of the value chain. MSG succeeds by owning the sports franchises, apparel merchandising & ticket revenue. MSG also captures the media distribution throughout the region with its cable networks. Finally, MSG owns the actual venues and arenas that enable these franchises to be successful. The combination of all three segments enable MSG to capture value across the media spectrum. MSG’s assets are hard to replicate, exhibit substantial barriers to entry, and have brand name recognition that is unrivaled in other media markets. MSG is a great example of what Elgethun Capital looks for in a business: strong balance sheet, valuable & irreplaceable assets, management with “skin in the game”, and a company that is typically ignored by Wall Street due to its unique structure of assets and ownership. These attributes provide the foundation for positive investment returns, while limiting downside risk.

Valuation Summary

We did not include detailed valuation metrics used per asset in order to publish within our desired three-page limit.

MSG Valuation (in millions) Valuation Metric Best Base Worst

NY Knicks Multiple Comps / Franchise Value $1,800 $1,500 $1,200

NY Rangers Multiple Comps / Franchise Value $563 $500 $450

MSG Stadium + Air Rights Replacement Cost $2,000 $1,500 $1,000

MSG Entertainment Book Value of Assets $275 $275 $275

MSG Media 12x/9x/6x EBITDA Multiple $4,140 $3,105 $2,070

Total Segment Value $8,778 $6,880 $4,995

Net Cash / Liabilities ($404) ($404) ($404)

Total Equity Value $8,374 $6,476 $4,591

Diluted Shares Outstanding 77.8 77.8 77.8

Equity Value per Share $107 $83 $59

Disclaimer

The discussion of portfolio investments represents the views of the investment manager. These views are current as of the date of this commentary but are subject to change without notice. As of the date of this publication, Elgethun Capital Management has a position in the security mentioned herein and may purchase or sell shares at any time without notice. All information provided is for informational purposes only and should not be considered investment advice or a recommendation to purchase or sell any specific security. Security examples featured are samples for presentation purposes and are intended to illustrate our investment philosophy and its application. While the information presented herein is believed to be reliable, no representations or warranty is made concerning the accuracy of any data presented. Portfolio composition will change due to ongoing management of the portfolios. References to individual securities are for informational purposes only and should not be construed as recommendations by Elgethun Capital Management or its members. elgethuncapitalmanagement.com 3