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General Category => Investment Ideas => Topic started by: Gregmal on August 29, 2019, 01:45:10 PM

Title: MSGN - MSG Networks
Post by: Gregmal on August 29, 2019, 01:45:10 PM
https://www.businesswire.com/news/home/20190829005683/en/

So there's been a bit of discussion on this one in the other thread, but I think this cements the value status.

MSGN currently trades at half the EV of YES. Its not a hard argument that in terms of asset desirability, basketball games are more valuable than baseball. And then perhaps hockey and baseball are on par. MSGN figure has ~150 pro games a year, as does YES, so that is a wash. "Other content" Id say is equally meh as well.

MSGN currently trades at a little over 3x EBITDA, but people seem overly concerned with sub declines. At first I bought into this as well. But when you take this a step further, that is really not relevant for two reasons.

1) You just had basically every type of RSN under the sun go to market so you have a range in terms of current market values. MSGN has to be near or at the top in terms of desirability.

2) Imagine over the next several years subs go to zero, but the pay down the debt... not unreasonable(well maybe subs going to 0 is unreasonable but picture it anyway). First that means there is NO Knicks or Rangers games on TV,.. yea right, and two... you still have to ask yourself, what are the rights to broadcast this worth? Even without any subs, its worth a lot.

The big question is Dolan, but there are several issues at play. One, Dolan is very well connected(and dare I say even. respected) in the media biz. John Malone is said to have inquired about MSGN during the DIS process, as did Sinclair, who is apparently still shopping for more. It is well documented Dolan's desire to liquidate this and it was said that this was the main reason it was spun out from MSG in the first place.

Further, the company has commented on previous calls, and recently at an investor event, that it wouldn't be unreasonable to see substantial dividends and buybacks implemented once down to 2 turns on the debt. This should be accomplished in the next 12 months.

After the earnings drop and market overreaction Ive quickly made this about a 6% position. I am curious how others see this and if there are any other perspectives in the market besides simply "sub decline" issues, which as Ive said, to me, arent really important anymore given the market activity of late. Or what others think this is worth. Conservatively I think a 2.75B EV is  your sale figure, which gives you nearly 100% upside
Title: Re: MSG Networks
Post by: Gregmal on August 29, 2019, 01:47:18 PM
Motherfucker...30 seconds after posting...

https://snapshot.fidelity.com/fidresearch/snapshot/landing.jhtml#/news?symbol=MSGN&storyid=201908291644PRIMZONEFULLFEED7700769&provider=PRIMZONE&product=FULLFEED

Title: Re: MSG Networks
Post by: BG2008 on August 29, 2019, 02:20:16 PM
Motherfucker...30 seconds after posting...

https://snapshot.fidelity.com/fidresearch/snapshot/landing.jhtml#/news?symbol=MSGN&storyid=201908291644PRIMZONEFULLFEED7700769&provider=PRIMZONE&product=FULLFEED

What is the second link?  Couldn't see it.
Title: Re: MSG Networks
Post by: Gregmal on August 29, 2019, 02:26:18 PM
https://seekingalpha.com/news/3495849-msg-networks-plus-3_4-percent-bigger-buyback-share-tender

Upped buybacks $300M to ~$430M(vs 1.03B mc), concurrent with dutch tender for up to $250M between $15-$17.50

Stocks now at 16.3 AH, stock is still compelling here IMO.
Title: Re: MSG Networks
Post by: SHDL on August 29, 2019, 02:27:16 PM
Lol, you really have a good nose for these things.  I should have bought more.

Not much to add other than if they’re going to sell to someone like Sinclair they should probably hurry up and make a move before the regulatory climate changes. 
Title: Re: MSG Networks
Post by: Gregmal on August 29, 2019, 02:56:46 PM
Yea IDK lol sometimes the spider senses just start tingling.

Seriously though, I think Sinclair is clearly hungry but Ive always thought, and heard that Bezos would be a natural fit. Not necessarily Amazon, although they could be the acquirer, and perfectly seam this into their Prime offering. Displaced NYers are all over the country(and world) so there is an extended market for this that there really isn't for any other RSN. But I wouldn't be shocked if Jeff personally tried to acquire MSGN and the Knicks as a personal asset. It fits in with the type of shit Ive been told he's been looking at the past couple years(not to mention his prowling NY as well).
Title: Re: MSG Networks
Post by: BG2008 on August 29, 2019, 05:12:33 PM
Lol, you really have a good nose for these things.  I should have bought more.

Not much to add other than if they’re going to sell to someone like Sinclair they should probably hurry up and make a move before the regulatory climate changes.

Gregmal,

Put your spidey sense to work on my portfolio.  Start buying my stocks!!!
Title: Re: MSG Networks
Post by: Gregmal on August 29, 2019, 05:36:54 PM
I do appreciate the flattery, but lets all make some money!

Here's roughly $10B worth of RSN's..

Fox Sports Arizona
Fox Sports Detroit
Fox Sports Florida
Fox Sports Sun
Fox Sports North
Fox Sports Wisconsin
Fox Sports Ohio
SportsTime Ohio
Fox Sports South
Fox Sports Carolina
Fox Sports Tennessee
Fox Sports Southeast
Fox Sports Southwest
Fox Sports Oklahoma
Fox Sports New Orleans
Fox Sports Midwest
Fox Sports Kansas City
Fox Sports Indiana
Fox Sports San Diego
Fox Sports West
Prime Ticket
Fox College Sports


Then there is YES which is ~3.5B


Which of those most closely compares to MSG Networks?


Assuming a $16 price tomorrow... that's an EV of ~1.8-1.9B

Now, here's whats changed. You have the debt actively being cleaned up, another $125M mandatory pay down this year, as much as 40% of the market cap(as of todays close) dedicated to repurchases, and like I said above, about $300M in EBITDA...Oh yea, and, a pretty freaking remarkable statement made today answering the question of "are they aligned with shareholders?"

I don't have a crystal ball in terms of what its eventually going to be sold for, but I think that is a matter of when, not if, and I think the current price, at the, least, represents a pretty decent risk to reward setup...

Title: Re: MSG Networks
Post by: Cardboard on August 29, 2019, 06:18:23 PM
As Bruce Buffer would say: "IT'SSSSS TIME!!!!!!"

