Madison Square Garden’s big Las Vegas bet has investors sweating

Shares drop after New York entertainment company discloses new venue building costs

Madison Square Garden, the venue in Manhattan, bottom right.  Photograph: Craig Warga/Bloomberg via Getty Images

Madison Square Garden, the venue in Manhattan, bottom right. Photograph: Craig Warga/Bloomberg via Getty Images

 

Madison Square Garden Co’s big Las Vegas bet has investors sweating.

Shares of the New York live-entertainment company fell their most ever after it disclosed the steep cost of building a new venue in the gambling mecca.

The stock fell as much as 9.3 per cent to $266 (€240), hitting its lowest mark since January.

Investors were jarred by potential cost overruns of a concert and event venue called the Las Vegas Sphere. MSG approved a preliminary construction budget of $1.2 billion, but a contractor estimated the expense would be $1.7 billion.

If the actual cost is “somewhere in the middle,” that’s still higher than Wall Street estimates, said David Joyce, an analyst at Evercore ISI.

Even $1.2 billion would dwarf the budget of other venues. Las Vegas’s T-Mobile Arena, which opened just down the street in 2016, cost $375 million.

MSG plans to open the high-tech Las Vegas venue in 2021. It will host concerts, product launches, award shows and sporting events and feature an interior display the size of three football fields, the company said.

Spin-off plan

Meanwhile, MSG, led by executive chairman and chief executive officer Jim Dolan, is still looking to spin off its pro-sports franchises, including the New York Knicks and New York Rangers, believing it can wring more value from the iconic teams if they’re an independent business.

The proposal would split off the sports teams from MSG’s live-entertainment operations, which would keep famous venues such as Madison Square Garden and Radio City Music Hall, as well as a hospitality group, a music festival producer and about $1 billion in cash.

On Tuesday, the company said the spin-off process “is taking longer than expected” and it was committed to completing it in the first quarter of 2020.

The high construction costs in Las Vegas and the additional waiting period for the spin-off are likely to weigh on the company’s shares, Mr Joyce said.

MSG shares are now roughly flat this year, compared with a 16 per cent gain for the S&P 500 Index. – Bloomberg