Yet Another Value Podcast - Chris McIntyre thinks $MSGE is a cheap stock

Episode Date: December 14, 2021

Chris McIntyre returns to the podcast to discuss his belief that MSGE is a  cheap stock. Key topics include how to look at the Sphere, why the Dolans might not be as bad as you think, and why he thinks the company will gush free cash flow once the Sphere is completed.My notes on MSGE: https://twitter.com/AndrewRangeley/status/1469002333908606979?s=20Chris's website / presentation on MSGE: https://msgeisacheapstock.com/presi.htmlMy podcast with Jon Boyar on the awful MSGE / MSGN deal: https://twitter.com/AndrewRangeley/status/1379040448149356546?s=20Chapters0:00 Intro1:30 MSGE overview4:45 The elephant in the room: should MSGE get a "Dolan Discount?"9:30 Discussing The Sphere14:25 The cost escalation history of the Sphere27:10 What's the outlook for RSNs in general and MSGN in particular?30:30 Why was combining MSGN with MSGE the right move?33:30 Valuing MSGN given the turmoil in RSNs36:55 How does MSGN transition to a D2C world?41:50 More on MSGN's value50:05 What does the income statement look like as MSGN transitions?59:55 Valuing Tao and The Rockettes1:03:20 Valuing the Garden1:08:35 Closing thoughts and a quick SOTP

All right, hello and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have on for the second time, Chris McIntyre. Chris is the founder of the McIntyre Partnerships. Chris, how's it going? Good, good. Thanks for having me back, I appreciate. Perfect. Well, hey, let me start this podcast the way I do every podcast. First, with a disclaimer, everyone should remember nothing on here is investing advice. Everyone should do their own diligence, consult their own financial advisors. And then second, with a pitch for you, my guess, you know, people can go listen to our first podcast for the full pitch, but you're exactly the type of guess I have. You run a concentrated book. You do deep work on all the stuff you buy. And sometimes rarely, we even get you to put up a website on the stuff that you buy, which I know is

about to happen for the stock we're going to talk about today. So that all out the way, let's talk about the company today. The ticker is MSGE, Madison Square Garden Entertainment. I believe the website, it might be up when this podcast comes out or maybe a day later, but it'll be MSG is cheapstock.com. So I'll flip it over to you. What is MSG and why is it a cheap stock? Sure. And do you want me to just go straight into the thesis?

Because I know you had a podcast before. So I wanted to make sure I'm hitting on a note. Why don't you give a general overview just so people know the assets we're talking about because the story's changed a little bit and people just might not know it. You know, the last episode was 40 episodes ago. He's referring to, I did a podcast with John Boyer on MS. And MSGN and MSG, which merged now are just MSG. But go ahead, Chris.

Yeah, yeah. So MSG is a – let's skip right to the – where it's at now, not give the whole history because there's plenty of that written online. So MSG is a hold co. It's basically the Dolan families, entertainment assets that are not the NICS and the Rangers, which is ticker MSGS. Yep. So MSGE is basically four different business lines structured as a holding company.

So some of the – and the reason I highlight that is some of the – debt is bankruptcy remote and some of the assets are owned on an unlevered basis. And so simply looking at the balance sheet will not tell the whole story of what you're actually buying when you're purchasing a share of MSGE. I lump it into four different buckets. There is the Madison Square Garden Arena. There is an entertainment asset business, which is mainly the, depending on how you want to actually think about it, it's the shows that are not at the, it's reporting. it is the entertainment segment, so sorry I'm studying over it, but like, it's for our, to simplify right now, so I don't spend out of control. It is the, the other entertainment assets that they

have, like the Rockettes, the Beacon Theater, the Chicago Theater, I believe, and then the third business bucket, I would call the, and I also in that bucket, sorry, excuse me, I also would include sort of like the Tao and the other thing, which are actually reported to have release segments, but conceptually, I think you should think about them is like the entertainment. dining club sort of live assets that are not Madison Square Garden. These are the assets that have been closed for the past 18 months. Yeah, yeah. These are your not good COVID place.

And then the third basket would be the sphere, which is probably the most debated and sort of hot topic kind of item in the story, which is a large new construction in Las Vegas located on the strip. They're thinking roughly $1.9 billion, round it up to two or whatever, on a a new, should be state-of-the-art, iconic, hopefully, you know, asset in Vegas that is a large concert venue, basically, that we'll have state-of-the-art sound and all this other stuff, which we'll get into.

And then they also own the regional sports networks, MSG networks, for the Nixon Rangers along. They also have, like, a hockey package that has, like, the islanders and devils and stuff. And so that is very much a different business in the rest of it, even though they were all kind of connected to being live, entertainment asset, you know, New York sports, you know, things. And so they, they own that, which is somewhat connected to the fact that they own the Nixon Rangers. And so we'll talk about that asset after that space is what you all. You own the Garden Arena. You own a live

entertainment business outside of the arena, specifically and heavily weighted towards Tao and Lavo and these sort of like clubby restaurants that are New York and Vegas and other places. You own the sphere. And then you own the regional sports now. Perfect. So there are puts and takes to all of those different assets, right? But I'm going to start with the most obvious question. I think the question, you know, I come to this company with a lot of history. Anyone in New York, I know you live in New York too. Anyone in New York comes to anything to Dillon's control with a lot of history and angst, right? But I think the most obvious question would be, right now the enterprise value of MSG is $2.7, $2.8 billion, as you and I are speaking, right?

I don't think there's any person in the world who would look at all of the assets that the company owns and say that the sum total of them is not worth more than $2.8 billion, right? Madison Square Garden itself, which they own, might, $2.8 billion is pushing it, but it's a big majority of that thing, right? So I think this would fall into the bucket of what I think of as companies that are always undervalued. It's clear that their assets are worth more, but when people look at them, people say they're run by bad managers who are going to light money on fire. you know so we'll dive into some more of the lighting money on fire and everything going forward but as just a first take what would your response to my my pushback that bare pushback

be it's it's funny just to pause you a second is it what will be on the website and this is my slide that I've been pitching it on as I lay out the thesis and all that stuff and before I get in the details I actually pause and I'm like okay the Dolans are not as bad as you think they are you know I I said this so MSG before it spawned everything off was one of my largest positions for a long time. And I would always say the Dolans are not as bad as you think they are. And then the sphere and some of the other stuff they've done recently has kind of gotten beyond the Dolans are as bad as you think they are trained. But go ahead. Go ahead. So the way I would counter it is we could talk about what the Dolans are specifically done here.

But I think an underappreciated, if you follow like the Twitter sphere and like, you know, certain write-ups on Value Investors Club, all that kind of stuff. I think an underappreciated detail of the story is like they're building the sphere, right? And so this business is a massively cash flow negative. It has $1.3 billion in cash on the balance sheet, so that's not an issue, right? But, like, you know, they're burning cash right now. But, like, once the sphere is done, underneath this are, like, real cash flow positive businesses. And the Dolans have bought back stock.

They bought back tons of stock at MSGN, right? We can talk about whether there was a good idea or bad idea, right? Current prices, it looks bad. Doesn't mean it was probabilistically a bad decision to make in the past, right? But, like, I think it's an underappreciated detail of the story. is like, once this is done, this business is going to throw off cash and the Dolans buyback stock. And so, like, we can talk about how to value. We can talk about what we're at multiple is. We can have a portfolio discounts. I'd argue if the sphere is a success. Everyone will be talking

about how great the Dolans are and how like it takes a rare mind to take a multi-year contract. You know what I mean? Like, you know, just to back your point up, there are two recent investments that the Dolans made. It was, one, was buying the form out in Los Angeles and revamping that. And two was actually, in 2010, they did a big, I can't remember exactly how much they spent on, but it was well into the nine figures, if I remember correctly, remodel of the garden itself. And in both cases, analysts were saying, you guys are destroying so much value. These are the dumbest things we've ever seen. And with the form, they made multiples of their money on that investment.