Title: Re: MSG Networks
Post by: SHDL on August 29, 2019, 06:51:11 PM
So Fox bought their 80% stake in YES at an EV in the $3-4bn range during 2012-2014:

https://www.hollywoodreporter.com/news/sinclair-amazon-back-35b-yankees-deal-take-full-control-yes-network-1193246

and they then passed on MSGN in 2017 when it had a $3bn EV:

https://nypost.com/2017/07/18/no-one-wants-to-buy-james-dolans-tv-networks/

Given this and the fact that YES just went for $3.5bn (i.e., basically no price appreciation since Fox bought their stake), $3bn is probably a reasonable ceiling for MSGN — unless there is a reason to believe the network has become more valuable over time.  The only question then is how close can we get to that ceiling...

But in any case if their cash flows hold up, they use the cash to reduce debt and/or repurchase shares for a few years, and then the whole thing sells for anything close to $3bn, shareholders should to do very well.
Title: Re: MSG Networks
Post by: SHDL on August 29, 2019, 07:12:46 PM
Also Bloomberg had some estimates for YES’s EBITDA multiple:

https://www.bloomberg.com/opinion/articles/2019-03-14/amazon-s-cheap-yankees-deal-for-yes-network-is-hollywood-lesson

If we use their range of 7.4-9x to value MSGN, we get a per share value of around $20-28.  So plenty of upside left.  (Unless you guys bid up the price tomorrow morning, that is. ;))
Title: Re: MSG Networks
Post by: hillfronter83 on August 29, 2019, 07:26:46 PM
YES valued around $3.47b EV.

https://www.prnewswire.com/news-releases/sinclair-acquires-20-interest-in-yes-network-300909204.html
Title: Re: MSGN - MSG Networks
Post by: scorpioncapital on August 30, 2019, 12:28:02 AM
Is this a run-off type business on cable while they onboard to streaming? Similar to Discovery Inc I would think?

Title: Re: MSGN - MSG Networks
Post by: Gregmal on August 30, 2019, 12:29:39 AM
Further;

Typically, companies hold 4-6 prescheduled board meetings per year. Any corporate action, specifically, buybacks, are predetermined based upon prevailing market prices or expected corporate events. Here, what we have, is a proactive board, not more than a week after an earnings release, taking it upon themselves to move to this action. In other words, entirely unsolicited and REACTIVE, to events that likely transpired since their most recent board meeting, and events that did transpire since the most recent earnings. Yea, lets put to bed the notion that they don't give a f** about you.

Second, in relation to sub declines. Lets look at CVC, DTV, DISH, CHTR, T, etc or whatever. These are the driving forces behind much of the MSGN subscriber base. BUT, why I decided I give zero a hoot about sub declines is this. All of those companies offer packages. Many people subscribe to packages because they want specific items. For instance, one may very well pay for a package of 35 channels, for just a couple networks. So yes, cord cutting is effecting MSG Networks, but the cancellations or declines, IMO are hardly related to peoples desire for sports, and more of a macro trend. Losing subs, is likely because people dont feel the need to pay $55 for Cablevision's 150 channels. Not because they won't pay a $5-$10 a month for their sports fix. So MSG Networks issue, is not so much sub declines, but rather the method by which they distribute their product. I have long thought these guys could make MORE money, distributing the content through alternative mediums. AGAIN, does anyone think we ever see a scenario where Knicks and Ranger games are not on TV AT ALL? Nope.

Lastly, I'd highlight the announced actions. The company chose to increase their buyback authorization from $136M or so to the following. $250M tender for shares between $15-17.50, AND concurrently, a total authorization of $436M. So, what this means, is that they have determined their intrinsic value, AND concluded they are willing to buy $250M worth of stock at 17.50,WHILE STILL REPURCHASING ANOTHER ~$184M IN STOCK!

Sometimes investments are easy....
 


Title: Re: MSGN - MSG Networks
Post by: KJP on August 30, 2019, 06:03:46 AM


Second, in relation to sub declines. Lets look at CVC, DTV, DISH, CHTR, T, etc or whatever. These are the driving forces behind much of the MSGN subscriber base. BUT, why I decided I give zero a hoot about sub declines is this. All of those companies offer packages. Many people subscribe to packages because they want specific items. For instance, one may very well pay for a package of 35 channels, for just a couple networks. So yes, cord cutting is effecting MSG Networks, but the cancellations or declines, IMO are hardly related to peoples desire for sports, and more of a macro trend. Losing subs, is likely because people dont feel the need to pay $55 for Cablevision's 150 channels. Not because they won't pay a $5-$10 a month for their sports fix. So MSG Networks issue, is not so much sub declines, but rather the method by which they distribute their product. I have long thought these guys could make MORE money, distributing the content through alternative mediums. AGAIN, does anyone think we ever see a scenario where Knicks and Ranger games are not on TV AT ALL? Nope.


Is the bolded part of your post above hypothesis or fact at this point?  Specifically, do we know yet from other sports programming examples whether the revenue generated from people willing to pay $5-$10/month for a dedicated sports channel is equal to or greater than the revenue that a sports channel like MSGN can generate from being part of a bundle to which more people subscribe?  My understanding (though I don't have source handy) is that historically sports networks negotiated very hard for mandatory carriage in basic cable packages because that would generate more revenue than being part of an add-on or premium bundle for which subscribers had to specifically elect to receive and pay for.  (In this scenario, the bundle is subsidizing sports, rather than sports subsidizing other parts of the bundle.) I'm talking about, for example, MSG back when it showed Yankee games, SportsChannel for the Mets and Yes Network today.  Am I wrong about that historic practice, or has the view changed today?

One empirical test (though not a perfect one) for this is ESPN.  It's per-sub fees are very high, so it's been hit by cord-cutting.  But it also offers an DTC streaming product, ESPN+.  Has the revenue from ESPN+ offset the hit from declining cable bundle subs?  I acknowledge that ESPN isn't a perfect comp, because it's provides diffuse, national coverage of many sports, rather than broadcasting essentially all of the games for specific teams.

Of course, none of the above undermines your other point:  Despite people's understandable concerns about Dolan, the Spheres, etc., MSGN appears to be acting in the best interests of shareholders.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on August 30, 2019, 06:33:06 AM
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.
Title: Re: MSGN - MSG Networks
Post by: KJP on August 30, 2019, 08:22:45 AM
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.

I agree with you that the content is very valuable and there ought to be ways to monetize it and generate alot of money.  So, if you owned the underlying intellectual property (i.e., the teams themselves), I think you're going to be fine, even if you ultimately make less money from TV than you do today. 

