As the planned split of its media and sports assets continues to move forward, Morgan Stanley media analyst Ben Swinburne estimates that Madison Square Garden Co. could double the fees paid by its regional sports networks to its NBA franchise the New York Knicks.
Madison Square Garden said in October that it had authorized its board of directors to investigate spinning off into two separate publicly traded entities, Media and Live Sports and Entertainment. The live sports & entertainment company would include sports franchises the Knicks, the New York Rangers of the National Hockey League; the WNBA New York Liberty and development teams the Hartford Wolfpack and the Westchester Knicks; and its live entertainment venues such as Madison Square Garden, Radio City Music Hall and the La Forum. The Media unit would house regional sports networks MSG and MSG-Plus.
In a note to clients, Swinburne said it is likely that MSG will have to formalize its rights deals with the sports teams before the spin, estimating that the RSNs currently pay the Knicks about $50 million per year and the Rangers about $30 million. That should rise to about $100 million for the Knicks (putting them at near parity with the $110 million the top fee-getter the Los Angeles Lakers receives) and $40 million for the Rangers, Swinburne estimated.
In his note to clients, Swinburne wrote that while the rights increases should be value neutral – MSG is basically moving money from one pocket to the other – it will probably have “a relatively straightforward detrimental impact on Media's valuation (which should trade on an EBITDA and/or earnings multiple vs. public cable networks peers) but would drive a less clear lift to the Sports/Entertainment SpinCo's valuation.”
MSG is expected to complete the spin sometime later this year.