And with the garden, the return on investment, they say, I think it's like 15% on Leverd or something. I don't know. But everyone at this point acknowledges it was a great use of. money. So, you know, when Sphere first started up, I was like, you can doubt them at your own peril because their history of buying, renovating, building stadiums is actually really good, but now I kind to fall into a different camp. To your point on valuation, they put their value, they put their projections in the proxy, right? 2025 MSGN plus MSG, they say the whole company will do $435 million in AFTax cash flow. This is under a $3 billion enterprise value. Like, that would be worth

a lot of money. Yeah, yeah. And the company is basically, there's the term loan on, and it's like also when you think about that cash flow, like the company is very conservative leverage. There's a term loan that's on the MSGN piece that they bought, because they basically just bought the stock of MSGN for 10 million shares, roughly speaking. Yep. And so that term loan basically done, doesn't, hasn't changed at all, right? But like, if you think about it, like, depending on what you think of cash flow generation in the next year or two, but like, I, if you think construction costs come in roughly where they model them, right? And then you kind of just model out. You're like, you're In the end of 2023, like X the term loan that is only on the MSGN piece, this is an unlevered

asset that's going to be yielding, you know, I would think that probably it says it's like 110, 120 million or whatever of like the cash flow coming from the end piece. If I'm about like 300 million of like unlevered cash flow on like a at that price, depending on what you want to value the end piece, you know, like it's quite cheap. And like these are frankly like very leverageable assets, I would say. Yeah, something like outside of COVID, something like Madison. Square Garden, you know it's always going to be sold out. It should be a very infrastructure-like asset, right? So let's dive into the different pieces here. I think the first and the most

controversial piece, MSG might be approaching there because the deal was kind of sheet, but I think the most controversial piece for MSG is the sphere, right? And I can go through the history or I'll let you go through the history of the sphere. But let's talk about what the sphere is, what they're doing, why it's so controversial. Sure. So the history of the sphere is stuff about history, it's funny because it's only

like three years of development or whatever. I haven't been talking out of it. A rocky three years though. A rocky three.

So the the sphere is, let me think about how do you want to start with like the controversy to be like

how much they're going to spend or what actually is the asset or what do you want to talk? Whatever you think is most important,

why don't you give an overview of what the sphere is and then we can go into the controversy. So sphere is a, and I would point this out when you're thinking about like the company, it's basically an unlevered real estate development, right? So there's a big detail of the story that people miss from the time of a call center runs and all this kind of stuff. It's like very rarely do you see someone saying $2 billion into like a real estate play that's a theater. So it's not like it's on condoes, but like we constructed a large building and we did it on unlevered basis. It's not a very common thing. And so I think people might associate more risk to it than if they thought about it on levered versus unlevered type returns in these events. Yep. So the sphere is a, it's basically a concert venue located in the middle of the strip.

It's connected to the Venetian, who gave them the land, actually. And it's also going to be connected to the Sands Expo Center and all that kind of stuff. There's like Skybridge, all the stuff. What it's supposed to be is basically a state-of-the-art. It's a concert venue, and what they're saying is the concert venue has not been reimagined in a very long time. And so we are going to build a state-of-the-art concert venue with state-of-the-art, electronics, incredible sound, beam forming technology, which is this type of sound thing they're talking about, and all of this, like, super high-tech kind of stuff.

And so the kind of pitch is like, are you like an EDM fan at all by any chance? I'm not really, but I've heard it before. So the pitch is like, you go to these EDM concerts just to like sort of like zoom out and put a user experience kind of like perspective. Yeah, you go to EDM and I don't really go to that many. concert. But like you go to them and like I saw like Diplow at the Brooklyn Mirage in like September or something. During the concert, they project stuff all over the walls. Like there's like imagery and it's like it's not as much about like watching a, you know, Hendricks hit a ridiculous note on a guitar with the whole crowd. It's more like this is an experience. So this is very like DJ pre-recorded kind of music. It's not quite as in the moment with the instruments. And so it becomes a lot of experiences. So there's a lot of like, you know, stuff projected on a lot of walls.

There might be a lot of people there on some substances that are enjoying those walls more than it would otherwise. But like it has this very kind of thing. And so if you go look like on YouTube, like look at ultra music festival or like electric zoo or some of these like things, and you see these huge displays with all these light and stuff and stuff and they're like, well, that doesn't exist in a stadium because like you have to bring all that kind of stuff. You can't really, you'd have to like knock out all the sea.

You know, it doesn't really make any sense. And so part of the concept behind the spheres and so they're also going to have like, Like, we'll talk more about what they would actually have, but like what they build is a stadium. Stadium seating, right? Very normal sort of thing. Interesting shape, but nothing's going to blow your mind. There's a stage and there's seats and yada. It's an interesting shape.

And then they have connected basically a giant like, not corporate. What am I looking for? TV, right? It's basically, it is three football fields of screens, basically the same quality as your iPhone. for scale, that's about 70 times the size of an IMAX. And so it's a massive screen. It's going to have these super high. It has this technology called,

I believe it's called beamforming technology to be very specific. That's right. Yeah. And so instead of having a speaker up front in the stadium that you just blast really loud, so it's really loud in the front and like really faint in the back, right? They individually target a speaker basically at all the seats so everyone can hear it all at the same. sound quality, right? Theoretic, I'm not sure how much some of this technology is really perfectly going to work, which is a fair criticism of the project. But like, you're going to be

able to like smell stuff. The stuff will vibrate a little bit. And so it's just really immersive world you can create. And so what can you do with that kind of technology? You can, do you want to jump in there? Do you want me to keep going on? No, no. Actually, yes, let me jump in. So I think I definitely get where you're headed, right? Like, their pitch is and what you're saying and I don't disagree is, the sphere is going to be unique. It is going to be, if you are a concert, goer, they're saying it will be the best concert experience in the entire world, and that's going to be the draw. Am I kind of summing that up correctly? Yeah, yeah. I think that is basically about right. So I think the pushback would be great, but people, including myself, are worried that

they are lighting money on fire with the sphere. And there are all sorts of interesting things to the sphere. But what I point to, and I put this in my tweet thread when I was prepping to the show notice if anybody wants to go look at it, you know, when they announced the project about three years ago, they said, this project is going to cost us $1.2 billion and we're going to make a double digit return on it. And a couple years later, they come out and they say, hey, our contractor thinks it's going to cost 1.7, but that's just the contractor. They get paid on cost. We think it's 1.2. We're going to push them back. And then a couple months later go by, they fire the contractor. A couple months later go by, they say it's going to be 1.8. Today, you know, what was

supposed to open in 2021 and cost $1.2 billion when they originally projected it, today they're saying it's going to cost almost, I think it's almost 1.9 billion, and it's going to open in 2020. Now, part of the delay is COVID, but, you know, we're two years behind schedule. The money keeps going up and up. And I think people are worried, you know, James Dolan famously, he loves music. He tours, MSG, has been involved in music stuff before. He loves music. And I think people, including me, are worried that this is a passion project that is being done at all expense, at no expenses spared. And it's not necessarily, not only, is it not the best use of shareholder money? It's lighting money on fire. So what would you say

to people including me with those criticisms? I'd say the most important thing to do facing those criticisms is like look down, not up at what you're actually buying at the current price, right? Like, this is not price for refection. So I should have read a probably better job of Highlands before, but like, you own a garden on an unleaded basis. We'll talk about how in a second. Yep. But like, so you own a garden on an unlever basis, right? So it's $2.7 billion here, right? So how much are we really paying conceptually for this fear anyway? Right? So like, all right, so it's going to have cost of ruins. Maybe they're

doing it. Maybe it's a pet project. Yaddi, yeah. And I want to talk about the cost of room part in a second. But look, I make this point all the time. But like, do you know the UBS arena? I don't think so. Okay, UBS is paying like $23 million a year for you to know it. That is the Islander's new arena on Queens, Long Island, where exactly is. That's the rumor is. it's about $23 million. Crypto.com is paying, what, $700 million for 19 years, right?

Yep. I think you might have tweeted it at something? Or do we talk? You would talk about. Look, this is an asset in the middle of the strip. Like, they're going to get like 30, 50 million of, like, marketing revenue out of this thing, no matter what, I think. I think that's a very simple bet. And then you're like, all right, what else do I get out of this asset, right?

I don't know, 100 million bucks. Garden rents for something like $500,000, I think, roughly speaking, it's a good. number for a night whatever you know how many concepts we're going to do a hundred shows a year we sell you know what i mean like it you get to a hundred million dollars i think pretty convincingly um is it a fair thing to say the thing only makes a hundred million dollars it's a bust of a development project yeah that's like a lousy use of two billion dollars over with a six year development time frame like that's a terrible use of money right but that doesn't mean that like it's a terrible buy for me um yeah yep you know um and also let's pivot right there

So, what do I, let's spend it right there in like the cost side of the thing, right? Or do you want to stop for that or anything? That was perfect. That was perfect. So on the cost side of things, and what do I actually think, what do I actually think on my downside on the sphere looks like from here, right? It does do it. Like, I think we can get to $100 million pretty easily.