But the issue I see with MSGN is that the company doesn't own the underlying IP (i.e, the sports teams themselves); instead it has to pay MSG for right to use its IP, and those licensing fees are MSGN's biggest expense.  Those fees are also fixed, rather than a percentage royalty, and rise over time due to built-in escalators.  So, in the armageddon scenario (which I agree isn't going to happen), you still have a massive fixed expense to cover, rather than a variable expense that would decline in proportion to your revenue. Put another way, it's not enough to say that MSGN has valuable rights; you have to believe that the rights are substantially more valuable than what MSGN is paying MSG to secure those rights.  In the armageddon scenario, I doubt they would be.

All that being said, if I had to bet, I'd say MSGN shareholders will do well from here, but if you like MSGN, then you might also be interested in GTN or FOX, which, although not as sports focused, have similar dynamics and high FCFs.
Title: Re: MSGN - MSG Networks
Post by: scorpioncapital on August 30, 2019, 08:26:52 AM
I sometimes wonder why Buffett gave up the media space. Did his mental model say something about media or distribution? Albeit he does/did own some platforms.
Title: Re: MSGN - MSG Networks
Post by: SHDL on August 30, 2019, 09:09:38 AM
I actually share the concern that RSNs in general could be melting ice cubes, but I’m also inclined to think that the YES valuation already has that priced in (given that the risk is fairly obvious, the buyers are a sophisticated/well-informed bunch, and Disney was essentially a forced seller).  So if Mr Market is taking YES as a reference point and then applying a “melting ice cube discount” to it to value MSGN, he is basically double counting the risk. 
Title: Re: MSGN - MSG Networks
Post by: Gregmal on August 30, 2019, 09:11:28 AM
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.

I agree with you that the content is very valuable and there ought to be ways to monetize it and generate alot of money.  So, if you owned the underlying intellectual property (i.e., the teams themselves), I think you're going to be fine, even if you ultimately make less money from TV than you do today. 

But the issue I see with MSGN is that the company doesn't own the underlying IP (i.e, the sports teams themselves); instead it has to pay MSG for right to use its IP, and those licensing fees are MSGN's biggest expense.  Those fees are also fixed, rather than a percentage royalty, and rise over time due to built-in escalators.  So, in the armageddon scenario (which I agree isn't going to happen), you still have a massive fixed expense to cover, rather than a variable expense that would decline in proportion to your revenue. Put another way, it's not enough to say that MSGN has valuable rights; you have to believe that the rights are substantially more valuable than what MSGN is paying MSG to secure those rights.  In the armageddon scenario, I doubt they would be.

All that being said, if I had to bet, I'd say MSGN shareholders will do well from here, but if you like MSGN, then you might also be interested in GTN or FOX, which, although not as sports focused, have similar dynamics and high FCFs.

They do not "own" the rights, but they kind of do. Ive tried envisioning a scenario where they lose the Knicks and Rangers. I just can't see one. The Sabres or Devils? Maybe...but I don't really care about those anyway at this valuation. Perhaps its overlooking a big issue, but I kind of think its equivalent to worrying about whether an RMR entity will renew their manager agreements... I view the contracts as moreso a way to kick over dividends to the parent company which was only necessary because they did the spin off in 2016. Conventional wisdom would say that you are protected from anything onerous simply because you're investing alongside the same guy. Ive said it a million times, but Dolan's reputation in terms of how he treats fans, distorts the perception of his acumen for the businesses. He views fans, and even supposedly most players(if you've ever met professional athletes it's hard not to see) as total morons and entitled brats. But investors, money managers, business executives, those are his types of people and he greatly respects them.

Although theoretically, down the line, if the numbers stop working and its no longer economical to have the rights agreements at their current rates, they will obviously go lower when it is time to renew. I believe the 20 year(maybe it was 15, I forget exactly) was simply a mechanism to keep some cash coming over to the sports team and little thought was given to it. It really isn't even out of the question IMO for the parent company MSG to repurchase MSGN down the line if necessary. This is something that has been speculated as well.

In layman's terms, if you can't sell sports in NY, you're an idiot. So my bet is that they arent idiots, and that if they are, the company gets sold to someone who can make it work, at a price that's in the ballpark of what the comps suggest. In both scenarios money gets made from these levels.
Title: Re: MSGN - MSG Networks
Post by: SHDL on August 30, 2019, 10:12:04 AM
Conventional wisdom would say that you are protected from anything onerous simply because you're investing alongside the same guy.

I agree.  I think this was one reason why the Yankees held on to a partial stake in the YES Network when it was first sold to Fox a few years ago and then increased their stake a bit as it was sold to Sinclair/Amazon/others just recently.  If I were to ever buy an RSN I would certainly want my financial interests to be aligned with the team owners…
Title: Re: MSGN - MSG Networks
Post by: Gregmal on August 30, 2019, 10:19:24 AM
Conventional wisdom would say that you are protected from anything onerous simply because you're investing alongside the same guy.

I agree.  I think this was one reason why the Yankees held on to a partial stake in the YES Network when it was first sold to Fox a few years ago and then increased their stake a bit as it was sold to Sinclair/Amazon/others just recently.  If I were to ever buy an RSN I would certainly want my financial interests to be aligned with the team owners…

Right. Which is perhaps the only thing I can think of in terms of negative impacts on valuation in a potential sale scenario. A buyer may want something more concrete, which from what Ive heard, Dolan would be fine doing for the right price.
Title: Re: MSGN - MSG Networks
Post by: Cardboard on August 30, 2019, 11:07:14 AM
I bought some in the low $16's today. Small position for now and hopefully it trades lower in coming days. I wish Gregmal had written his original post one day earlier. It was pretty much enough to convince me to step in after some hesitation earlier.

Price is highly compelling IMO and despite this talk of melting cube, revenues have still been going up. It was up 3.5% last year while EBITDA was down 1.6%. So sure, there is some pressure but, not to justify such low multiple on a business that is zero capital intensive, with such high margins and strong franchise.

Current price despite being quite a bit higher than yesterday remains a little weird to me. Almost like Mr. Market decided to price it right at the middle of the modified Dutch auction range. However, at current price of $16.30, they would buy back 15.3 million shares. That is right around 25% of existing class A shares which is a very significant percentage.

I doubt very much that shares availability will be that high and they will probably need to pay $17.50 to acquire that many shares IMO and may not reach $250 million. I could be wrong but, considering that there is also $186 million waiting to buy even more shares under any weakness, I would assume that most holders will stick around. Has to be a lot of patient holders, value type, in this name.

So if one tenders at $17.50, that is a respectable 7.4% return from the $16.30 mark in a very short period of time. Almost a gift IMO and pretty low risk for smaller holders looking for some arbitrage.

The only thing that I am wondering about the business still is this mention of a potential IRS challenge on the distribution of MSG. Is this just normal disclosure or it is a true risk?

