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Thursday, August 24, 2017

Conversation on $MSG

I went on Hedgeye to discuss our investment in MSG (disclosure: long). The video is ~17 minutes long; I have a feeling you'll like it if you follow this blog.

6 comments:

  1. Good job, Andrew. I'm amazed at how you are able to keep so many facts and figures straight. Me, when I learn something new I forget something else.

    What has kept me on the sidelines on this one is that I worry these pie-in-the-sky valuations are not sustainable. I understand your argument that these are finite "trophy" assets, but I fear some negative catalyst could bring the prices back down to earth (no idea what this could be though. a general recession? a drop in tv revenue, thanks to chord cutting?)

    I would have more confidence in these prices if they were backed with a reasonable cash flow multiple. Why is this collection of such incredible assets not able to generate positive earnings? It seems maybe the value gets captured by the talent (e.g. athletes, managers), so it's too scary for me!

    Good luck!

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    1. Thanks!

      I understand the "trophy drop" argument, though it's worth noting MSG Sports did $130m in operating income in 2016 and $141m in 2017, so it's not like we're talking about money losing operations here.

      On the TV catalyst- it is my main concern and it's something I didn't have time to go into on the interview. I have thought about it a lot and I fall into the camp that these are elite assets for driving viewership / sign up and tech companies will happily snap the contracts up from the carcasses of TV networks when the contracts are up (assuming the TV companies are dead / can't bid). Also, monetization sohuld continue to increase as the NBA gains international popularity.

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  2. Andrew, love the blog. This was a great interview, really enjoyed hearing your perspective on the idea. Trying to understand how we would think about valuing the arena itself.

    From your interview you noted that it was tax assessed at $1.2bn, however it seems like the forbes value for the Knicks and Rangers (albeit notoriously low balled) assigns some value to the arena already.

    Two questions: 1) do you have any sense for how forbes gets to the value attributable to the arena? and 2) are we double counting by including the arena value picked up in the forbes values for the teams?

    If we are double counting, do you think the right way to value the arena would be cap rate on NOI excl. lease payments from the Knicks and Rangers + some value for the air rights

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    1. Thanks so much.

      Forbes value does not include the arena.

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  3. Maybe I'm reading it wrong, but what is the $849mm "portion of franchise's value attributable to its arena" for the Knicks?

    https://www.forbes.com/teams/new-york-knicks/

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    1. I'm not sure, but I've talked to several people about the valuation and my understanding is this is something seperate (MSG itself is not included in the valuation). This makes sense to me- the clippers, for example, do not own their arena (in fact, their lease is considered extremely onerous) and they have ~$350m included in their valuation.

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