I don't think that's really rocket science math, right? If it does $100 million, what do I think? Do I think everyone would just be cool with that? No, I bet you we end up taking some more money into the project. You know what I mean? We have, instead of a cost overrun, we have operational overrun. The problem is this. I totally get this is sort of a distraction and potential waste of time thing, right?

But like still, you'd be talking about like $100 million of EBIT should be reasonable with pretty minimal capax, right? Even whatever kind of way you want to conceptualize it. On the cost side of it, though, and I think this is actually, I actually think you can get paid in the investment before it even never works when the costs basically kind of come in. And so one of my points I make to people is like someone was like, don't you know, like steel prices are up and you're like they've done the steel's already there who cares um right like this building had a topping off so they have something called in construction a topping off ceremony

which is the highest place beam in a building being placed they like yep had a ribbon and whatever you know uh they did that in june like it's it's pretty far along like this thing is 70 to 80 percent complete probably by now right um and then all right so where am i going to hit my cost overruns the steel in, concrete boards, where is the cost part, right? Well, we have all this, like, high-tech technology that, you know, I'm sure there's a lot of semiconductors in it, and I'm not sure if you've heard, there's apparently some issues with semiconductor capacity at the moment. Yeah, there's some weird stuff, but then I was talking over with a friend who was a, whatever

exactly his title is that, like, when Moynihan Hall was developed, he also did some stuff at the World Trade Center, and he was like, because they, the Moynihan Hall is relevant because they have, like, a lot of screens. And he was, like, like, a scoreboard for a stadium, like, is, like, six months. with minimum, like more like 12 months lead time to actually get LG or Samsung and wherever actually contracting with to like do it. This is a state of the art three football. It's like the largest scoreboards in like the world to overly simplify it, right?

They've already done the bids on it. They likely have down payments on it. The heck, it's probably already like a third constructed or a lot of the parts are made. You know what I mean? Like they're much further along in this concept. They're in this project. um and so i get con like people talk about like the sofi stadium and sort of these things is like these things are massively overrun you're like they didn't massively overrun once everything was

a report right like possibly you have to think and i don't necessarily think this is fair to talk about here because they're kind of vague and abusive or whatever but like the um where we're going um a lot of the times in these things that have big overruns like there's like a scope expansion yep right like there's a sophy stadium but there's also like you know like five thousand square feet of like right now like you know office space associated with it that's not like the stadium that's like part of this big thing you're trying to do to redevelop this neighborhood yada yada and so i think at this point farther along i think it's much more reasonable to think about almost all this stuff is contracted and like fairly decently along the line i think the

concept that's something that's 80% completed is going to have a 100% cost to have a run on the contractors installing the hand dryers i think is wildly out of that's not happening um it's It's tough to get a contractor to install a hand drug. Hey, look at this. Yeah, go, go ahead. Now, I was just to finish there with, I think of 10 to 20% of cost overrun here as probably like a realistic, I don't want to say max, but like a realistic, like, and that's maybe where we're heading if things kind of come in at the end, right?

And I think the more realistic scenario than like a big kind of thing is like it doesn't hit the EBIT targets you want and so you end up sticking more money in it down the line. But again, like almost you're talking about, I think like 100, billion-dollar checks, not like a billion-dollar checks. When they first announced the sphere, it was actually going to be two spheres, right? They were going to do one in Vegas, and then they were also concurrently going to do one in London. And they had such big dreams at the time. They were saying these are just the first of two, the first two, and we're going to build them all over the world, right?

They were talking about they were going to have a sphere of franchise. I think that's on the back burner now. But London, they kind of said they had issues with the permitting. They had issues with everything. I haven't heard a lot about London recently. Is London off the table right now, or do you think they're going to do London at some point? I think the way I think about it is, and I'm pretty sure it's the way they think about it is, let's see how the sphere does. I just think that I think the bear case, one of the extreme bear case was, hey, you know, yes, the sphere, it's not the end of the world if it comes in at $2 billion versus the original projections and it comes in way under target.

But I think a lot of people were worried they're going to go do London after this. And, you know, let's say they do a $2 billion. sphere and it ends up the sphere is only worth a billion or something. So they let a billion dollars on fire. I think the worry was they're going to go to another $2 billion in London and light another billion dollars on fire. And then they'll do one in Chicago and let another billion dollars on fire. But it sounds like they're going to wait and see at this point. I think that is a much more real. I think if it opens and it's a dud, I think is very unlikely that they would just go sink another two billion. You know what I mean? Make the commitment like you'd have to sell assets to do it. You know what I mean? It's not they don't

have two billion dollars to sink on another sphere without figuring something out, right? It's good. You're not going to find like a, right? Originally they were going to do them concurrent, right? And if you think that this is quite over budget and they're burning money, like doing them concurrent would have been two X as bad, right? Yeah, but like they also, I mean, like the way they budgeted this, I think if I compare

this a lot to like, you know, I don't know the specifics of exactly how Disney world was built. But like, I'm sure at some point someone was like, we're going to make an amusement part ride what is what you know what is this thing and you're like you know it's like the field of dreams like you build it and they will come right um to me i think there's a healthy degree of skepticism i think in any investment is important um i think that you know this is that entrepreneurial build it attitude right and like sometimes it works sometimes it doesn't you know but i think like i think they're much more reasonably like cost discipline than people think I think this is like a big giant thing that they're doing, right?

And I get that like, you know, right, it overlaps with like, you know, James Dolan's music interests and things like that. And you worry that some people who are very wealthy take their hobbies to the next level. And, you know, I'm not, I like guitar too, but I'm not building any stadiums at the moment. Once MSG goes to your NAV target, though, maybe, who knows? Yeah, we're watching a SPAC and a crypto at the same time. One other thing I wanted to add on here, and we'll probably discuss it when we talk to the garden too, but you mentioned rights, right? Like at some point, the sphere, it's going to be, you know, it's probably going to be the most popular venue in Vegas. At some point, somebody's going to pay a top dollar to name the sphere, I would guess.

And I also love the sphere. It's, you know, it's a sphere shape, right? But they're putting LED lights on the outside and they're going to sell advertising. And when you're flying into Vegas, you'll be able to see, because it's so big and they'll have the lights, you'll be able to see the advertisements. And I think, I mean, I don't know what that will generate, but I could see that going for trophy because not only are you getting people as they fly into Vegas, but every aerial shot of Vegas is going to have that and everything. I just think that's pretty cool. I think the sphere probably will be really, really cool and probably work pretty well. And we can figure out a debate whether or not they're going to make $300 million a year out of the asset. Like you got to own a lot of content. You're going to have shows that, you know, like they're going to develop in-house. There's like sphere of Ventures, or not Sphere Adventures, about MSS versus Speer Venture Ventures, I can't remember what they call it, but like they're hiring, like people, I believe they hired someone who worked at the illumination, whatever Disney calls the people that work on rides there, they're

building it, you can go see it on YouTube, like, if it works and they had like build an iconic show, it's, you know, they're going to kill it. Like, there's just, and to me, like, the real the portfolio bet of the company is you own the garden unlevered, right? The sphere is basically unlevered, effectively unlevered construction project, right? That they have a cash on balance sheet for, right? And so I don't give them any credit for the cash because it's going into the sphere. But like, that's that. And you're just like, look, if the sphere is a bust, I don't know, the stock's probably flat.