Cardboard
Title: Re: MSGN - MSG Networks
Post by: Gregmal on August 30, 2019, 11:30:58 AM
My recollection is that this has been a disclosed risk since prior to the spin off in 2016 or whenever it was. Its somewhat standard verbiage in those situations. Unless something new came out which I am not aware of. In either event I would think it really would only be the problem of shareholders of record on the spin date.
Title: Re: MSGN - MSG Networks
Post by: Spekulatius on August 30, 2019, 03:25:51 PM
I think the IRS clause is pretty much in any spinoff filing. It seems like standard boilerplate. I am not in MSGN, but I add a bit in MSG. I think Dolan will come to his sense on the Spheres. MSG is ultimate where I think the value is, but MSG has a long duration contract with MSG they guarantees them a profit, unless ones assumes doomsday scenarios. After the contract expires, the value of MSG is very much in question.

I think the idea with the whole spinoff was to put some debt into a cash flowing entity (MSGN) then put the cash into an asset entity (MSG), so it can develop Dolan’s toy project (the Spheres) without risking the store. I don’t think the arrangement doesn’t make all that much sense unless something else happens (the sport team get spun off too) and if the Spheres don’t happen, what is the $1B in cash for on MSG balance sheet. Maybe other assets/arenas? Anyways, added a bit more MSG on Thursday, but feel I need to understand this better before going in knee deep.

FWIW, Murdoch agrees that FOX is too cheap as well and just bought $16M personally.
Title: Re: MSGN - MSG Networks
Post by: Lance on August 31, 2019, 11:55:01 AM
Gregmal, the beer is on me next time I’m in NY.  Agree that Dolan’s a weird cat, but don’t see how he can screw this up.

Regarding FOX, thoughts on the two share classes?  Noticed they reacted differently during after hours yesterday.

Thanks
Lance
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 01, 2019, 11:48:30 AM
A little more brainstorming and thesis murdering attempts on my part the past few days have yielded the following:

Knicks/Rangers contracts are of no worry to me period, but to everyone else, you've got until 2035. Islanders are after 2030, Devils are 2024. However, for those concerned about Dolan negotiating with....Dolan, 15+ years from now, I suggest you look up the history with the Buffalo Sabres. Long story short(its a weekend, I don't feel like writing the entire novel, nor would the wife allow it lol), the Sabres were always seen as the largest risk to exit. Additionally, they are owned by an ambitious, entrepreneurial fellow named Terry Pegula. Pegula has long sought to own or create his own RSN. He also owns the Buffalo Bills. The contract was up sometime around mid 2016. After MSGN split from MSG. What happened? The team at MSGN not only extended the Sabres on a longer term than the previous deal, but also walked away gaining the rights to much valued Buffalo Bills content.... Not bad.

Separately, I always wondered, but didn't care or find it integral to my investment enough, to track the exact allocating of the previous MSGn authorized buyback of $150M. This was deployed after the stock briefly turned south of $20 in late 2017. The stock to my recollection very quickly rebounded to levels north of $20, and that was that. I did the back of the enveloped on the math and it appears the company was not willing to execute very much of that, which is why their total authorization is currently way higher than the $300M new announcement. What can I infer?

1)That under $20, the company is willing to buyback a lot of stock, but they are very disciplined over that number.
2) That the company in 2017 verified running a brief strategic review in order to feel out the market and potentially sell. So the same board that authorized that plan, and the same one that just promptly and proactively launched this one, are doing so based on informed and fairly current knowledge of EXACTLY WHAT THE PRIVATE MARKET IS FOR THE COMPANY. In addition to that, I dont think its a coincidence they made this announcement half an hour after the YES deal closed. I think they were very involved in the ongoings of the major RSN deals that took place between FOX and Disney, and have their finger on the pulse of the market for their assets.

So.... all the more reason to look at $16 as kind of no brainer territory. But that's just my opinion. Hopefully this insight is helpful for those interested here.
Title: Re: MSGN - MSG Networks
Post by: no_free_lunch on September 05, 2019, 11:48:34 AM
I am in on this one.  My biggest concern, and what is keeping it a medium sized position, is that it seems you can get really burned in a deflationary environment.  The fees to parent go up by 3% each year I have read, what happens if we get into a deflationary environment?   It has 16 years left on the contract IIRC, that can be quite the hurdle to overcome if you can't raise rates.  This is before we even get into a discussion on the subs.
Title: Re: MSGN - MSG Networks
Post by: Stuart D on September 06, 2019, 12:42:56 AM
This has been a fun post to read! At $17.05, it still seems cheap  :)

Is anyone concerned about the $900m due 2021?
Title: Re: MSGN - MSG Networks
Post by: scorpioncapital on September 06, 2019, 12:53:26 AM
In today's world, most companies believe they can roll over their debt forever. Just like you and I we can refinance a mortgage until we die and never have to pay it back, sell the asset at that point by the estate.. ...but this assumption is dangerous. In the short term maybe less so but eventually, if debt had no consequences and could be imprudently accumulated, what would be the point of lending on the creditor side?
Title: Re: MSGN - MSG Networks
Post by: UK on September 06, 2019, 03:07:04 AM
I am afraid this sport content inflation Vs general low inflation or even deflation (because of macro or ongoing sector disruption) is a very real and big risk. If I remember correctly, Malone also pointed to this risk some time ago, while commenting on ESPN future. But probably this will revert to the normal valuation before answer is clear:)
Title: Re: MSGN - MSG Networks
Post by: Spekulatius on September 06, 2019, 03:45:16 AM
I am afraid this sport content inflation Vs general low inflation or even deflation (because of macro or ongoing sector disruption) is a very real and big risk. If I remember correctly, Malone also pointed to this risk some time ago, while commenting on ESPN future. But probably this will revert to the normal valuation before answer is clear:)

I think the bigger risk for ESPN ( and other sports content) is to get squeezed in the middle between consumer or the team (content provider) because they provide little value add, especially when streaming becomes the prevalent method of distribution.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 06, 2019, 04:59:28 AM
This has been a fun post to read! At $17.05, it still seems cheap  :)

Is anyone concerned about the $900m due 2021?

I wouldn't be. But Im also not worried about the Knicks/Rangers renewal in 2035...some are.

But in regards to the debt, the company when spun off in late 2015 I believe had something like $1.3B net debt. So in 3 years they've paid down to ~$700m in net debt. The $900M face, also requires a mandatory $120M pay down this coming year. So by 2021, even if spending the entire buyback authorization you should still see that debt number no higher than maybe $650M, and EBITDA is around $300M. They've also mentioned they are currently working on refi options.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 06, 2019, 07:31:35 AM
This has been a fun post to read! At $17.05, it still seems cheap  :)

Is anyone concerned about the $900m due 2021?

