James Dolan Says MSG Won’t Sell New York Knicks or Rangers

There has been speculation over the years that
Madison Square Garden Sports
(MSGS), which is controlled by the Dolan family, might sell either the Knicks or Rangers—or the entire company. 

A recent New York Times profile of Dolan ignited such talk again when it quoted him as saying “I really don’t like owning teams.”

“People misunderstood my comments to the Times. I love the teams and enjoy being the owner/manager of them.” he told Barron’s. He noted that given revenue sharing and other constraints, team ownership is a relatively sleepy business with limited annual gains in net revenue and profit. He said it is hard to generate more than single-digit annual sales gains.

Madison Square Garden Sports, whose shares trade around $181, is valued at about $4.3 billion, or roughly half the estimated combined value of the two teams of more than $8 billion. The Knicks are worth $6.1 billion, based on an estimate from Forbes, which values pro sports teams annually, with the Rangers worth $2.2 billion.

One reason for the discount is that investors view the Dolans as unwilling to sell the company or either of the teams. This has contributed to what some investors call the “Dolan discount” on the stock. The company’s operating profit, at about $115 million in its fiscal year ended in June, is modest relative to its market value and investors know the big payoff from owning a sports team typically comes from a sale.

“There is absolutely no thought of a full sale of the teams,” Dolan told Barron’s.

The company has held out the possibility of selling part of one of the teams, but Dolan said it isn’t working on that now. He said the company has no need for cash and “the value of the assets keeps going up every year. What you sell today may look like a cheap price” later.

“If what they mean by a ‘Dolan discount’ is that we’re not selling. They’re right.” he said.

Some investors are happy with this approach, including Jon Boyar, a principal of the Boyar Value Group, who says investors benefit from riding with an appreciating asset.

Dolan calls MSG Sports a “safe and reliable investment for our shareholders.” The company returned $250 million to holders in the past year through a special $7 a share dividend and stock buybacks.

Dolan also said there could be an announcement before the start of the Knicks regular season of a sponsorship deal for patches on the team’s uniforms, which could be viewed favorably by investors. 

“I think we will have something to say very soon—before the start of the season,” Dolan said. The first preseason game is in early October and the regular season starts late in the month.

Uniform patches have become a lucrative revenue source in professional sports, with about half the teams in the NBA now carrying them. 

Highlighting the potential, the New York Yankees reached a multiyear deal for uniform patches earlier this year for a reported $25 million annually with Starr Insurance, a private company headed by Maurice “Hank” Greenberg, the former CEO of
American International Group
(AIG).

The Sphere, meanwhile, is Dolan’s baby and he is its biggest champion, having conceived of the idea and seen it through to completion at a cost of $2.3 billion, about $1 billion above the initial cost estimate. He has followed the construction on a video monitor at the company’s New York offices.

The arena features an advanced sound system and a massive LED screen that wraps around its interior and exterior. “I expect that people will be impressed and astonished by the technology. You’ll feel like you stepped into a sci-fi movie,” he said.

If the Sphere wows concert fans the way Dolan expects, it could lift Sphere shares, now trading around $36, by underscoring the arena’s earnings power in a tourist mecca. 

It also could allow the company to pursue lucrative licensing deals to construct more Spheres around the world, including London, where Sphere Entertainment already owns land.

“We’re enthusiastic about building more Spheres. The first step is to put out a product,” he said. “There has been a lot of interest already, but the product isn’t really real until it’s out.”

The Sphere’s opening in Vegas will feature a performance by U2, the first of 25 at the arena by the group. The company hasn’t said what other musical groups will play there, and Dolan wouldn’t comment on speculation the Eagles or Phish might be one among them.

“We do have other acts lined up, but we want to get through the opening before we get into that. You’ll hear about that in the first or second week of October,” Dolan said.

One complicating issue for Sphere Entertainment is its ownership of MSG Networks, which broadcasts Knicks and Rangers games. Like other operators of regional sports networks, it has been hurt by cord cutting.

“We have a good plan for networks and what ultimately happens—whether it is part of something else or grows organically—we’re right in the middle of (determining),” Dolan said.

MSG Networks has about $850 million of non-recourse debt that comes due a year from now and investors are interested to see how those negotiations go.

Meanwhile, MSG Entertainment, whose prime asset is Madison Square Garden, has been caught up in New York politics and the potential redevelopment of Penn Station, which sits beneath the Garden. Some local politicians want the Garden moved so that Penn Station can be rebuilt and restored to some of its splendor before its demolition in the 1960s, but there isn’t a good place to move the Garden in Manhattan now.

There have been reports the company might sell the Theater at Madison Square Garden, which is a small part of the Garden complex, to a developer for as much as $1 billion to facilitate a more modest redevelopment of Penn Station.

The city recently extended the Garden’s license to operate in its current location for five years. 

“I think New York needs the Garden right where it is,” Dolan said. He added the company was ready to work with city, state, and railroad authorities on the station’s redevelopment. 

“We will cooperate and help out with their plan,” Dolan said, but none has been presented yet.

Dolan said he plans to be in Vegas for the Sphere opening on Friday. “There isn’t anyone more excited than me. This one has my name all over it.”

Write to Andrew Bary at [email protected]