If the sphere hits it, like this thing could be doing 250, you see their projections, right? And like, it could come in better. Like, who knows, right? if this thing's doing $250 million of EBIT and they can open one in London has already planned and by the way we could sell some licensing rights to open one in like Al or we put one in certain whoever wants it right like if it becomes something like that this thing is the point is like there's definitely going to be the pitch no matter what that that's what's going to happen here right this thing's going to trade 20 times EBIT and like 20 times 250's 5 billion

there's just no way this thing is worth $2.5 billion with one five billion dollar on levered asset. Like what you're telling me, and this makes sense, right? As I remember this podcast, I was thinking of this. You're basically saying, look, this is a heads, I win, tails, I don't lose much, right? Sphere is a complete bust. You're basically paying nothing for it at current prices, right? You're saying every dollar on their balance sheet right now, they lighted it on fire into the sphere. The spheres were zero, and we're not paying anything for it, right? We're just paying for garden and MSGN. And then if it works, sphere's going to generate a lot of money, and that is not reflected in the short price is also. Heads, this works, you win, tails. It doesn't

work break even. Let's start to the next part. People can go listen to the podcast I did with John Boyer on the MSGE MSGN deal. He sent a letter to the MSGN board saying he was opposed to it. I was opposed to it. I thought it was one of the stupidest deals I've ever seen. And I think people when they, you know, I think that's in the past, right? It doesn't matter for future valuation at this point, but it does matter for coming back to you say the Dolans aren't as bad as people think they are. And I say, well, the MSG-M-SG-N deal was pretty bad. So why don't you talk about what was the MSG-N deal just real quickly? And, you know, we can talk about why I hated it or we can talk about how to look at the company going forward. Yeah. So MSGN, MSG-E deal is basically

the regional sports networks were publicly traded entity previously called MSGN, MSG networks. It traded basically at the time, five times leverage free cash flow. I forget exactly what it came out to even does in like six probably yeah that's about um and so they basically just did a stock for stock deal at market prices um they just combined them and so i think it really creates the strong technical entry point because i think it disappointed both share about shareholder bases right and i think it particularly disappointed the end the end shareholder basis yeah mschee and msgn were both down on the day of deal announcement and for you to announce a deal and have both sides go down it's pretty just pretty distressing. So there's a variety of reasons I think that why people dislike the deal.

And so very briefly, like, I mean, there's a whole podcast where you guys complain about it. So, you know what I must not rehash it too much, right? But like, it's basically, uh, if you're on the networks, you're like, whatever the yes network's got, you were hoping for that or you think that the, the stream is longer than people think, you know, whatever you thought about it, sports betting, whatever. But you're like, I'm buying a cheap stock, five times free cash flow. some sort of comp that says it should, like, kill it and rip it upside, right? Yep.

So instead of getting that happen, I now own the sphere. And so, like, people are like, well, what is the point of this? In MHCE, they were like, well, was this murky, the Dolans, whatever, right? I think you need to take it from the perspective of the Dolans, right? Like, these are separate entities, right? But they're all Dolan controlled at roughly the same economics. There's not very much variance between them, right? And so they're a little bit like, the stocks trading like death.

I think in some ways the networks is it's certainly heading towards an operational restructuring right we can talk about the financing side of it right but like certainly there's a big change coming in this business right so it's really not the best asset to just be drifting out there with a bunch of cash we're paying $20 million a year in like corporate overhead costs to keep a fictional entity that no one wants to buy publicly who cares there's immediate tax benefits and again like from their perspective like like these guys a lot of their offices are like shared like they have like the same coffee makers at points like that's like the thing i ask where do you guys get coffee it's like that's kind of the same bro um like they're not from the don's

perspective like i own it already it doesn't it's not going to change anything about how these businesses are really operating frankly like we can like structure a legal agreement to have like a cost share but at the end of the day like just three office floors in midtown manhattan you know what i mean like it's not as i think it's less of a big deal to them because they have the same and there was some cost saves. So I hear you, and I don't want to rehash this whole thing, but I just want to push back on one point of that. You say, oh, it wasn't a big deal to them.

They owned them all in roughly the same size. And I get that. But, you know, MSG, the whole company was all together. The networks, the sports teams, and entertainment teams. Five years ago, they were all together. They spun out the networks, and then they split sports and entertainment. And then they decided at the height of COVID when MSG, you know, they've got the cash in the balance sheet, but it's not like they were cash rich.

they've got this huge fear project. They decided at the height of COVID. Let's merge these two together so that we've got a cashful asset with it. And I think everyone who looked at MSGN would say it makes no sense to marry the networks to the arena side, right? Like it would make sense to marry the networks back to the sports side. Lots of people love teaming the networks up with the sports team or just selling the networks to a strategic player. But I don't know anyone who thought the natural marriage was E with N. Right. So my pushback would be. be okay, let's say I buy what you're saying and they don't really care. They still did the least logical deal, the least logical deal here, you know? It did the most logical deal for

them. So there's no tax benefit to attracting the networks to the MSGS piece because the sports teams operate a break even. I think it's important when you're thinking about the networks to think about, and I think the very critical detail I think that people miss when you're thinking about the networks piece is that it's the Dolans own the teams and the thing. And so it's a very different thing than like Sinclair owning the R.S. N. Los Angeles. for the Dodgers. I think it's very different. But like,

so the sports team, basically what you do is you're like, you give half the revenues that go to the players, right? And then you run the rest of the business of break even and then it's effectively, there's some like tax Dodgers

that really really figure out. But like, it's basically like a Rembrandt with operating company. You're basically, I'm sure some people would disagree with this, but my opinion, you're just speculating some rich person

will buy it off you later, right? The value of the sports goes up. Historically, it's been a good bet though. It's been a very good. But like, you know, really rich people. people get bored and it's pretty cool to own a sports team. Steve Baumers is having a great time in Los Angeles.

You know what I mean? Everyone I, not that I'm personally friends with sports team owner, but everyone I know who knows a sports team owner or buys it, all of them say the most fun they've ever had in their life comes when they buy the sports team. And they, you know, you become the most important person in your community. You're nationally known. Like, it's way more fun owning a sports team than doing just about anything else. Yeah, Rihanna doesn't hang out with that many like 68 year old dudes.

you know what I mean like like court side of the you know clippers or wakers or whatever um so that covers the i think we you did a nice job of covering the okay this is why the msg and msg deal wasn't that bad so let's go to the next thing since the deal i'm talking about both sides of my mouth here right because the first thing i said was the msgn msgill stuck the next thing i'm going to say is since the deal went through the value of msgn i think has definitely taken a hit right they they they got dropped from Comcast, the outlook for RSNs, it sounds crazy to say this, but in the past three or four months, the outlooks for regional sports networks has just gone to crap in general. It's gotten even worse.

You know, we're seeing lots of blackouts. Again, Comcast dropped MSGN, Sinclair is probably going to have to restructure their RSN. So the outlook's gotten worse. So how do you look at the value on, you know, it's smaller, it's lower multiple, but the networks definitely, they paid a, they issued a lot of shares and there is value here. So if you completely wipe this out at zero, that's a pretty big haircut. Yeah, so the way I think about, let's talk about the regional sports networks like business model in general, right? Sure.

So like, yeah, I couldn't be more historically bearish on the legacy RSN business model. You are, so for people who don't know, it's distributed over cable, so it's part of the bundle, right? The sneaky thing about it is it's basically one of the most expensive parts of the bundle. And the concept of the bundle is almost every bundle in the United States is or a clue is purchased by a four-person household, which has a man who watches sports. And so basically, in the concept of the organism that was and remains sort of is, but like, let's face it, is on this way out, the cable bundle. Like, there are certain parts of the bundle that overmonetize, right? And so, like, Fox News overmonetizes because, like, I might never watch Fox News, but someone who watches Fox News might watch it every day religiously. literally cancel their cable package over it. So Fox News gets to hike price every year.

