Saturday, August 1, 2009

Madison Square Garden Breaks Away From Cablevision


For more than 30 years, Madison Square Garden has been controlled by a succession of corporations, from Gulf and Western and its successor, Paramount Communications, to Viacom and then the partnership of ITT and Cablevision.

In 1997, Cablevision bought out ITT for $650 million to gain full control of the Garden — ushering in a frequently bleak era for the arena’s two primary tenants, the Rangers and, especially, the Knicks.
On Thursday, reversing the trend, Cablevision’s board authorized a tax-free spinoff of the Garden into a stand-alone company.

Before speculation begins that the solo Garden will operate differently or be suddenly vulnerable to a takeover, it should be noted that the stock of the Garden will be controlled by Cablevision’s ruling family, the Dolans, and that the Cablevision executives who now oversee it, James L. Dolan and Hank Ratner, will continue to run it.

Cablevision said that it was not considering selling the Garden or any of its assets “at this time.”

It is impossible to say if the Garden’s becoming a separate entity will affect the Knicks’ financial pursuit of LeBron James after the coming season, or have an effect on any other big-ticket purchases companywide.
On its own, the Garden will use its existing cash flow to finance a $500-million-plus arena renovation.

Still, Bob Gutkowski, a president of the Garden during the Paramount era, wondered if the separated company would be able to borrow money as easily as it did with Cablevision behind it.

“It’s always had a big company as its bank for the money it wanted to raise,” he said. “When I was there and wanted to get $486 million” to pay for the 12-year Yankees rights deal for the MSG Network — “I went to Paramount.” He said the solo Garden would most likely lose Cablevision’s leverage during future talks with cable operators to renew the MSG and MSG Plus networks, which no longer carry major league baseball.

The main goal of spinning off the Garden was to showcase the strong cable system, telecommunications and programming assets of Cablevision — perhaps for a sale — apart from the Garden’s less-valuable businesses.

Craig Moffett, an analyst at Sanford C. Bernstein & Company, wrote in a report after Thursday’s announcement that “the separation of MSG removes a harder-to-value collection of assets from an overly complex balance sheet.”

A second analyst, David Joyce, of Miller Tabak & Company, said, “Equity holders like the core Cablevision cable and telecommunication assets, but they hold the MSG assets in little regard.”

He added, however, “I don’t think there’s potential for MSG to suffer without Cablevision.”

The assets of the separated Garden are broader than they were when it was last on its own.

They are now in four baskets. The sports side features the Knicks, the Rangers, the Liberty and the Hartford Wolfpack.

The entertainment business includes the Radio City Rockettes, the Radio City Christmas show, concerts and family shows.

The media group consists of the MSG, MSG Plus and Fuse networks and interactive businesses.

And its venues include the Garden, its companion Theater at Madison Square Garden; Radio City Music Hall and the Beacon Theater.

How valuable is it all? According to Joyce: $1.65 billion to $2 billion.

The Garden’s financial results for the three months ended June 30 showed a small dip in revenue, to $207.3 million, and an operating loss of $8.4 million, compared with $2.6 million in income for the same period last year. Decreased playoff revenue hurt, as did lower boxing ticket sales and fewer concerts. In addition, Cablevision said on Thursday that the last six months have seen a reduction in suite renewals and arena bookings.


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