MSG Sphere developer looks to expand with MSG Networks merger

The company that is building the MSG Sphere at The Venetian, Madison Square Garden Entertainment Corp., is looking to expand with a merger with MSG Networks Inc., executives of the company announced Friday.

The merger would provide enhanced financial flexibility for growth in entertainment and media for the company building the $1.66 billion Sphere, a high-tech 17,000-seat entertainment venue east of The Venetian.

The deal would provide tax advantages that would generate liquidity that could be used for debt repayment and investment in new ventures.

Powerful platform

The deal won’t alter the Sphere’s completion date, scheduled sometime in 2023.

“The addition of MSG Networks to our portfolio would create a powerful platform … enabling us to capture substantially more of this emerging revenue opportunity, which we expect will generate significant incremental revenue in the years ahead,” said Andy Lustgarten, president of MSG Entertainment.

MSG Networks was formed in 2015 after it was spun off the sports and entertainment division into a separate company. The new company became known as The Madison Square Garden Co.

Last year, The Madison Square Garden Co. rebranded as Madison Square Garden Sports Corp. and spun off its entertainment division as Madison Square Garden Entertainment, which is the company developing the MSG Sphere.

Upon the closing of the transaction, MSG Networks shareholders would receive 0.172 share of MSG Entertainment Class A or Class B common stock for each share of MSG Networks Class A or Class B common stock they own.

The exchange ratio is estimated at 4 percent above the ratio of the unaffected closing stock prices of the two companies on March 10, the last trading day before a press report speculated on a potential transaction.

Shareholders for both companies have endorsed the merger, expected to be completed by the third quarter, and no decision has been reached on the name of the merged company.

Potential revenue stream

The blending of the companies could also create a new revenue stream as a media partner for sports wagering.

The media company’s two networks, MSG Network and MSG+, operate in the nation’s top media market, the New York designated market area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania.

The networks deliver exclusive live local games of the National Basketball Association, New York Knicks, the National Hockey League New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres, as well as coverage of the National Football League New York Giants and Buffalo Bills.

“One area of opportunity for the combined company is in sports gaming … as New York pursues plans to legalize mobile sports gaming in the state,” Lustgarten said in a Friday call announcing the merger agreement.

“While the opportunity will, of course, be dictated by what happens with the legislation, we are excited by what we have seen in New Jersey, which last year was reported to have the largest sports betting handle in the country at approximately $6 billion,” he said.

“New York is believed to have the potential to become the largest sports wagering state in the U.S. which would create significant partnership opportunities for MSG Entertainment,” he said. “There are already many examples, around the country, of how sports gaming operators are creating innovative partnerships with venues and media companies, for everything from in-venue sportsbooks and digital applications to network integrations.”

Gaming companies and media operators around the country have similar partnership agreements with sports leagues and teams.

The Vegas Golden Knights, for example, have partnerships with William Hill US, Wynn Resorts Ltd., Golden Entertainment Inc., and IGT, as well as 32 hotel partners in Southern Nevada.

Madison Square Garden Entertainment Corp. shares, traded on the Nasdaq exchange, closed down $8.86, 9.4 percent, in light trading Friday, finishing at $85.08 a share.

The Review-Journal is owned by the family of Sheldon Adelson, the late chairman and CEO of Las Vegas Sands Corp. Las Vegas Sands operates The Venetian.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.