That's how it works. And the way the sports network works is very similar, right? If I have options, you typically only had one option, which be cable, and then you would also have, let's say, DISH or satellite, right? But the reality is, like, if I can't get the Nix games and DISH, if I don't get the NICS games, I'm Comcast, I cut off the, like, the, the Rangers games, right? I'm a dired rangers fan. The first thing that happens is DISH contacts me historically and I was like, do you want an introductory offer for a deal? And then like, I switch because all I give a shit about, or crap about is like getting my like, you know, I'm one of this household. I care and I want this, right? And so they had great pricing power. And so the

problem is that for MSGN specifically, the networks, I think they're making right now about $10 a month per sub. I think that's a good number. And so you're like, okay, $10 a month per sub right now, it's not fully distributed anymore. So the whole business model is very different, right? But like, well, you know, I forget exactly what Disney Plus charges right now, but like 15, 16. I forget what I'm paying for Netflix at this point, a sign that that's a good business. But like, you know, like $14, right? And you're like, so I get all the movies available on Netflix and all the shows and the comedy

specials and all that stuff. Or I can watch 80 games of the Rangers, right? Like for almost the same price, you're like, well, it feels like I'm getting away less. And you have this whole. And so what happens is historically, they. over monetized in this ecosystem, this ecosystem's dying. We have to go to market in this new ecosystem where our product is very awkwardly positioned relative to many of the players in ecosystem. And even if like the 10-year forward outlook for Disney Plus is maybe it's $35 a month,

right? Like, you know, maybe this thing doesn't look quite as cheap on outer year kind of concept for what is going to happen to this ecosystem. It's still basically facing this very difficult go-to-market, you know, how do we price and package our product? I agree with you. Can I add two more things? And I don't mean to step on you. This is just an area I spent a lot of times. And I think you hit the nail on the head. The other two issues I think they run into is one, you said MSGN charges about $10 per sub, right? Well, they charge it of all subs. But for Comcasts, let's say 10, I think actually Comcast in the press release they put out said only 5% of our viewers watch MSGN networks with any type of consistency. So they're charging $10 per month. But what they're actually doing, is the one person, like if you watch sports, they're getting $120 per month from every sub who actually watches sports if you do that math, right? So what's happening is actually it's 200, right? 5% 200 on 10. So what happens is they're in this weird thing where if they switch to direct, you know, they would technically, if every person who was in the legacy bundle signed up for them to

be revenue neutral, they'd have to charge in that scenario $200 per month, which nobody's going to pay $200 per month for. So that's number one. And the number two, people, are really nervous, you know, they've got some debt, but all the payments that MSGN networks makes to the sports teams are fixed, right? So if enough people cut the cord, you get really bad negative operating leverage trends real quick, where you go from 10 million subs to four million subs while your payments to the Nixon Rangers stay the same and your income statement can get reversed real quick. Do you want to add anything to those comments? I think that's completely the right model for to think about why an RSN is stressed. And I would actually add one more weaker

argument for an RSN, which is you might not technically own the streaming rights. And that was a big topic for MSGN and all RSNs, but I'd encourage anyone, go read the last earnings call for MSGN. Big topic at MSGN saying, we've got the rights. Don't worry about it. We might have to pay a little bit more to solidify them, but we've got the rights. We can go direct to consumer when we need to you, which was very interesting. So I think that's a perfect. So there are, to me, there's two things.

And we'll get to the other one, obviously, which is a sports betting angle for the RSS. But the thing that is interesting is like, it's, this is, I think it's interesting relative to a lot of things that are declining media asset type businesses, right? The weather channel, whatever you want to insert is like the clear loser of like where the ecosystem's going, right? So there's two really interesting things. And one is, I think, related to R essence. and the one and the second thing is related specifically to MSGN. It's related to RRSNs is the demand for their product is actually not down, right? Like if truly the Knicks and Rangers, I don't think anyone thinks the NBA is on its way out, right?

Yep. And so it's not really a product where like John Hamm was great on Mad Men and that show was on AMC, which is the dollar. But he could just be on a show on Netflix. It's fundamentally it doesn't really matter. Like if all the talent in production moves over to like some other network, this channel can be completely cut out of a new model, right? LeBron is not playing in the Canadian Basketball Association because, like, streaming, you know what I mean?

Like, there's no competing kind of thing. Knicks and Rangers tickets, right? Like, they still sell out. They take price. Like, you know what I mean? Like, there's no real slow in demand for this product. It's not really an issue of disintermediation. And it's not really an issue of secular to climate.

client of the asset, right? The asset is the Nixon Rangers pin people wanting to watch those games, right? This is part of that ecosystem, right, and how it's going to market. And so it's really less that they're being disintermediated so much as we need a new business strategy to hit these sort of targets. And it's not like there's a rival technology coming in and taking market share. We run the innovators the limit and all these other like things that people talk about to happen in these secular downturns. Yeah. So I think that's just a very different thing about the RS and business, where it's much more like, we know there's demand for this product. Right?

Right. You could very clearly see it. The NICS games are still sold out and they take price on tickets, right? The, so you just have to figure out how to monetize the thing. I'm very open to concepts of they under monetize in the new world, right? Like it was over monetized in the past and there's a new normal, right? But whatever that new normal is, is still probably growing, I don't know, GDP plus, probably 2x GDP for live experiences and use ban engagement and whatever, right?

And so I think it's not really, it's not a cut out business per se being generally what people at home or at bars watching games, right? I don't not think that there's really secular change happening in that. We're figuring out what to connect the TV to, not really whether or not we want to watch the content.

Yeah, no, look, I generally agree with everything you just said. I might quibble here or there, but for the purpose of the podcast, I'd say I agree with 90, percent of what you just said. So I think that was perfect. So let's talk about MSGN. They just bought the company. We can talk about the upside from sports rights, which are coming, which also applies to the garden side as well, which we'll discuss in a second. Or we can just talk valuation outlook, whatever you want to talk about. How do you think about MSGN now? The deal is done, right?

The deal is done. The deal is done. The one critical thing I'll just point about, because we're going to get into MSN in one sec, but the other critical thing, just to think about when you comparing it to other RSNs, right? So you commented on the call that everyone, one was asking, like, are you sure you have the rights? You sure you have the rights? Because that's very relative to Sinclair, which is really the only other publicly traded comp people look at, right? Yep.

Because the lead, the NLB was like, we don't they're dead of the rights, right? That's why I was asking. And it shouldn't have come for as a surprise to Sinclair, because when Sinclair was buying them, the league also stepped in and said, you guys don't have digital rights. So I don't know why it's a surprise of them now. It's everything is a negotiation. Here's the thing. The Dolan's own the Nixon Rangers.

They don't know in the Sabres. So don't mean wrong. This is not applied on the same. is part of the MSG networks model per second. It may or may not apply, and they would be in the same sort of argument situation, but when they're like, are you sure you have the rights? You're like, who else would have the rights? But you're saying that MSGS has the rights?

MSGS is on the call. They're the same people. They own both. Like, you know what I mean? They're like, this is what the Dolan say. They say the MSGE owns the streaming rights. Like, who else is going to have it? Like Adam Silver has like conned all the owners into like something and he's going to run away with

the package and like, no, it's, they're going to run away with the package and like, no, it's, they're They're like, yeah, we have the rights. It would be a billion-esque plot, right? Adam Silver brings Dillan-A-Rome says, go tell the market that MSG has all the rights to it. We'll buy up all the MSGS stock, and then we'll say MSGS has the digital rights to it. That would be fun.

No, no, so I think, like, you're getting into a restructuring of this thing, and so let's talk MSGN, but like financial, but much more so operationally, I think. And we can talk about whether or not they're not going to financial infrastructure. But, like, the, you know, your counterparty is, the rights of the MSGS and you're basically on the same side and so like the point is like

this is very different and then any of restructuring where like the Dodgers do not necessarily care about what is now the Ballets Network but what's in the Fox, whatever sports, Los Angeles,

whatever that goes called. Right, like they're not necessarily on the same page. Right here we're like, not even on, we're not just on the same page. We are literally the same page.

It's the same thing, right? It's the same family. And so you just have much more of a, let's figure this out sort of thing was what's going to happen rather than like a let's fight it to death or you know sinclair style right yep um so msgn the structure itself is a one billion dollar term loan um they actually have cash pledged against it i'm sure but whatever that is doesn't really matter for this discussion just think about it it's a one

billion dollar term one um and then they have their stream of iba doc called 200 million dollars whatever exactly you think it's going to end up looking like and say two years whatever exactly you want to think and that is declining because cable subs are coming down right The way I think about this business is that business model is dying, definitely going away. If it goes away faster than we hope, so like Comcast doesn't sign back up and, you know, we get pushback for even Verizon just resigned. But, you know, and so like you can have some pushback around there. Maybe it declines faster. It means to be your suction sooner.

Maybe Comcast comes back and maybe it looks a little bit better than people think, whatever, right? But certainly we need to develop a different strategy, right? And I'd also point out, when you're thinking about this, it's also really important for the leagues, right? Like, people can't, like, it is not good that, like, cable viewership of RSMs for, like, I think it's the under 30 demographics down, like, 70. Yep. There's no way kids not watching the NBA is good for the NBA in a 30-year time. You get into, you get into, this is an issue. They've been saying it for baseball for several years, and it starts.

it creeps up on you and then it's sudden, right? Kids are your lifeblood. And if you're not forming a connection with kids when they're 12 or probably seven, actually, they're 98% of time, they're not going to become fans out of nowhere when they're 25 or 30, right? You need to get them now. So if you're a leak, it's like investing, it's customer acquisition costs, right? You need little kids watching your products or else you're taking away from the lifeblood

of your products. Yeah. And so right now, though, thinking about it is like, kids are watching it. They watch it on YouTube. You get clips. You can see it on Twitter. There's Instagram channels. I don't pay for Sixers.