Just my opinion, but I think it's easy money until about $17.50-$18. Then its still cheap, but if you're conservative about it, just take the company any their word on what their willing to pay...and do the same.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 06, 2019, 11:15:28 AM
Since the announcement, a total of ~7.5M shares have traded. The company is potentially looking to repurchase north of 15M shares at 17.50. Yea, don't think it's happening. Volume has totally dried up.
Title: Re: MSGN - MSG Networks
Post by: vince on September 07, 2019, 09:31:39 PM
A little more brainstorming and thesis murdering attempts on my part the past few days have yielded the following:

Knicks/Rangers contracts are of no worry to me period, but to everyone else, you've got until 2035. Islanders are after 2030, Devils are 2024. However, for those concerned about Dolan negotiating with....Dolan, 15+ years from now, I suggest you look up the history with the Buffalo Sabres. Long story short(its a weekend, I don't feel like writing the entire novel, nor would the wife allow it lol), the Sabres were always seen as the largest risk to exit. Additionally, they are owned by an ambitious, entrepreneurial fellow named Terry Pegula. Pegula has long sought to own or create his own RSN. He also owns the Buffalo Bills. The contract was up sometime around mid 2016. After MSGN split from MSG. What happened? The team at MSGN not only extended the Sabres on a longer term than the previous deal, but also walked away gaining the rights to much valued Buffalo Bills content.... Not bad.

Separately, I always wondered, but didn't care or find it integral to my investment enough, to track the exact allocating of the previous MSGn authorized buyback of $150M. This was deployed after the stock briefly turned south of $20 in late 2017. The stock to my recollection very quickly rebounded to levels north of $20, and that was that. I did the back of the enveloped on the math and it appears the company was not willing to execute very much of that, which is why their total authorization is currently way higher than the $300M new announcement. What can I infer?

1)That under $20, the company is willing to buyback a lot of stock, but they are very disciplined over that number.
2) That the company in 2017 verified running a brief strategic review in order to feel out the market and potentially sell. So the same board that authorized that plan, and the same one that just promptly and proactively launched this one, are doing so based on informed and fairly current knowledge of EXACTLY WHAT THE PRIVATE MARKET IS FOR THE COMPANY. In addition to that, I dont think its a coincidence they made this announcement half an hour after the YES deal closed. I think they were very involved in the ongoings of the major RSN deals that took place between FOX and Disney, and have their finger on the pulse of the market for their assets.

So.... all the more reason to look at $16 as kind of no brainer territory. But that's just my opinion. Hopefully this insight is helpful for those interested here.

I dont think you can compare the stock price over that 2 year span, at least not on an equal basis.  They have paid off debt and bought back stock which means market cap and EV are different for the same stock price (which you obviously know already).  This stock is an absolute no brainer because their earning power looks reasonably constant (based on all the factors that everyone already knows), the fcf/earnings yield is ridiculous (especially with low interest rates and pretty stable earnings that stay stable even with some subscriber losses), an aggressive buyback at those ridiculous yields and as a default, the creation of a dollar of value for every dollar retained to pay down debt.  If earnings dont start falling pretty rapidly soon, it's mathematically impossible to lose money here assuming mgmt is aligned and not brain dead.  PRAY TO GOD that the stock price doesnt go up for a couple years, so we can feel like it's 1974 again buying good businesses at 2-3 times earnings.  Like Gregmal said, sometimes it really is easy.
Title: Re: MSGN - MSG Networks
Post by: Stuart D on September 07, 2019, 09:51:36 PM
This has been a fun post to read! At $17.05, it still seems cheap  :)

Is anyone concerned about the $900m due 2021?

I wouldn't be. But Im also not worried about the Knicks/Rangers renewal in 2035...some are.

But in regards to the debt, the company when spun off in late 2015 I believe had something like $1.3B net debt. So in 3 years they've paid down to ~$700m in net debt. The $900M face, also requires a mandatory $120M pay down this coming year. So by 2021, even if spending the entire buyback authorization you should still see that debt number no higher than maybe $650M, and EBITDA is around $300M. They've also mentioned they are currently working on refi options.

Thanks @Gregmal, that makes sense.
Title: Re: MSGN - MSG Networks
Post by: vince on September 07, 2019, 10:21:51 PM
I was basing my market cap language on 62 million shares outstanding but I believe thats a mistake as it looks like its closer to 75 million.  Don't know why I had that number in my head or where I saw it.  Can anyone confirm?
Title: Re: MSGN - MSG Networks
Post by: SHDL on September 07, 2019, 10:30:09 PM
I was basing my market cap language on 62 million shares outstanding but I believe thats a mistake as it looks like its closer to 75 million.  Don't know why I had that number in my head or where I saw it.  Can anyone confirm?

75m is about right.  You might have missed the Class B shares the first time you looked.
Title: Re: MSGN - MSG Networks
Post by: Cardboard on September 08, 2019, 01:12:18 PM
And the Bills win! Every bit helps when it comes to viewership.

Cardboard

Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 08, 2019, 06:43:36 PM
If you like MSG you should look at SBGI.  They just bought all the Fox sports networks from Disney including YES Network. They also have the leverage with their network stations to negotiate better carriage deals.  The stock is at $43 while they are indicating they will earn $12-13 per share of free cash flow (not earnings, free cash flow).  More diversity, better negotiating leverage and better valuation.
Title: Re: MSGN - MSG Networks
Post by: vince on September 09, 2019, 04:45:23 PM
If you like MSG you should look at SBGI.  They just bought all the Fox sports networks from Disney including YES Network. They also have the leverage with their network stations to negotiate better carriage deals.  The stock is at $43 while they are indicating they will earn $12-13 per share of free cash flow (not earnings, free cash flow).  More diversity, better negotiating leverage and better valuation.

Tell us more including any negatives please
Title: Re: MSGN - MSG Networks
Post by: Stuart D on September 09, 2019, 11:52:44 PM
Link below to their investor presentation:

http://sbgi.net/wp-content/uploads/2019/05/20190505-Slider-Investor-Relations-Deck_vSENT.pdf

Looks as though it will be cheap on a P/FCF basis, but I'm not sure of exactly how much debt the company will have after the RSN acquisition. Slide 16 shows: $8.2b in new debt; and $1.08b in preferred equity. Slide 5 says the total EV of the transaction was $10.6b.

