Madison Square Garden Entertainment yesterday (March 30) announced that it will spin off its live entertainment businesses from its sports television network, hospitality companies and a new Las Vegas venue.
The split was approved by MSG Entertainment’s board of directors and is expected to be completed on April 20th, according to a statement from the company.
The businesses spinning off, which include Madison Square Garden, its entertainment and sports booking properties and the Radio City Rockettes Christmas Spectacular, will take on the name MSG Entertainment, while the remaining company will be renamed Sphere Entertainment.
“With today’s announcement, we are one step closer toward our goal of creating two distinct companies, each well positioned to generate long-term value for our shareholders,” said James Dolan, CEO of MSG Entertainment, in a statement. Dolan initially raised the idea of a spin-off in August.
MSG Entertainment shareholders will receive a distribution of one Class A or Class B share of the new company for each share of common stock held. This distribution will represent 67 percent of the new company’s shares, while the remaining 33 percent will be owned by Sphere Entertainment.
“The spin-off is intended to qualify as a tax-free distribution to the Company’s stockholders and the Company for U.S. federal income tax purposes,” said MSG Entertainment. The split reportedly aims to allow shareholders to assess each company’s future potential individually, in addition to enabling both businesses to pursue distinct strategies.
Will the split benefit shareholders?
This isn’t the first time Dolan has split up assets of his companies. In 2020, MSG Entertainment was created after it spun off from the company’s sports assets, which are now known as MSG Sports.
In the past two decades, 50 percent of public company spin-offs have failed to create new shareholder value after two years, according to a Harvard Business Review report published in December. On average, splits delivered a 5 percent increase in combined market cap during this time.
However, there have been success stories, according to the report, which cited the 2020 spin-off of Howment Aerospace from industrial company Arconic, which saw the market cap of both companies rise by more than 150 percent in a year. And in 2015, the spin-off of Baxalta from aerospace company Baxter resulted in a 30 percent increase in their combined market cap by the next year.
Dolan’s Las Vegas Sphere venue, which falls under the newly-named Sphere Entertainment, will launch this September with a U2 concert. With 17,000 seats, the $2.2 billion arena will feature “the world’s highest resolution LED screen” and “4D multi-sensory technologies such as immersive seating, evocative scents and changing temperatures,” according to MSG Entertainment.
Other businesses under Sphere Entertainment include the MSG Networks, a sports television network which is launching MSG+ this summer, a streaming service for sports games offering annual, monthly and daily subscriptions.
The company will also retain its Tao Group hospitality businesses. In February, MSG Entertainment announced it is exploring a sale of its 67 percent stake in the businesses.
