MSG Sports’ planned separation of the Rangers and Knicks is “not the end of the MSG Sports story,” but rather is the “transaction that makes the next transaction possible,” according to Ross, Greenfield & Kelley of the LIGHTSHED PARTNERS. Investors have long wanted the Dolan family to “take action to close the discount between the Knicks and Rangers public and private market valuations.” MSG Sports filed a Form 10 on Friday, moving ahead with the separation of the Knicks and Rangers into separate public companies and giving investors “enough information to stand up separate financial models for the Knicks and Rangers.” The separation makes the value of the individual franchises “easier to see, but it also makes a financial problem much harder to ignore: both companies are headed toward negative free cash flow.” While the spin will highlight the value of each team, value recognition is “only part of the story.” Each company is also “going to need capital and want to escape” the impact of the Section 162(m) tax law. The “most likely path” is for a minority stake sale “in the near term, followed over a longer period by a go-private of one or both teams.” Both teams “eventually going private is the strategic outcome that best reconciles the financial problem with the Dolan family’s likely desire to maintain control.” It also would be a “boon for current MSGS investors, even as the valuation has continued to climb” (LIGHTSHED PARTNERS, 8/18).