Also Sinclair's pre-consolidated 10-q shows $3.7b in debt.

So perhaps total EV = 10.6b (new company) + 3.7b (debt at existing company) + $1.1b (preferred)- $1b (cash) = $14.4b

Am I on the right track here @dwy000?


Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 10, 2019, 07:06:58 AM
Yes, you are absolutely right, it is highly levered right now (although on a consolidated basis it is not out of line with historical norms for the industry).  I'd also note that the debt taken on to acquire the RSN's is largely non recourse to Sinclair.  Also, Sinclair has the right to buy out the prefs in the next (I believe it is) 18 months and fully intends to do so.

The next year being an election year they should have enormous cash flow to pay down some of that debt.

Also, they have started up the Chicago Cubs RSN whichwill come online next year.
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 10, 2019, 07:13:41 AM
Sorry, forgot to add that the presentation was prior to acquisition of YES Network too.  They dont own the whole thing but will manage the asset and get paid for it.
Title: Re: MSGN - MSG Networks
Post by: Cardboard on September 13, 2019, 12:08:50 PM
Tempted to buy more here.

I looked at Sinclair and I am having a hard time understanding their web. I can see the value but, it is complicated and I don't like the amount of debt.

This story is much simpler, low leverage vs free cash flow and with MSG now moving up, their tender offer, I am having a hard time seeing how one loses.
Title: Re: MSGN - MSG Networks
Post by: Stuart D on September 13, 2019, 06:37:27 PM
I like this idea, so I've been doing some further reading.

The 2016 VIC post (for MSGN) brought up the contract renewal of Cablevision/Altice at the end of 2019 being a potential risk (albeit minimal as MSGN potentially is adding more value to Cablevision, than the other way around).

Quote from the 2016 VIC write up below. Any thoughts on this?

Top Customer (Cablevision) is Being Acquired by Aggressive Cost Cutter – The proposed acquisition of Cablevision by Altice has also created some uncertainty, but I believe that concerns are overblown. Altice has gained a reputation as an aggressive cost cutter and there is the potential that it could end up scrutinizing its programming expenses to achieve their lofty cost reduction targets for Cablevision. With Cablevision representing ~40% of MSG’s RSN subs, the prospect that Altice drops the networks or demands a meaningful rate reduction could have a material negative impact on MSGN’s results. However, I believe that it is unlikely Altice would drop the networks and MSGN should have good leverage in 2019 when Cablevision’s current affiliate fee agreement comes up for renewal. The risk of not carrying MSGN’s RSNs would likely have a significant impact on Cablevision’s results due to the potential loss of a large number of highly profitable broadband subscribers.
Title: Re: MSGN - MSG Networks
Post by: Stuart D on September 13, 2019, 07:27:52 PM
further reading...

I don't know much about Basketball - it's not a huge sport in Australia. Having said that, I'd imagine that the best time to buy programming rights is when the team is on the bottom of the ladder (low subscribers) and the best time to sell is when the team is on the top (presumably high subscribers).

The NY Knicks are MSGN's biggest team. It seems the Knicks are currently on the bottom. They haven't made playoff since 2012-2013, 6 years straight. No team stays on the bottom forever though and there was a period where the Knicks made the playoffs each year for over a decade (1987 - 2001). A return to form could result in a large upswing for MSGN.
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 13, 2019, 09:37:33 PM
I like this idea, so I've been doing some further reading.

The 2016 VIC post (for MSGN) brought up the contract renewal of Cablevision/Altice at the end of 2019 being a potential risk (albeit minimal as MSGN potentially is adding more value to Cablevision, than the other way around).

Quote from the 2016 VIC write up below. Any thoughts on this?

Top Customer (Cablevision) is Being Acquired by Aggressive Cost Cutter – The proposed acquisition of Cablevision by Altice has also created some uncertainty, but I believe that concerns are overblown. Altice has gained a reputation as an aggressive cost cutter and there is the potential that it could end up scrutinizing its programming expenses to achieve their lofty cost reduction targets for Cablevision. With Cablevision representing ~40% of MSG’s RSN subs, the prospect that Altice drops the networks or demands a meaningful rate reduction could have a material negative impact on MSGN’s results. However, I believe that it is unlikely Altice would drop the networks and MSGN should have good leverage in 2019 when Cablevision’s current affiliate fee agreement comes up for renewal. The risk of not carrying MSGN’s RSNs would likely have a significant impact on Cablevision’s results due to the potential loss of a large number of highly profitable broadband subscribers.


The loss of MSG would definitely hurt Altice (Cablevision)...but it would kill MSG.  That's a pretty big game of chicken to be playing.  Hopefully level heads prevail but Altice is already losing subs due to high costs (led by sports).
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 14, 2019, 12:09:57 AM
I like this idea, so I've been doing some further reading.

The 2016 VIC post (for MSGN) brought up the contract renewal of Cablevision/Altice at the end of 2019 being a potential risk (albeit minimal as MSGN potentially is adding more value to Cablevision, than the other way around).

Quote from the 2016 VIC write up below. Any thoughts on this?

Top Customer (Cablevision) is Being Acquired by Aggressive Cost Cutter – The proposed acquisition of Cablevision by Altice has also created some uncertainty, but I believe that concerns are overblown. Altice has gained a reputation as an aggressive cost cutter and there is the potential that it could end up scrutinizing its programming expenses to achieve their lofty cost reduction targets for Cablevision. With Cablevision representing ~40% of MSG’s RSN subs, the prospect that Altice drops the networks or demands a meaningful rate reduction could have a material negative impact on MSGN’s results. However, I believe that it is unlikely Altice would drop the networks and MSGN should have good leverage in 2019 when Cablevision’s current affiliate fee agreement comes up for renewal. The risk of not carrying MSGN’s RSNs would likely have a significant impact on Cablevision’s results due to the potential loss of a large number of highly profitable broadband subscribers.


The loss of MSG would definitely hurt Altice (Cablevision)...but it would kill MSG.  That's a pretty big game of chicken to be playing.  Hopefully level heads prevail but Altice is already losing subs due to high costs (led by sports).

I would give my left nut(I already have two beautiful kids and that's all I want) for Altice to drop MSGN. It would create a ridiculous short term panic that ultimately would be resolved, and I'd make an absolute fortune buying the dip. No way the tri state area ceases to have Knicks and Ranger games or sees a reduction of 40-50% in terms of households with access to it. Does anyone remember when YES was only available on satellite? People won't tolerate it.
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 14, 2019, 10:33:18 AM
I like this idea, so I've been doing some further reading.

