MSG Sports seen offering valuation upside as Knicks, Rangers assets outpace enterprise value

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MSG Sports valuation and upside

Highlights

CNBC estimates value the Knicks at $10.1 billion and the Rangers at $3.8 billion, nearly $14 billion combined versus MSG Sports' enterprise value of under $10 billion.
MSG Sports has filed paperwork for a potential spin-off of the Rangers, following its proven track record with previous separations including the 2020 Madison Square Garden Entertainment spin-off.
MSG Sports shares gained 22.5% from April to June 11 before retreating 6%, with future upside hinging on asset appreciation rather than operating earnings.

Valuation gap and breakup catalyst

As reported by CNBC, Jim Cramer says investors seeking exposure to the Knicks should consider MSG Sports because the stock does not yet fully reflect the value of the company's franchise holdings.

He says MSG Sports trades as if it effectively owns only the Knicks, even though the company also owns the NHL's New York Rangers and two smaller development-league franchises. CNBC's latest estimates value the Knicks at about $10.1 billion, while the Rangers were valued last year at roughly $3.8 billion, putting the combined figure near $14 billion. That compares with an MSG Sports enterprise value of less than $10 billion, a measure that includes both equity and debt.

Cramer says that discount could narrow if MSG Sports completes plans to separate the Rangers into a standalone business. The company announced earlier this year that it is exploring a potential spin-off and later filed paperwork tied to the transaction. He adds that management has a record of executing separations, including the 2020 spin-off of Madison Square Garden Entertainment and the later split of Sphere Entertainment.

Share performance and investor risks

MSG Sports shares rise 22.5% from the start of April through June 11, when the stock reaches a record high ahead of the Knicks' championship victory on Saturday. Over the past five sessions, however, the shares pull back 6% as investors lock in gains.

Cramer says the title win may lift ticket revenue and franchise value, but he argues that is not the main reason to own the stock. Instead, he frames the investment case around rising franchise valuations and a sum-of-the-parts discount that he believes the market is overlooking.

He also cautions that MSG Sports remains an unusual investment. Chairman and CEO James Dolan controls most voting rights through privately held Class B shares, and the company's earnings are modest relative to its valuation, leaving investors largely dependent on further appreciation in the value of the underlying sports assets.

Our earlier coverage of Blackstone (BX) focused on the firm’s push to expand its private credit business, including the launch of SablePointe Credit Strategies and its role in the Medallia recapitalization. We also noted that, despite these strategic moves, BX was trading under bearish technical pressure and was expected to remain range-bound in the near term unless key support or resistance levels broke.

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