Madison Square Garden Sports (MSGS) had the eighth-highest standard deviation among bullish price surprises on Monday at 3.06. The stock gained 3.35% as a result. MSGS is now up 61% in 2026 and 118% over the past five years, outperforming the S&P 500 by 54%.
With plans to split in late October into two independent, publicly traded companies, the stock has fallen back slightly from its August all-time high of $438.93.
MSGS stock has come a long way in the past two years. The split is a natural step in extracting shareholder value. The question for investors now is whether this marks the start of even more gains or, as many splits have shown in the past, the end of the road for above-average shareholder returns.
The biggest headwind sports teams face as public companies is investor expectations for year-over-year revenue growth, margin expansion, and higher profits. The competitive balance doesn’t always provide that — a terrible season translates into lower ticket sales, which trickles down to game-day revenue streams, food and beverage sales at the arena, merchandise sales, etc.
I believe that professional sports teams are like farmers: they’re relatively poor while operating but much more flush once sold. The real money, if it comes, happens down the road.
To own MSGS or any other publicly traded sports team requires patient capital. It may take a decade or more to get an acceptable return.
In Madison Square Garden Sports’ situation, I wonder whether it’s better to buy the stock now or wait until after the split to sort out the noise from the signal.
Here are my two cents.
You Could See MSGS Was Undervalued in 2024
In September 2024, I wrote about the changing ownership situation of Toronto-based Maple Leaf Sports & Entertainment (MLSE). Specifically, Rogers Communications (RCI) announced that it would buy out the 37.5% of MLSE owned by its telecom rival, BCE (BCE), giving Rogers majority control (75%) of MLSE, which owns the Toronto Raptors, Toronto Maple Leafs, other sports teams and arenas.
That was the first big step in the Canadian telecom giant extracting maximum value from its sports investments. The next step came in July when it announced that it would buy the remaining 25% of MLSE from Kilmer Sports Inc. for CAD$4.35 billion ($3.07 billion). The deal is expected to close by year-end.
The move does two things: it gives Rogers total control of MLSE and the ability to monetize that control as it sees fit. Once the transaction closes, it will merge MLSE with Rogers Sports and Media, which owns the Toronto Blue Jays, Rogers Centre (where the Jays play), and Sportsnet, the Canadian sports network that owns the rights to broadcast NHL games through the 2037-2038 season.
You can’t buy all those assets off the shelf. Their estimated value is at least CAD$21 billion ($14.81 billion)
Finally, Rogers will sell a minority interest in the merged entity to pay down some of the debt taken on to buy these assets. That could bring in CAD$6 billion ($4.23 billion) to CAD$8 billion ($5.64 billion).
As soon as Rogers bought BCE’s 37.5% in 2024, the writing was on the wall for where this was headed. More importantly, it signalled that MSGS was significantly undervalued.
When Rogers announced the purchase of BCE’s 37.5%, MSGS shares were trading around $207. They’ve doubled in the past two years.
All This Splitting Has Led to Underperforming the S&P 500
The original Madison Square Garden Company has done three splits since 2015. This next one will be its fourth in 11 years. I’m not sure it has many more left. Rogers, unless things change, chooses to sell a minority stake privately; MSGS has chosen to create two new public companies.
In my opinion, Rogers' choice is the smarter move. As I said, sports teams are like farmers; they’re poor until they’re not. Being private shields the business from market fickleness.
Before the September 2015 split of the Madison Square Garden Company into MSG Networks and the new Madison Square Garden Company, it had annual revenue of $1.56 billion in fiscal 2014 (June year-end) and operating income of $184.1 million. That’s not half bad.
Shareholders received one share in the new Madison Square Garden Company (sports teams, MSG arena, Radio City Music Hall, etc.) for every three shares in MSG Networks (regional sports networks).
The April 2020 split involved separating the sports teams from the entertainment and real estate assets. Madison Square Garden Company was renamed Madison Square Garden Sports, and the entertainment business became Madison Square Garden Entertainment (MSGE). MSG shareholders got one share of MSGE for every share held in MSGS.
In July 2021, MSGE acquired MSG Networks in an all-stock deal that saw MSG Networks shareholders receive 0.172 MSGE shares for each MSGN share held.
The third split happened in April 2023 when MSGE was renamed Sphere Entertainment (SPHR). It held the massively expensive music venue, Las Vegas Sphere. The new MSGE held the other entertainment assets. Shareholders received one share of the new MSGE for every share held in Sphere.
So, by my count, if you owned 15 shares of the original Madison Garden Company in September 2015 and didn’t sell any of the shares you received later, you would have 7.58 shares in SPHR, 7.58 shares in MSGE, and 5 shares in MSGS today. That’s $3,760 at current prices, with the MSGS shares accounting for 55% of the total.
In mid-September 2015, before the first split, MSG’s shares traded between $75 and $80. At $75, the 15 shares would have been worth $1,125. That’s a cumulative total return of 234% over 11 years, or 11.6%, approximately 140 basis points less than the S&P 500.
We May Never Know How Undervalued/Overvalued MSGS Is
In August, JPMorgan valued the New York Knicks at $11.75 billion. It based this valuation on the $12.5 billion sale of the Los Angeles Lakers to Jared Kushner and Bob Iger.
“‘The Lakers are the most relevant comp for the Knicks in our view, given the large DMA [media market], lack of arena ownership, and still significant RSN [regional sports network] fees,’ said Karnovsky, adding the Lakers deal ‘validated the market for marquee NBA franchises,’” Yahoo Finance Executive Editor Brian Sozzi reported.
Let’s assume that’s correct. All we need is a reasonable valuation of the New York Rangers, and we’re mostly there.
Coincidentally, Sportico’s annual NHL franchise valuations came out this morning. The Rangers have the second-highest value at $4.15 billion, about $650 million behind my Toronto Maple Leafs. Let’s assume this is also correct.
MSGS’s enterprise value as of Sept. 29 is $11.02 billion. This includes $996 million in net debt—the valuations above total $15.9 billion. Add in the net debt, and you get an enterprise value of $16.8 billion, 52% higher than it is now.
If this were a public company, an enterprise value of 93 times EBITDA (earnings before interest, taxes, depreciation, and amortization) and 10 times sales would send most investors running for the hills.
However, because we’re talking about two well-known professional sports franchises located in one of the world’s most vibrant cities, valuation metrics go out the window.
In the past decade, MSGS’s best year for EBITDA profitability was fiscal 2024 (June year-end), when it was $149 million from $1.03 billion in revenue, with a 14.5% EBITDA margin. Its best year for top-line sales was this past year after winning the NBA Championship in June.
MSGS can only do so much to grow the top line. We’re not talking about Alphabet (GOOGL). So, it either has to keep winning championships, or find investors willing to pay a premium for the privilege of owning a piece of these two teams.
The Dolans could have taken MSGS private in 2023 and waited for the perfect time to bring on a minority partner, as Rogers is doing. Obviously, they’ve made plenty from owning the two teams since buying control in a 50/50 partnership with ITT from Viacom in 1994 for $1.08 billion.
Is the Knicks/Rangers split one too many? It could well be.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.