MSG Entertainment suffers from ‘the Dolan discount,’ analyst says

Boyar Value Group principal Jonathan Boyar joins Yahoo Finance Live to discuss the spinoff of Madison Square Gardens Entertainment and what it means for shareholders.

Video transcript

BRIAN CHEUNG: Well, a potential spinoff coming at Madison Square Garden. We're not talking about the Knicks going to the G League-- a little bit of a dig there. The Madison Square Garden Entertainment Board of Directors has authorized management to explore potential spinoff options in an effort to create a separately traded public company comprised of just the live entertainment business. Now, that would include valuable long-term arena license agreements with the New York Knicks, and of course, the New York Rangers.

Joining us now to break this down is Jonathan Boyar of Boyar Value Group principal and host of "The World According to Boyar" podcast. Great to have you on the show today. This is a complicated story. Can you just kind of explain to us exactly what the proposal is here in terms of the spinoff and whether or not, in the end, you think that would be good for Jim Dolan's business?

JONATHAN BOYAR: Yes, first, thanks for having me on the show today. I really appreciate it. And yeah, this is, I think, welcome news for MSG Entertainment shareholders. I think we have to really take a quick step back if you don't mind. MSGE is controlled by the Dolan family. And they suffer from the Dolan discount. And they've actually-- it's been unfair as investors in Dolan-controlled entities have actually made a fair amount of money investing alongside them.

And this is just one example of the way that they're trying to create value by taking-- separating assets, where you have the iconic Madison Square Garden arena, you have the Beacon Theater, Radio City Music Hall, and putting that into one company and putting a second company that's going to have their more speculative assets, like TAO Nightclub and the sphere which they're building in Las Vegas that should be completed by next year. So this is a way of simplifying the story and helping create value for shareholders.

BRIAN CHEUNG: Do you think that-- because this has led to a lot of interesting speculation about whether or not Jim Dolan could, at some point, actually sell off the Knicks and the Rangers maybe even next year. Does the spinoff kind of tell you, one way or another, whether or not that's actually viable here? Do you think that would happen?

JONATHAN BOYAR: I still think that it is a distinct possibility that when the sphere is done next year, that he will consider selling the teams. Someone could also take a large stake in Madison Square Garden sports and try and put some pressure on it. If you look at the holders of Madison Square Garden sports, the largest holder is Silver Lake, which is a big private equity firm.

An Egyptian billionaire owns about 6% of the team. So there's a lot of things that could happen. I mean, right now, the enterprise value of Madison Square Garden sports is roughly $5 billion. The Knicks alone are worth well in excess of 6 billion. So you're essentially getting paid to own the Rangers. So there's a lot of value still to unlock, but this shows us that he does care about shareholder value and I think is a positive sign.

BRIAN CHEUNG: And for what it's worth, reporting suggesting that MSG says that at the moment, they have no plans to sell either of the teams. Of course, we'll see if that remains the case going forward. But broadly speaking, on back on the topic of the spinoff, what types of assets do you see as kind of the more higher yielding type of higher growth opportunities in the future because if it is spun off, as you mentioned, the story is a little bit simpler, and maybe investors would see a bit of a shinier penny in one over the other types of businesses. What do you think is kind of the real crown jewel here?

JONATHAN BOYAR: Well, I mean, I think owning Madison Square Garden, the actual facility, which will be one company that also has the Beacon Theater, and it will also have Madison Square Garden, MSG Networks, which is going to be a huge beneficiary of sports-- of legalization of online sports gambling, I mean, I think those are the more predictable, better assets.

The sphere, we're really not sure what the return is going to be. We know it's going to cost about $2 billion to build. So that has a very different shareholder base that would invest in that than would invest in something that's a little more steady, such as Madison Square Garden proper. So I think it's a smart move so you can create the most value for shareholders.

BRIAN CHEUNG: There is, indeed, nothing like the garden, and that's coming from a Nets fan. Jonathan Boyar, Boyar Value Group principal and host of "The World According to Boyar" podcast, thanks so much for stopping by. Appreciate it.