The Sphere, the most anticipated new concert venue in decades, will open on Sept. 29 in Las Vegas with the first of 25 concerts by U2. Its debut is of keen interest not only to fans of the city and the band, but also to shareholders of
Sphere Entertainment,
the arena’s owner.
Sphere shares (ticker: SPHR) look undervalued, given that the company’s market cap of $1.3 billion is far less than the project’s construction cost of $2.3 billion. Sphere is trading for about $36 a share.
With a seating capacity of 17,600, the Las Vegas Sphere has a state-of-the-art sound system and a 160,000-square-foot LED screen. “You’ll feel like you stepped into a sci-fi movie,” says James Dolan, Sphere Entertainment’s CEO.
If music fans are impressed with the concert experience, the stock could move higher on expectations that the venue will attract other music groups. Success in Las Vegas also would enable the company to license the development of Spheres around the world, starting with London, where Sphere already controls land.
The opening of the Sphere is one of several potential catalysts that could lift the shares of three companies run by Dolan and controlled by his family. Dolan also heads
Madison Square Garden Sports
(MSGS), which owns the New York Knicks and Rangers and is the largest public play on professional sports teams in the country. The third company,
Madison Square Garden Entertainment
(MSGE), owns Manhattan’s Madison Square Garden, home to both teams, and the highest-grossing venue of its size in the world.
| Company / Ticker | Recent Price | Market Value (bil) | Net Debt (bil) | Key Assets |
|---|---|---|---|---|
| Sphere Entertainment / SPHR | $36.32 | $1.3 | $0.8 | Vegas Sphere, sports cable network |
| MSG Entertainment / MSGE | 32.85 | 1.7 | 0.6 | MSG arena in NY, Rockettes Christmas Spectacular |
| MSG Sports / MSGS | 179.48 | 4.3 | 0.3 | New York Knicks, Rangers |
Sources: Bloomberg; company reports
All three businesses once were housed together, but the Dolans separated and reshuffled them in a series of transactions in recent years. “The ‘Dolan discount’ is alive and well,” says Jon Boyar, a principal at the Boyar Value Group, referring to the discounted value of Dolan-controlled companies due to the perception that the family will put control over boosting shareholder value.
Boyar thinks the Dolans are more shareholder-friendly than they are perceived to be.
Sphere Entertainment is the most speculative Dolan company. The shares got a boost after the July 4 weekend, when the exterior of the 366-foot-high Sphere was lit up for the first time with dramatic imagery. The display highlighted its advertising potential.
Sphere Entertainment also owns MSG Networks, the cable TV operator that broadcasts Knicks and Rangers games, and had about $800 million of net debt at the end of June. Barron’s assumes that MSG networks is worth that net debt figure. Net debt probably is lower now because the company sold about $500 million of MSG Entertainment stock in the past month.
Chris Marangi, a portfolio manager at Gabelli Funds, values Sphere at about $47 a share. He says it is capable of generating $200 million of annual cash flow.
“A future global network of Spheres would allow artists to actually ‘tour’ the shows they create for Vegas and create further cost leverage for original content,” wrote Brandon Ross, a LightShed Partners analyst who is bullish on the stock.
Barron’s recommended MSG Sports last fall, when the shares fetched $150. They are now around $181, valuing the company at $4.3 billion. The Knicks and Rangers are two of the most valuable franchises in their sports. The Knicks were valued at $6.1 billion and the Rangers at $2.2 billion in the latest annual Forbes tally. The stock trades for a little over half of the teams’ estimated value.
Dolan told Barron’s on Friday that “there is absolutely no thought of a full sale of the teams” and that MSG Sports is “not working” on a partial sale, which has been discussed. “The value of the assets keeps going up every year,” he said. “What you sell today may look like a cheap price” later.
He added, “If what they mean by a ‘Dolan discount’ is that we’re not selling, they’re right.”
MSG Sports stands to benefit from a lucrative new National Basketball Association national TV contract after the 2024-25 season. Marangi values the company at about $300 a share.
MSG Entertainment, trading around $32, will host Knicks and Rangers games at the Garden through 2055. It also owns the lucrative Christmas Spectacular featuring the Rockettes at Radio City in Manhattan. The company could generate over $100 million in free cash flow in its current fiscal year, says Marangi, who puts a private market value of $44 a share on the company.
One catalyst could be the sale for over $500 million of the Theater, a smaller space inside the Garden.
Write to Andrew Bary at [email protected]
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