I don't currently pay for the out-of-market package on the NBA League Pass for the Sexers. I've probably watched five minutes of every game this season. That's an exaggeration. I skipped plenty of the lousy games. But like, you know, I've watched plenty of Sexious basketball without paying for it, right? And so they're not necessarily not engaged even. It's more just, right, so how do we figure this out? And so the point is, this is a media asset where the end market I don't think is down.

I don't even think viewership is truly down as much as people. think it is. I think the distribution pay model of the previous thing is down a lot more. And so how do we get from here to the future? And like, what does it look like? So this is where I think the two obvious answers, right, are we need a direct-to-market OTT strategy. So we need to figure out a way to stream it and go to market, right? And then sports betting. So let's talk about the OTT thing real quick first, even though this is basically all we've talked about. But like the, so they used to have roughly the 8 million subs in the New York area, right? They have something like, certainly it's going to, I forget exactly what the math is,

but like we're heading towards four or already have four or something like that. It's a huge amount of like decline over a decade. Yep. This business, I think, would fundamentally turn around from, if they managed to get a DTC package together that earned them 100 million of EBIT, and there should be pretty high drop-through in revenue to EBIT just for them to make this argument simple here. Because they already have the apps all built out and you're just adding a payment layer, right? MSGN network app is you can have it on your phone.

You might have it on your phone. I do have it on my phone. Yeah. So like literally, they just have to add like a billing layer. It's not like it's not as difficult as like starting a brand of business. It already exists. It's just a matter of monetizing it, right?

That means there's four million households that used to have it, right? People are saying that they're going to price the depending upon which market, say $20 a month, right? Or like $200 a year. And if you go look at like the NBA app or NBA All Access Pests, that's kind of like what they price the out of market stuff. that. Yep. Let's say $2.50 a year, we used to have 4 million subs, right? If you get 500,000 of those subs, right, we're already a lot of the way into turning this business fundamentally around. And you're like, four million of them used to pay for it already. You know what I mean?

Like, I get that like 5% only watched it. How many of them are still, there's a relative question of how many of these people who are still on the network are really there for sports teams too. So you do have some go-to-market problems, right? But like, you could also start restricting clips. You know, what do the leagues want to do? Do they want to pair and have like an ESPN? If there's going to be a true unbundling and sports is going to go have this OTT thing, that's going to be ESPN and people are going to pay for that. And then you have add-in packages of sports teams you want to watch, whatever it is. But like, look, there's 20 million plus people in the New York metro area, right? There's people, it's, it's, it's, it's, it's, it's, I do wonder exactly how much MSGN gets paid for

the broadcasts, um, out of market. for the, you know, the league pass, right? Like, there isn't, like, there are, I do not subscribe to Comcast cable in Philadelphia, but I watch whatever the heck that thing is called when I signed up for 60s game at, right? There isn't out-of-market, local market element to what is maybe happening here, right?

And certainly, you know, MSGN, like, they hire, what's his name, Clyde Frazier, right? Who does the broadcast? I can't remember right. It's Clyde and who's the playback game? Mike Green. Yeah, yeah, yeah. So, like, I mean, someone's got to pay them.

Like, if you want to watch, you know, this model needs that. And so to me, I'm like, look, I get there's a lot of stress right now. But, like, in the next three years, I'm like, I bet you they just kind of figure out some sort of like DTC sharing. And the reality is that, like, if the MSGS guys need to take a cut, they're probably going to end up taking a cut. So what does that restructuring look like, right? Like, when you're really paired against someone and fighting dramatically, right? Like, they look really ugly. We're not really paired in fighting against this.

Everyone, all is kind of the same. And so it's much more consensual. I just want to push back on one point, right? So you said, hey, we go into, you laid out, right? If you think the bundle is falling apart, at some point, this needs to be a direct to consumer business, right? And I 100% agree with what you're saying there. But I think the pushback would be they were so over earning in the bundle. It's going to be very difficult for them to, it's going to be very difficult for them to make the DTC switch. So I'm just looking, right? Like I'm using 2020 numbers because that was, a little bit before the, they hadn't given back all the revenues from COVID and everything yet, but they did about 700 million in revenue, MSG networks and 300 million in operating income, right? If you're going to a bundle, like it's hard for me to see more than a million people paying for the sports network. I mean, they don't get a million people watching every game. So let's just say a million people paying $200 a year. That's 200 million in revenue. There's

expenses associated with that, right, 100 million a year goes to the sports team. It's just, you know, this is a business in 300 million in operating income. And in that model I laid out, at some point, earnings go down to 75 million, 100 million in that scenario. Like, it's a really big decline. It's totally huge. I'd also point out that this scenario is also that you're laying out as where you're saying, like, NBA players are going to make less money in the future. No, well, NBA revenue sides and the ticket revenue side is going to probably. NBA players because There's the league revenue's gone down. Yeah, yeah.

Yeah. You're like, you're also, that's why I point that out. It's just like I'm like, you're also implying something that like people don't actually believe, right? Like most people don't expect the best player in the NBA to make less money a decade from now. But like if there's no monetization of local sports rights, they're going to, like, that's how it's going to work. Like, yeah. And so, go, sorry, go, yeah. Oh, no, no, no, I agree with you.

I agree with you. I do want to turn because we've got a lot more to talk about. But I just want to. MSGN networks, we talk to bear side, right? The bear side is revenues declining, subscribers declining, all this sort of stuff. The upside is sports betting's on the way. And you know what the best way to acquire sports betting customers

and the end game might even be the best way to gamble? The best way to acquire the best way to gamble, it's probably to go to the people who are watching the regional sports network and advertise to them, get them. I mean, I always was a big MSGM bowl because I thought at some point in-game betting is going to come and the best way to do it will be on the MSGGO app And you just say, hey, I bet, you know, Julius Randall is going to make a three-pointer on the next possession or something while you're watching the game.

But why don't you just quickly talk about how sports betting could be a big turnaround for MSG networks and MSG as a whole? So if you're thinking about sports betting, so rough numbers are in England, the UK. The average person between sports betting and eye gaming spends about $200 a year of gross gaming revenue, which means net out of all of their bets. They lose $200. Yep. There are 300 million people wrestling in the United States, 330, whatever it is, right? Put it all together, it's like a $70 billion market, let's say. It's very nascent right now, but that's kind of a tam-as.

I'd also point out the GDP per capita is higher in the U.S., but whatever. So it's a giant market, right? In Europe, they spend about 25%, and there's puts and takes to this, but they spend about 25% of gross gaming revenue and ads in marketing, right? That's a huge amount of money. It's like whatever that comes out to, like $18 billion, some of that, right? somewhere around there's a bunch of ad dollars about to be spent and so I actually try to do this all the time but like if you go on your phone and you go to like the ESPN app right you scroll through it basically this is a live feed of sports stuff this is it's not a regional sports network but it's 100% a sports focus thing right and like this app on my phone with all of these live sports with all this commentary with all this publishing with all of this stuff video whatever right videos a little bit but like you is being supported by this, like, banner ad for, like, dosa keys.

You know what I mean? And I'm like, dosa keys, it's a brand building experience. I'm supposed to think the world's most interesting man, drinking coronas on a beach, beautiful women, boats, whatever is happening in the ad, right? But, like, clearly I'm not building a brand by this little sliver of a banner ad across, like, Zapp, right? You know what that app is really valuable towards? Push this thing to bet $5 that, like, you know, with five to one odds that, like, you know,

Giannis hits a double double, right? The monetization. You go, yeah. Yeah, the thing I always said was, do you remember in like, it was 2014 or 15 when daily fantasy sports, not gambling, daily fantasy sports, drafting, Fanduel really got, I would watch ESPN and the only advertisements literally would be go bet draft games, go bet banduel. And that is a lot lower monetization than gambling. My argument was always when gambling is legalized in New York, every ad on MSGN is going to be go do this. And they, you know, you saw with the Sinclair stuff, you can talk about it. Sinclair rebranded all their networks, all their, all their, RSANs to Bailey's and Bailey's paid a huge sum to get that rebranding. So I think there's lots of value there. Do you want to talk about how you look at like the Sinclair Bailey's deal for MSGN? Yeah, yeah. So like the model, if you want to do digging on it is the Skybet model in the UK where like Skybet branded with like Sky TV, which is like their big sports network

over there. And like they went from like zero to like 20% of like the market. They just killed it. Right. And so it's just you're watching the sports. You're watching them explain the odds to you, yada, yada, it's just a really, the CPM price of, like, what is happening on a sports network is direct marketing dollars for the sports betting platforms, and everything else, it's just vague brand building. To them, it is, it is the Google overmonetizes in search to, like, you type in like 20, 21, like Lexus, New York State insurance. Like, the whole business model is like, those guys pay up through the teeth for that because, like, this is, this is, this This is my client, and I need to be there.

