Sum-of-the-parts analysis; Madison Square Garden (MSG)

Sum-of-the-parts-analysis: a method of investing where each individual part/company/division inside a larger company is valued individually. 

 

Let’s take real life example of analyzing a sum-of-the-parts analaysis in stock investing.

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Madison Square Garden (MSG) is one of the most famous venues in the world. It is listed on the NYSE (as of 4/15/18) at $241.48 per share. It’s market capitalization is $5.69 billion. According to its 10-K, Madison Square Garden is split into two distinct segments: MSG Sports and MSG Entertainment.

MSG Sports owns: The New York Knicks (NBA), the New York Rangers (NHL), the New York Liberty (WNBA), the Hartford Wolf Back (AHL), and the Westchester Knicks (NBAGL). In addition, it has a controlling interest in an esports organization called Counter Logic Gaming.

MSG Entertainment owns: Madison Square Garden, the Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, The Chicago Theatre, the Wang Threatre, and interests in a hospitality group called TAO Group Holdings LLC.

So, how is MSG an asset play? Let’s take the two sports teams almost everyone knows – the Knicks and the Rangers. Sports teams inside publicly traded companies are wonderful – every year magazines publish each team’s updated worth. The good news, magazines are BAD at valuing sports franchises. How is this good news?

Sports teams typically sell at a premium to their stated worth. For example, in the early 2000s Jeffrey Loria purchased the Miami Marlins for just under $160 million. In 2017, the Marlins value was pegged around $950 million. That same year they sold – for $1.2 billion. This is not an isolated incident, even in distressed selling situations, professional sports franchises almost always sell above estimated value.

In 2018, the value of the Knicks was listed as $3.3 billion and the Rangers $1.2 billion. On a sum of the parts basis, this means that inside the $5.69 billion market cap of MSG stock, $4.5 billion of it is just two sports teams. This leaves a remaining market cap of $1.19 billion which accounts for some of the world’s most popular venues: Madison Square Garden, air rights over MSG, The Chicago Theatre, Radio City Music Hall, and the Beacon Theatre to name a few. MSG is not overly burdened with debt – it has only $105 million of long-term debt on their balance sheet. Overall, it looks like their extremely valuable assets heavily outweigh their manageable debt.

The math looks even more favorable when assessing the New York real estate market. It would cost over $5 billion to replace the current MSG in New York. On top of this, MSG is expanding internationally to London with their London Sphere Venue.

It’s up to the individual investor to decide with asset plays. Assuming the Knicks and Rangers are valued correctly (probably only the low side if history is any indication) – would a private buyer purchase MSG for only $1.19 billion? Objectively, MSG looks cheap on paper.

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