The 2016 VIC post (for MSGN) brought up the contract renewal of Cablevision/Altice at the end of 2019 being a potential risk (albeit minimal as MSGN potentially is adding more value to Cablevision, than the other way around).

Quote from the 2016 VIC write up below. Any thoughts on this?

Top Customer (Cablevision) is Being Acquired by Aggressive Cost Cutter – The proposed acquisition of Cablevision by Altice has also created some uncertainty, but I believe that concerns are overblown. Altice has gained a reputation as an aggressive cost cutter and there is the potential that it could end up scrutinizing its programming expenses to achieve their lofty cost reduction targets for Cablevision. With Cablevision representing ~40% of MSG’s RSN subs, the prospect that Altice drops the networks or demands a meaningful rate reduction could have a material negative impact on MSGN’s results. However, I believe that it is unlikely Altice would drop the networks and MSGN should have good leverage in 2019 when Cablevision’s current affiliate fee agreement comes up for renewal. The risk of not carrying MSGN’s RSNs would likely have a significant impact on Cablevision’s results due to the potential loss of a large number of highly profitable broadband subscribers.


The loss of MSG would definitely hurt Altice (Cablevision)...but it would kill MSG.  That's a pretty big game of chicken to be playing.  Hopefully level heads prevail but Altice is already losing subs due to high costs (led by sports).

I would give my left nut(I already have two beautiful kids and that's all I want) for Altice to drop MSGN. It would create a ridiculous short term panic that ultimately would be resolved, and I'd make an absolute fortune buying the dip. No way the tri state area ceases to have Knicks and Ranger games or sees a reduction of 40-50% in terms of households with access to it. Does anyone remember when YES was only available on satellite? People won't tolerate it.

The question is not whether there are people who want access to the Knicks and Rangers, the question is whether the people who don't want it (or don't care) are willing to pay for the people who do.  If the higher overall prices that Altice has to charge to cover MSG (and YES and ESPN) cause more customer losses than they would see by dropping the channel(s) and keeping prices down then they will drop it - or move it into a higher priced "sports" tier that many people will drop.  MSG needs a streaming option independent of the cable providers that the fans who are willing to pay can turn to.
Title: Re: MSGN - MSG Networks
Post by: Sombunall on September 15, 2019, 10:01:59 AM
Re: the renewal with Altice -- here is what COE Gobi said on Altice's Q2 conference call, when asked about the value of RSNs ("How is your view on the value of those networks versus the cost involved at all?")

Dexter G. Goei, Altice USA, Inc. - CEO & Director [19]

"On the video side, listen, the RSN experience, you're very right, do flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that the particularly the New York tri-state area, the RSNs continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationship with our RSN partners in New York tri-state area and other parts of the Suddenlink side that will continue to have a good contract negotiations with them as we look to a new -- those contracts going forward."

I think they renew. There is no reason not to. MSGN is not expensive ($7-8 month) and distributors get select advertising inventory.






Title: Re: MSGN - MSG Networks
Post by: Spekulatius on September 15, 2019, 02:37:26 PM
Re: the renewal with Altice -- here is what COE Gobi said on Altice's Q2 conference call, when asked about the value of RSNs ("How is your view on the value of those networks versus the cost involved at all?")

Dexter G. Goei, Altice USA, Inc. - CEO & Director [19]

"On the video side, listen, the RSN experience, you're very right, do flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that the particularly the New York tri-state area, the RSNs continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationship with our RSN partners in New York tri-state area and other parts of the Suddenlink side that will continue to have a good contract negotiations with them as we look to a new -- those contracts going forward."

I think they renew. There is no reason not to. MSGN is not expensive ($7-8 month) and distributors get select advertising inventory.

$7-$8 is fairly expensive, imo. It was one reason for me to cut the cord and switch to streaming when I lived in the NYC area, since I paid for something I never watched. I don’t think I am the only one either.
Title: Re: MSGN - MSG Networks
Post by: Sombunall on September 15, 2019, 06:12:59 PM
Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).

Title: Re: MSGN - MSG Networks
Post by: Cardboard on September 15, 2019, 07:55:27 PM
Germans watch soccer, they don't get it.
Title: Re: MSGN - MSG Networks
Post by: debtvulture on September 16, 2019, 06:28:16 AM
I have Hulu Live (streaming) and I get the YES network.  If you go to Hulu's website and search for their channel listing the YES network doesn't show up but I live in SW CT and I do indeed get the YES network so MSGN may have already struck up some deal with Hulu (probably a regional deal).  Just an FYI. 

Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 16, 2019, 07:56:57 AM
I have Hulu Live (streaming) and I get the YES network.  If you go to Hulu's website and search for their channel listing the YES network doesn't show up but I live in SW CT and I do indeed get the YES network so MSGN may have already struck up some deal with Hulu (probably a regional deal).  Just an FYI. 

Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).

YES Network is owned by Sinclair/Amazon/Yankees. 

If you add YES, MSGN and ESPN, traditional cable subscribers are probably paying $15-20/month for channels that only half will watch.  That's the primary rationale for cord cutting.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 16, 2019, 08:18:03 AM
I think a key piece of the larger picture puzzle would be for Sinclair to acquire MSGN, and then offer a sports bundle; something mimicking or serving as a hybrid of the WWE/UFC model. Ive paid $5 a month for things like NHL Network(on their own) and plenty of sports fanatics would easily drop their $75 a month cable package in exchange for just a sports network at say $20-30 per month. Or bars/restaurants... how many currently pay for Optimum/DTV packages PLUS Sunday Ticket or Center Ice? When all they really need are the sports channels? There's an opportunity to capitalize on this disruption, or so is my belief.

Something else Ive also been considering, is perhaps politely suggesting at the next AGM that the company consider collapsing the dual class share structure. While I 100% get why its there, it makes more sense from Dolan's perspective with MSG, or the entertainment company; where he knows they trade at a discount but wants to run those his way and have creative flexibility. But here, everyone knows he's open to selling, the company does already act in the best interests of its shareholders, because of these things, I think the optics of removing this negative overhang if nothing else get this a modestly more generous public market valuation. The things the Dolans would have to worry about when removing the dual class at the other entities just simply isn't a concern here...what is someone going to do? Go activist and push for a sale? Or a large buyback?
Title: Re: MSGN - MSG Networks
Post by: no_free_lunch on September 17, 2019, 09:13:42 PM
Quote
The NFL is still the dominant sports league when it comes to the worth of its franchises. More than half of the top 50 are football squads. Credit the monster media-rights deals with the likes of CBS, NBC, Fox, ESPN and DirecTV that paid out more than $260 million per team last year. The TV haul is a nice cushion to easily cover teams’ biggest expense item, player costs, before any tickets, sponsorships, beer or replica jerseys are sold. The cap on player salaries was $177 million last season (each team is also on the hook for $40 million annually in player benefit costs).

https://www.forbes.com/sites/kurtbadenhausen/2019/07/22/the-worlds-50-most-valuable-sports-teams-2019/#44d0e893283d

The top 50 sports teams averaged $260m in media rights each.  MSGN did $720M revenue last year and has 6 teams.  The nicks occupy the 5th spot on the list, and the rangers are 72nd.  You need a bit more data to be accurate here but their revenue seem inline with peers.
Title: Re: MSGN - MSG Networks
Post by: spartan on September 19, 2019, 10:56:01 AM
So subs are going down - and have been for years - but revenue keeps going up.