So sports gaming, these are my clients, and I need to be there. And so it totally changes it. The way I think about it for them is, we can talk about whether they rebrand the networks. We can talk about whatever that is, right? Like, the very simple thing that they're doing right now is it just signing a marketing partnerships with people, right? And they, like, kind of say that they expected to be one of their top verticals, right? And they kind of point out that they think sports betting in general will be a top

vertical, quote unquote, like one of their top relationships. And they're like, you know, they'll like tell you, like, look at what publicly quoted stuff for like J.P. Morgan is. So J.P. Morgan has a partnership to be branded. There's a section. They have suites at like Madison Square Garden, $30 million. That should be like 80%. You know, you already have the teams in place.

Like how hard is it to do, right? Like right now, like, Cesar's is partnering with them. They're going to have a show on MSGN networks with JPM Smooth. I don't know. Yeah, yeah, he's in one of the shows. He's partnered with Cesar's generally, but he's like a Knicks guy. And so, like, they're going to be on the show. Oh, J.B. Smooth. J.B. Smooth. That's it.

Yeah. They're going to show you. He's going to explain the odds to you. There'll be entertainment assets. But it's, you know, they'll have, I'm sure there'll be some gladiator reference because of Caesars or whatever they act. Right. Like, they're signing up these partnerships. And like, you're already talking about tens of millions in very high margin revenue on 200 million in EBIT. Right. And we're like, we're just getting started. Right. Like, you don't know exactly where the New York market specifically will go with, like, regulation and players. and how much they end I'm spending on marketing, but, like, it's big and it's coming, right? And like, like, you point out, like, Bally's or Bailies or whatever, like, the Fox News portfolio, which is now Sinclair is like 30 things. It's a big thing, but like, like Sinclair owns like 15% with an option to buy 15% more of the company.

They gave like a third of the business to get this marketing funnel. And so it's just this huge turnaround and monetization for these assets. And so like, while ultimately the future is like, how do we go direct, I think you're talking out a realistic 30, 50, you know, if you think about the New York market for 20 million people, if you think it's 70 billion of, like, gross gaming revenue to come, where 8% of the U.S. population, we're at like $4 billion of, like, that, like, spend. And so it's 25% of that's going to be spent on, like, sports marketing. Like, yeah, football's number one, don't get me wrong, but, like, football is only 16 games, right? Like, there's lots of, lots of games.

You know, I think there's very few people who are high value gaming. I mean, customers who only bet football. There's only so many games, right? Versus everything else. There's a lot more. And so it's truly, I'm like, the future is OTT. But in between then and now, there is a huge monetization, a huge amount of ad dollars about to come to the New York market.

And MSG networks, there's one of the top. There's only a couple of things to really spend your money on, you know? There's really a very few, and they want to spend a lot. And I think the same is going to apply to MSGE as a whole at some point, you know, especially Madison Square Garden. I think that's got really interesting. You and I've talked about it. You mentioned earlier.

Staples Center got rebranded, the Crypto Center or whatever. They're paying, I think it's $25 million a year or something for that partnership. MSG, if you rebranded the Garden to Crypto Center, what would they pay for the Crypto Garden or whatever? It would be more. But we're running a little bit longer, but there's a lot of other stuff I want to touch on. So just real quickly, you know, the headliners here for value are. the garden, the sphere, and the networks. And we've touched on two of the three.

I don't think we've talked a ton about the garden. We'll change that in a second. But Rockettes and Tao, I think, rockettes, I think are underrated when people think about valuation because I view the Rockettes as an annuity, a brand. They haven't been successful in expanding it, expanding the brand. But I view it as an annuity. I think that's a great business.

And then Tao, I've always had trouble. You know, I post the quote in my tweet thread. Tao's on a $100 million EBIT per year run rate. And it's a tough. business of value because it's more hip nightclub, you know, restaurants are never going to get a great value. But I always look at something like Tao, which is a little hipper and where it's more prone to fad risk. So I just want to toss over you. Touch on the valuation, your thoughts on Tao and Rockettes real quick. I think like, I think one of the thing I should have started off at the

top is to just walk through the free cash flow math on what like those businesses are for the thing. I think I should at some point. But like on the, because I think it really highlights like the value because you can argue like what multiple should tout trade. Be like, well, it's so making a hundred million bucks. You know what I mean? Like it's a lot. And we're only talking about like a two and a half billion you know what I mean like it's like yeah it's real it shows up real quickly and like we're not even talking about it because it's so small part of the story but it's a real number right um yeah I think the bad risk for my clubs is kind of there against which like when I first got to the city marquee was like the hot club that I never went

to that everyone had to wait in line for still is I don't know like it's hadn't changed that much um my mom still my mom when she came visiting me we went to towel and they've got the giant fortune cookies with like kind of chocolate icing inside and she still talks about the giant fortune cookie and it's still very popular so they you know they do a good job they and i does make sense it's a part of an integrated entertainment asset right because like you know you're going to want a high roller whatever high roller means in sports betting but you know what i mean like you're going to be able to have these packages like people there's a bit i i never believed in the synergies they pitch but they're probably there what about the rockettes how do you look at the rockets

I think Rockets are great. So the numbers are like, I think they said $130 in revenues in 2019, right around there, something like that. They do like a million tickets. It's kind of a staggering number of people going in a not COVID year. Before COVID, I mean, basically, before COVID, I said annuity because they do a million tickets. They do a million tickets every year. Basically, every show is sold out. They can raise prices just about every year.

Like, I looked at it as one of the best annuities, a very secretly great asset. Capax light. You know, it's like, it's like, to phrase it oddly, it's like owning Lady Gaga, but you don't have to pay her as much, right? Like the Rockheads like don't, like, I hope they get paid a fair wage and all that kind of stuff, but like clearly the Rockhead, an individual rocket dancer does not demand like $4 million to like show up on the stage, right? Like normally what happens in Live Entertainment Act, like, you know, the Rolling Stones,

if you could buy the IP and like own it as a, you know, whatever, it's like amazing. being Mick Jagger is amazing. He has mansions. Things are great, right? But like, the Rockettes are in a very different light, but they're seasonal holiday, recurring revenue. There are people who go every year. I've went one time. There were people in the front row that had like the gear, like all that stuff. And they make probably something like, depending upon how you, they don't tell you exactly, but you get somewhere between like 40 to 60 million probably. That's what I had in my head. And I think there are old notes that suggested something similar. But 40, you $130 million in red. and then you have to bat they don't tell you margins and so you can take a stab at it but like i'd be shocked if it's less than 35 you know what i mean like this and so that's the whole thing right and you look at that again i use the term nudity many times but yeah it is capital light very dependable outside of a covid year i that's a business that's probably worth if you put that on the market i bet you somebody would pay 15 times for it yeah yeah and you said about 50 million earns 15

times that's $750, this is a less than $3 billion company. The math adds up real quickly. Last piece of value I want to touch on, the garden itself. Tax assessed for, I believe, $1.2 billion or so in 2011, 2012 range. There's always debates around the air rights and the value there. There's always debates around, hey, what happens when Penn Station gets remodeled? Is that good? Is there a horse moving stuff? We're running quite long, so I don't want to spend enormous amounts of time there, but why don't you talk to me about how you look at the garden? I think the garden, so the way, there's two real ways to look at it. And I think one is, I think I comp it to the Nets Arena, real quick to just get there.

