James, could I have a word?
Sometimes I think of you as the Rodney Dangerfield of investing—investors just don’t give you the respect you deserve. They’ve gone so far as to assign a “Dolan discount” to entities you control—even though long-term shareholders of both Cablevision and Madison Square Garden (NYSE:MSG) (my firm included) have been handsomely rewarded thanks to your shareholder-friendly actions. But your latest plan to build a concert/entertainment venue, the Sphere, in Las Vegas for $1.2 to $1.7 billion (and that’s just for the Las Vegas version) makes me wonder whether a “Dolan discount” is beginning to make sense.
James, you have one of the best businesses around. Madison Square Garden is far more than just the “World’s Most Famous Arena.” You own the building and 2.5 million square feet of air/development rights around the Garden; you own the Knicks, the Rangers, and the Los Angeles Forum; even Radio City Musical Hall and the Rockettes are part of your empire. To top it all off, MSG has almost $1.2 billion sitting in the bank. James, you control some of the world’s most iconic franchises and venues—so why risk it all on a high-stakes bet in Las Vegas? You have a duty to shareholders to maximize value, but a risky venture like this makes us wonder whether you’re remembering your obligations.
The way I see it, you’ve got three choices:
- Take Madison Square Garden private at a price that reflects the true value of your trophy assets. Doing so will let you pursue the Sphere project to your heart’s content.
- Sell the Knicks and the Rangers for a double win: delighting fans and turning the spotlight off yourself. As a music guy whom we’ve come to know as the front man for J.D. and the Straight Shot, you’ve never really been able to put your heart into running your teams. Forbes, which is known for its conservative valuations, values the Rangers at $1.6 billion and the Knicks at $4 billion (and only imagine how much more if the team didn’t have the worst record in the NBA). From 2009 through 2017, baseball teams valued by Forbes have sold at, on average, at a 43% premium to their estimate (I am going under the assumption that their basketball estimates are just as conservative). Even if the Knicks and Rangers sold at only a 15% premium, the company pre-tax would walk away with a cool $6.44 billion, compared with Madison Square Garden’s current enterprise value of ~$4.87 billion. Taking the remainder of the company private would let you keep chasing your dream of building new stadiums in Las Vegas and London—only this time you’d be doing it on your own dime, letting others watch from the sidelines as you join the high rollers.
- Simply walk away from the Sphere project, cutting your losses and moving on. Everyone makes mistakes, and those who recognize and face up to them earn an extra helping of respect. In fact, you could go farther still—sell the teams (knowing that the public markets will never value them fairly), then dividend the proceeds from the sale of the teams (along with the ~$1.2 billion of your current cash pile) to shareholders. You’ll be a hero on Wall Street—the man who transformed the Dolan discount into the Dolan premium.
I don’t agree with the conventional wisdom: I think you’ve done an admirable job of creating shareholder value. At Cablevision, you helped orchestrate the deal to buy a stake in Madison Square Garden—first from Viacom, and then the remainder of the company from your partner ITT, for a fraction of MSG’s current value. In 2007, when the public markets refused to value Cablevision appropriately, you tried to take the company private but refused to complete the transaction unless the minority shareholders also approved the deal. When they did not, you began a streak of creating shareholder value that would make your father, Charles (founder of both Cablevision and HBO), proud. You levered up Cablevision’s balance sheet and paid shareholders a substantial one-time special dividend, on top of a generous regular dividend. You spun off both Madison Square Garden and AMC Networks from Cablevision, then later separated MSG Networks from Madison Square Garden. To top it all off, you sold Cablevision to Altice for $17.7 billion (including debt). Bravo! Others might not be sure what to expect from James Dolan, but as a longtime fan, I know what I’m looking for—I want just one more encore.