Madison Square Garden Entertainment plans to spin off its entertainment outfits

The board of Madison Square Garden Entertainment announced today that it is looking to spin off its live entertainment unit, which would include, MSG Network, NYC's Madison Square Garden, Radio City Music Hall, and Beacon Theatre.

According to MSG, a deal would create two publicly traded corporations by dividing the live entertainment and MSG Networks operations from MSG Sphere and Tao Group Hospitality. No deadline was given for a potential transaction.

Together with its local sports and entertainment networks, the new entity would also be in charge of the Garden's licensing deals with the New York Knicks and the New York Rangers.

The only businesses left under MSG Entertainment would be Tao Group Hospitality, which operates restaurants and nightclubs globally, and MSG Sphere, which consists of "multi-sensory" performance venues, with the first one now being built in Las Vegas.

“There can be no assurance that the proposed transaction will be completed in the manner described above, or at all. The Company has not set a timetable for completion of this process. Completion of the transaction would be subject to various conditions, including certain league approvals, receipt of a tax opinion from counsel and final MSG Entertainment Board approval,” according to a statement issued by MSG Entertainment.

In extended trading on Thursday, shares of Madison Square Garden Entertainment increased by almost 7%.

Live entertainment and in-person encounters are and will always be a human being's basic needs. The venues owned and operated by MSGE have contributed to the creation of some of the most recognizable global brands and are frequently on the bucket lists of many tourists. The most esteemed platform for live events, MSGE has a long history of effective marketing, ticket sales, and venue operations.

Top-tier entertainers and artists are eager to appear for MSGE, resulting in an increase in patronage and sponsorships. Additionally, many clients present chances to use data to track market trends and make quick judgments. Overall, MSGE is the owner of distinctive trademarks and intangible assets that should prosper in the future.

MSGE is controlled by the Dolan family, which also supervised the division of its entertainment and sports holdings in 2020. Since then, MSG Sports and MSG Entertainment have traded independently. Prior to selling Cablevision to the French firm Altice in 2016 for $17.7 billion, the family's main concentration had been on cable TV.

The Forum in the Los Angeles neighborhood of Inglewood was purchased by ex-Microsoft CEO and Los Angeles Clippers owner Steve Ballmer for $400 million by MSG in 2020. Ballmer's intentions to construct a new arena for his NBA club, which has shared Crypto.com Arena (formerly known as Staples Center) with the Lakers since that structure's opening in 1999, were greatly aided by the completion of that deal.

Spinoffs have historically given shareholders more concentrated corporate strategies and improved flexibility for growth. The companies involved frequently beat the market, but so far MSGE hasn't done so because its stock price has underperformed the S&P 500 and the COVID pandemic is hurting sales.

The Madison Square Garden has a tax-assessed value of at least $1.2 billion (several analysts have suggested $2 billion). The Chicago Theater cost $4 million to build in 1921, which is equivalent to $58 million now. Therefore, the combined value of these two venues will be at least $1.26B, as at January 2022. They are well worth the higher price tags, especially in light of their distinctive designs, history, and settings. The current real estate property inflation will raise the value of these assets as well.