Massive $10B Sale of the Lakers Emphasizes MSG Sports' Hefty Reduction in Stock Market Value
Jim Dolan must've felt a smug grin when he caught wind of the big news. As the chairman of Madison Square Garden Sports Corp., he's one of the indirect beneficiaries of Jeanie Buss selling majority ownership of the Los Angeles Lakers to Mark Walter, the CEO of TWG Global and the proud owner of the LA Dodgers, for a whopping record franchise valuation of about $10 billion.
Just like the Lakers, the New York Knicks are one of the most legendary franchises in sports, and their valuation got a significant boost by the West Coast rivals setting a new record. MSG Sports, which owns the Knicks and the New York Rangers, saw its shares soar 7% the day after the Lakers sale news came out last week.
Wall Street, however, still thinks the parent company is a cheap buy compared to the team prices calculated by Sportico in its latest NBA and NHL franchise valuations. The current enterprise value of MSG Sports is $6 billion, which is a hefty 47% lower than the $11.5 billion combined valuation of the Knicks ($8.3 billion) and Rangers ($3.25 billion).
Analyst David Joyce of Seaport Research Partners says, "MSG still trades at a great discount compared to all these team valuations. The question is, what is Dolan going to do about it?"
The combination of the Knicks coming close to their first NBA Finals appearance in 26 years and the Lakers' record-breaking sale could put pressure on ownership to shake things up as the persistent valuation gap, nicknamed the "Dolan Discount," continues to widen.
The Lakers sale is expected to finalize in the third or fourth quarter, pending NBA approval. It comes just three months after the Boston Celtics sold for a then-record $6 billion, and has made some MSG Sports shareholders more restless about unlocking the value of their investment. Boyar Value Group, an independent equity research firm, even wrote an open letter to Dolan, urging him to split the two teams into independent publicly traded companies. President Jonathan Boyar believes that separating the teams would be a clean, low-risk solution to eliminate the discount and set up the assets for a more tax-efficient sale down the line.
"This is like the minimum thing they should do for shareholders," he said. "They should really consider selling a stake to private equity to help peg a value. They would get so much money and be able to reward shareholders. It boggles my mind that they haven't done it."
Such a move would be similar to what John Malone's conglomerate Liberty Media did almost two years ago, when it spun off the Atlanta Braves into a publicly traded company. It wouldn't be the first time Dolan has restructured his businesses - most recently in 2023, Sphere Entertainment Co. was born from a tax-free spin-off of Dolan's traditional live entertainment businesses. That came three years after Madison Square Garden Co. (which is now MSG Sports) spun off its live entertainment businesses to create MSG Entertainment.
It's worth noting that MSG Sports doesn't include the Knicks and Rangers' arena, Madison Square Garden, which now operates under MSG Entertainment after the 2020 spin-off. Similarly, the Lakers sale didn't include the home team's venue, Crypto.com Arena, which is owned by Anschutz Entertainment Group (AEG). Much like the Celtics sale, the venue was excluded from the deal, showing just how much investors are willing to spend to own an iconic sports franchise.
MSG execs have expressed an openness to a minority stake sale in the Knicks and Rangers, but the Dolan family controls nearly 71% of the voting power of the teams.
"They still call the shots," Joyce added. "They're still paying themselves partly in the equity, so they want it to reflect what's it worth. Jim has mentioned that he has taken inbound calls in the past. Investors must know going in that you don't have voting control [or] much firepower."
The Knicks are coming off their best season in 25 years, and off the court, revenues reached record highs. MSG Sports is likely to have a solid fiscal year, despite the Rangers missing the postseason and revenue being offset by changes in the local media rights agreement with MSG Networks.
The parent company, which also owns minor league affiliates of the Knicks and Rangers, will benefit from shared revenues once the NBA's 11-year, $76 billion TV rights deal kicks in next season.
"I can't say there would be a line around the block because there's only a certain amount of people who could write this ticket," Boyar added. "But there would be a ton of interest if they ever put it up for sale. I'm confident they would get what the Lakers got, if not more."
Digital Bits:
- Implementing a corporate split, suggested as a primary solution by investors like The Boyar Value Group, could address the Dolan Discount and potentially boost the MSG Sports share price by separating the Knicks and Rangers' valuations.
- Enhancing transparency and focused management of each asset through the spin-off of teams could have a positive impact on investors' perception of the teams' growth prospects and operational metrics.
- Strategic sales or asset monetization of non-core assets could streamline operations, improve capital allocation, and further reduce valuation discounts.
- The combination of the Knicks' impressive performance and the Lakers' record-breaking sale could prompt ownership of MSG Sports, specifically Jim Dolan, to consider shaking things up, given the persisting valuation gap, known as the "Dolan Discount."
- Analysts like David Joyce of Seaport Research Partners suggest that Dolan should consider various strategies to close the valuation gap, such as a corporate split, selling a stake to private equity, or monetizing non-core assets.
- John Malone's conglomerate Liberty Media's spin-off of the Atlanta Braves into a publicly traded company serves as an example of a possible solution for the Dolan Discount, providing a clean, low-risk approach to eliminate the discount and set up the assets for a more tax-efficient sale in the future.
- Boyar Value Group, an independent equity research firm, urges Dolan to separate the Knicks and Rangers into independent publicly traded companies, believing this move would boost the MSG Sports share price by addressing the Dolan Discount and potentially attracting more investors interested in the media rights, business, sports, basketball, and finance interests associated with these iconic franchises in the NBA and NHL.
