Dear Oprah: Forget The Clippers, Buy The Knicks

MSG
This is my latest research article. The sale of the Clippers is taking all the attention. MSG is the company the buy and has been overlooked. Below is an extract of my research. Click on the Seeking Alpha link for the full research and this one is a free article.


 

Reposted from Seeking Alpha
By Brian Langis

Dear Mrs. Winfrey,

I’m disappointed that you couldn’t buy the LA Clippers. I am sure you would have made a great owner and you would have been the perfect response to the Donald Sterling debacle. However, I am delighted to inform you that I have found a better opportunity for your billions.

First, let’s start with a refresher. How did the Clippers get away? It’s probably mentally destabilizing knowing you couldn’t buy something. The press coverage of the LA Clippers has focused on its gargantuan sale price and its highly publicized list of celebrities, billionaires, and crowdfunding projects that have expressed interest in buying the LA Clippers. In the end, it was your pal on the Bloomberg Billionaire list, Steve Ballmer, the 39st richest man in the world, who bought the team with his $2 billion bid. This represents 10% of Mr. Ballmer’s net worth and turns out to be an expensive asset diversification strategy. Unfortunately, Mrs. Winfrey, there was a good chance you were going to overpay when Frankie Muniz (Malcolm in the Middle) announced he wanted to buy LA’s B-Team. The circus might be explained in part by the $2 billion sale price. That price is very mesmerizing since the Clippers spent the last three decades rotting in the shadow of the glamorous Lakers until recently thanks to Chris Paul and Blake Griffin. Also, for $2 billion, the Staples Center is not included since it’s owned by AEG (don’t worry Mr. Ballmer, Sterling negotiated a good cheap lease).

Forget the Clippers, a better place for your savings is to look at the Madison Square Garden Company (MSG), which owns the New York Knicks and has a stronger underlying business. MSG is more than just “The World’s Most Famous Arena”, it’s an entertainment juggernaut that contains a diverse collection of trophy assets and iconic brands such as Knicks, The New York Rangers, the Rockettes, the Radio City Christmas Spectacular and a variety of other entertainment assets. The best part is that the sports teams are not even the most valuable part of the business. There’s also a very lucrative media division that’s throwing off of lot of cash. Buying a fractional interest of the MSG Company is a much better investment than throwing your hard earned billions at the Clippers.

(Side note to Oprah: The NYR are battling for Lord Stanley’s Cup. Please note that I’m not jumping on any bandwagon and this is not a cheerleading article. I’m not a Knicks or a Rangers fan, I’m a Habs fan).

Investment Thesis
While the sale of the Clippers is making headlines, the MSG Company is under the radar. The purpose of this research is to demonstrate that MSG is currently undervalued. A sum-of-the-parts approach suggests that MSG is worth much more than the current market price. I believe the market understates MSG’s cash flow potential and its collection of trophy assets.

Based on my valuation, the implied intrinsic value of the Madison Square Garden Company is in the range of $6.4 and $7.5 billion, or $84 to $97 per share, this implies a potential upside of 50% to 74% from the current price of ~$56.

There are many catalysts that could unlock the value. A combination of increasing free cash flow generation, a “new” renovated Garden, issuing a regular dividend, announcement of share buybacks, a championship run, a new superstar, higher sports media right fees, extended labor peace, a growing international business, a buyout offer, a spin off of the real-estates or different segments, or a take private transaction could fuel the MSG Company upward. Also, the sale of the Clippers should be beneficial on the valuation of all the NBA teams, especially an iconic team like the Knicks. It’s in the best interest of the NBA and its owners to have immense sale prices. That helps drive up the sale of the next team.

Oprah, with MSG trading at approximately $56 a share, it’s a nice entry point to stash your billions. Today, you can buy a fractional interest of MSG via Class A shares on the open market without having Justin Bieber in the way. However, there are other people in the way. In case you decided to buy the entire company, you might have to wrestle for power from the Dolan family since they still control MSG via super-voting shares (they own all the Class B shares). I saw your show and what you are capable of doing. If you can work with Lance Armstrong, I’m sure you can also stage a sit-down interview to loosen him up (James Dolan) to the possibility.

Business Description
MSG Summary

 

 

 

 

 

 

 

In its annual report, the Madison Square Garden Company is described as a fully-integrated sports, media and entertainment business. The company is comprised of three business segments: MSG Sports, MSG Media and MSG Entertainment. The divisions are strategically aligned to work together to drive the MSG’ overall business which is to create, produce, and present content and distribute it through its programming networks and other media assets.

MSG COMPANIES
Source: MSG 2013 10-K, Page 4

  • The MSG Sports segment owns and operates the New York Knicks, the New York Rangers, the New-York Liberty, and the Hartford Wolf Pack. MSG Sports also presents other live sporting events.
  • MSG Media includes MSG, and MSG+, MSG HD, MSG HD+. Fuse was recently sold to SiTV/NunoTV (backed by Jennifer Lopez) for $226 million in cash and 15% equity.
  • MSG Entertainment has a live entertainment portfolio, such as concerts and special events. The segment also operates leading venues such as the Madison Square Garden, the Radio City Music Hall, the Beacon Theatre in Manhattan, the Wang Theatre in Boston, the Chicago Theatre and the Forum in Inglewood, Calif.

This is the introduction. The rest of the research is on Seeking Alpha, here.

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