Valuing Madison Square Garden Entertainment Before Its Upcoming Spinoff (MSGE)

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What’s happening?

Madison Square Garden Entertainment (NYSE:MSGE) is being split into two. The new MSGE and Madison Square Garden Sphere (SPHR). This is being done as a tax-free spin-out of the new MSGE from the old MSGE. The old

MSGE investor relations

cash operating income 150 The midpoint of management’s guidance. This is cash flow from operations less interest, taxes, one-time expenses, and working capital changes
maintenance capex 19 Average of last 3 years of capex for the entertainment division (2020, 2021, 2022)
cash flow to debt 131 Cash operating income less maintenance capex
interest expenses 61 $675 million in debt at a 9% interest rate
taxes 0 Per guidance, MSGE won’t be a meaningful taxpayer until 2027
free cash flow to equity 70 Cash flow to debt less interest and tax payments
share based comp 20 Per management’s guidance
owner’s earnings 50 Free cash flow to equity less share-based comp

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MSGE discounted cash flow analysis (Author’s work)

we acquired MSG Networks last year. And since that time, that transaction has provided a number of important benefits for us, including significant cash flow, which we’ve directed towards our Sphere initiative.

cash operating income 57 Trailing twelve months’ cash flow from operations less interest, taxes, one-time expenses, and working capital changes
maintenance capex 23 Trailing twelve months capex
cashflow to debt 34 Cash operating income less maintenance capex
interest expenses 6 83 million in debt at a 7.2% interest rate
taxes 5 Cash operating income less D&A and interest expenses times 21%
free cash flow to equity 22 Cash flow to debt less interest and tax payments
share based comp 8 Trailing twelve months share-based comp
owner’s earnings 14 Free cash flow to equity less share-based comp

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cash operating income 158 Trailing twelve months’ cash flow from operations less interest, taxes, one-time expenses, and working capital changes
maintenance capex 6 Trailing twelve months capex
cashflow to debt 153 Cash operating income less maintenance capex
interest expenses 68 $973M at a 7% interest rate
taxes 16 Cash operating income less D&A and interest expenses times 21%
free cash flow to equity 69 Cash flow to debt less interest and tax payments
share based comp 9 Trailing twelve months share-based comp
owner’s earnings 60 Free cash flow to equity less share-based comp

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Discount cash flow analysis of MSGN (Author’s work)

MSG Entertainment $900-1000M
MSG Networks $130M-$260M
Tao entertainment $150M
MSG sphere

$600M

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