If you comp it, so the Nets Arena has somewhat fewer seats and it's like a small arena, and they also have the Hulu, not arena, theater attached to this, right? MSG does, not Brooklyn. MSG has the Hulu Arena attached, which I saw the Grinch at one Christmas, actually. Oh, did you? I saw Louis C.K. I'm not sure if it's oh there you go yeah but the uh so the the the Nets arena sold for like roughly speaking a billion dollars um did you per square foot per seat adjusted depending on

how you think it you'd roughly just gross that up to like 1.5 let's say very quickly um uh i actually bothered to do this because we're talking about the six years before so the sixers play the Nets next thursday right uh the cheapest ticket available on uh ticket master right right now is $30. The nets and the sixers are like two of three or four teams that they could possibly actually make a run to make it to the championship out of the east, right? The Sixers play the Knicks in February as of an hour ago when I checked the ticket prices. No offense to Julius Randall, I don't think anyone really thinks there's a chance that he's going to hoise the trophy at the end of the year, right? The minimum ticket price is $130. Can I add? So my point is I'm just, yeah. Can

So I like the point you're making here. I do think it's a little, I think it could, it's tough to comp Nets prices to NICs price, right? Because the NICs just have more fans. But that's exactly the point, right? Because MSG, it's attached to the NICs. It's in the center of Manhattan, whereas Barclays is nice. It's right off a bunch of subway lines, but it's out in Brooklyn. MSG is the only arena in the center of Manhattan.

It's got the NICs there. It's going to command premium pricing. And the other thing is Barclays, I don't believe it's like, they do Constra's. stuff there, I think, but it's nothing like every night at MSG there's something. Sometimes there's two things. You know, they'll have pro bull riding during the day and then they'll have a concert at night. Like you just, I love the comp you did to get to that 1.5 billion math, but you and I both know and everyone knows, MSG would command a huge premium to Barclays because of all those things we just laid out, which I think is where you were going with that. Yeah, exactly. I'm just,

you know, they did, the quote online is 320 shows in 2019. I didn't like individually count that up, but I saw a quarter on Wikipedia. but the yeah they constantly have shows only stadium in manhattan uh the near when they talk about redeveloping Penn station they throw like a 1.6 billion just like reconstructing it down the street yep like cost estimate which likely overshoots anyway so you're like the point is like and i really lean in and another other way to think about it is they pay roughly 41 million to the MSGS piece right now they split the food and beverage revenues and merch revenues from like games right and so that's probably just called another 10 million i think that's about right there's 20% food and

ticket sales ratios to it. So we're $50 million from like that business. A lot of the value goes to MSGS, but all the other assets comes to this plus the Beacon Theater plus like, you know what I mean? Like you very, I think like the numbers are massed from the growth of the sphere and the cost of it if you look at it historically, right? But like I think MSG probably makes like 100 million plus a year of actual to this business cash, right?

And then, you know, what do I think it's worth? I don't know, 20 times it has some air rights that are. probably worth $200 to $400 million just based upon what the Grant Central Air Rights sold for. You very conservatively get to this like $2 billion number without really scratching your head too much. I think we can tub bait hold code discount, all that kind of stuff. And so the reason I highlighted so much because I think it's so important to the pitch for MSGE is it's unlevered because by NBA rules, they're not allowed to put leverage on the stadium. And so like you own an iconic asset with very clear pricing power, very clear demand, you know,

the world's most famous arena, to quote them. And you're paying like, I don't know, 20 times, probably less, you know, at like a replacement costage value. You're like, it's very hard to see how this business, MSGE stock, if you thought about it truly through all the pockets, whatever really, if you liquidated, it'd be worthless in the current price. It's very, very difficult. And so that means that when if it were to sell off, the new variant,

whatever exactly, you know, if it's down 30, you can just buy more. Like, it will eventually have value. Like, these assets are strong assets. I don't disagree with any of that, though. I have thought if it's down 30, you can just buy more several times in the past couple of months and seen it gone down another 30. So, look, I think we've covered everything here. I want to walk through a quick, some of the parts math with you. But before we do that, are there any pieces of this thesis?

I think we've covered a ton. But are there any pieces of this thesis you think we miss? You wish we had covered a little harder, anything like that? I think really, the only thing I'm criticized myself for at this moment is not bringing up to some of the parts, math, in the front part of the thing, rather than the last thing or whatever. I never know if I should do it in the front or the back of the show, but I thought because we settled, we said under $3 billion, and we started off by just, I thought we did a nice, but let's talk. I've got the cab construction, everything pulled up right here. So, Garden, I think we said ignoring air rights, I think you said $1.5 billion. Do you want to use that as the valuation, or would you go out?

I just used two as a good base level. I'm like, I just used like the comp to Barclays and then being like, it's clearly worth more than Barclays. For our listeners, I'm literally plugging this into a spreadsheet as we talk. Air Rights to MSG, do you just want to include that in the $2 billion? Throw that in the gardens. Free money. And I believe the garden, you know, there's the Hulu Theater next to it. There's value there.

There's value. But I don't know how to separate it. It's not big in the grand scheme of things. The sphere. How do you want to value the sphere? I think the way I would value it is $1.5 billion, let's say, in like a bear case, right? $1.5 billion. You throw out a billion before, just to, like, to illustrate how easy this thing is to, like,

I think wrap your heads around why you want to own it at this price. Just throw a billion in it. Let's just shave it by 30%. Shade my bear by $30. Billion networks. How much you want to value that at? Let's say it's where they paid $1 billion for it to say it's worth $500 million now. $500 million?

Great. Rockettes? Let's say it is worth $750 million. So 50, and then tau 500? Yeah, what are you saying? It's like, well, they're trending more like a $100 million. I mean, I get to pull back. They don't own all of it, right?

I can't remember what the NCI on it is. Yeah, that's a bit of, go 500. Sure. 500. Okay. So for everyone, I just, the big assumptions there we made were MSGN networks, $500 million, which this is a business that, remember, a couple years ago, was doing $300 million. It is melting for sure, but there's really interesting rights.

One of the things I love about MSG networks is they own the rights to the Knicks and the Rangers for the next 15 years. A lot of the RSNs that you look at only own them for the next two or three. So they've got long-term rights. So we're way underpricing the networks versus what they just transacted at. And the sphere, which they're going to sink $2 billion of capital into almost, we're valuing at $1 billion. So that's a big haircut there.

If I put all of that together, my per share, some of the parts value that I come out with is $130 per share. Is that sounding about correct to you? Yeah. And I would say that I am the value, I'm saying that all those other ones are EV calculations besides MSGN, right? Where I'm saying it's worth $500 million there's a term loan. But if you wanted to, because we just did it, like you would just put a zero for MSGN and say it was like a horrendous decision, right? And you would get like slightly, you'd get like still over $100 a share as a point. Because I'd have to back out the term line.

in that as they'd be walking away. Yeah. So I think we, I think we've done a great job here. We walked through all the different parts. It took us almost an hour half, but we went through all the different parts. We got through some of the parts. I think we did a nice job. I would have loved to talk networks for another hour because I love talking networks. But I think we did a really nice job covering the bull, the bear case.

Again, anything else you want to talk about before we wrap this up? The only, the last closing point just because of the, these assets will have still have cash flow. about like that, like discount, you're like, when is it going to trade, Dolan Discount on that stuff? Like, they're going to start buying back stock probably in 2020. And so there is like a return of cash coming. It's not, it's not the family hold code that never does anything and it just drifts. It has a cash. That's how I was going to wrap this up. I was going to ask you because, you know, once the sphere is done in 2023, even if the sphere isn't making a lot

of money and it's kind of a bust, they'll have money coming in from every other source. And I was going to ask you, so capital allocation, you feel pretty good that this is going to be a, hey, we are, they were supposed to do it at MSGS, but they haven't done it partly because of COVID. But you think this is going to be a levered buyback, hey, we've got these great infrastructure or annuity-like assets that throw off tons of cash and we just buy back those shares, baby. Yeah, I think so. Cool. Cool.

Anything else you want to talk about before we rough this up? No, that's perfect. Thanks for having me. Chris, thank you so much for coming on. I really enjoyed this. MSGE is a cheapstock.com will be the website. I don't think it's up yet, but Chris has said it'll be up in the next couple days or two. Hopefully before this post, I'll include a link to the show.

I'll include the link to all the kind of quotes and stuff I was talking about in the show notes as well. But Chris McIntyre, thanks for coming on for the second podcast and looking forward to the third one. Sounds good. Thanks for having it.