What am I missing?

90% of their revenue is from affiliates. The other 10% is from advertising. Which means that roughly $650 Million (90% of 2019 Revenue - $720 Million) can be attributed to 6.5 Million subscribers. Back of the envelope calculation: the average subscriber is paying roughly $100 per year. How much more value can be extracted from subs?? If anything, the price of a subscription and number of subscribers will continue to go down due to further decentralization of media industry.

If I'm a die hard Knicks fan, why wouldn't I just pay $68 / year for all 82 games on NBA League Pass?

Chamath Palipatiya recently lambasted media companies for "not having relationships with their customers". I tend to disagree with him on a bunch of topics, but I think he's right about this.

If I'm a media company and still using an intermediary for distribution, I am not creating maximum value.

Perhaps MSGN knows that they can't charge that much on a standalone basis, which is why they're not really fighting the status quo.

MSGN has an app - MSG Go - which is a direct line to their customers. Shouldn't they be pursuing this more aggressively? They should be pulling a Frank Lucas and going straight to the source (DTC).

At the end of the day, their customers are currently cable companies whose purchasing power is dwindling. If they go DTC, subs are not willing to pay that much. Sure, there are some hardcore fanatics but the bandwagoners won't pay too much to watch the Knicks, Rangers, etc.

So it seems like they're damned if they do (go DTC and lower fees/subs), damned if they don't (stick with status quo and extract less fees from dwindling cable companies)..

Maybe none of this matters - as long as they continue to pay down their debt, and EV holds, value will filter into shareholders' pockets.

Thoughts???
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 19, 2019, 11:44:03 AM
To my knowledge, the NBA package blacks out local network games. I thought the MLB ticket or whatever was the greatest deal ever until I realized it blacked out(for NY/NJ folks) Yankees, Mets, Red Sox, and any ESPN/nationally televised game. I am pretty sure the other leagues do the same.
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 19, 2019, 11:47:53 AM
MSG GO is only a quasi-direct line to their customers.  It's a free service but runs through the cable co.  If you go onto it, the first thing they ask is what cable company you have.

They need to create a streaming option, subscription service to fans but that would likely cause affiliate fees to plummet because Altice no longer has an incentive to hold the non-sports fan hostage for the price.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 19, 2019, 11:53:38 AM
MSG GO is only a quasi-direct line to their customers.  It's a free service but runs through the cable co.  If you go onto it, the first thing they ask is what cable company you have.

They need to create a streaming option, subscription service to fans but that would likely cause affiliate fees to plummet because Altice no longer has an incentive to hold the non-sports fan hostage for the price.

I think offering this to out of network people is a good way to give it a trial run. There's NYers all over the country. People who likely don't haver it now and their only option is paying like $150-$200 for the packages offering all the games.
Title: Re: MSGN - MSG Networks
Post by: spartan on September 19, 2019, 12:00:10 PM
To my knowledge, the NBA package blacks out local network games. I thought the MLB ticket or whatever was the greatest deal ever until I realized it blacked out(for NY/NJ folks) Yankees, Mets, Red Sox, and any ESPN/nationally televised game. I am pretty sure the other leagues do the same.

Do we have any way of knowing whether this arrangement will continue?
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 19, 2019, 12:05:39 PM
To my knowledge, the NBA package blacks out local network games. I thought the MLB ticket or whatever was the greatest deal ever until I realized it blacked out(for NY/NJ folks) Yankees, Mets, Red Sox, and any ESPN/nationally televised game. I am pretty sure the other leagues do the same.

Do we have any way of knowing whether this arrangement will continue?

The leagues are governed by the owners. So I can't imagine they would be changing anything seeing as how the owners typically own the TV rights to their teams and a very important way of monetizing that is through TV deals. Last thing they'd want is to undercut that.
Title: Re: MSGN - MSG Networks
Post by: oscarazocar on September 19, 2019, 01:04:53 PM
Local market games are blacked out for this very reason.  You can probably get around that with a VPN workaround, but most people won't bother.

https://www.nba.com/leaguepass/blackouts
Title: Re: MSGN - MSG Networks
Post by: spartan on September 21, 2019, 12:50:20 PM
Great analysis on ESPN subscriber losses.

https://www.outkickthecoverage.com/espn-loses-two-million-more-subscribers-in-fiscal-2018/

High fixed costs + plummeting revenue = bad news bears

Not entirely relevant to MSGN, which is a niche product and doesn’t suffer from SJW ideology. Nevertheless, stemming the tide of cord cutting is not a game I want to play.
Title: Re: MSGN - MSG Networks
Post by: Spekulatius on September 21, 2019, 08:21:23 PM
Great analysis on ESPN subscriber losses.

https://www.outkickthecoverage.com/espn-loses-two-million-more-subscribers-in-fiscal-2018/

High fixed costs + plummeting revenue = bad news bears

Not entirely relevant to MSGN, which is a niche product and doesn’t suffer from SJW ideology. Nevertheless, stemming the tide of cord cutting is not a game I want to play.

It’s entirely relevant to MSG, because the monthly cost so subscribe is similar and those costs have been creeping up significantly, so much that people who don’t care about this content or only care marginally started to notice and just cancel. The question is  -can those losses be made up by targeting enthusiasts and charging those folks more? I am not sure, and if they can’t, it pretty much means, we have seen peak sport and finally some of the expenses related to Tv rights and player salaries will have to be scaled back.

The other risk is that they may price younger folks out of the market, so they can’t afford to watch this and if they are not interested in a sport when they hit 20, they probably won’t care about it for the rest of their life. That would be a slow demographic shift, but it would be permanent, sort of what happens to baseball.
Title: Re: MSGN - MSG Networks
Post by: no_free_lunch on September 23, 2019, 11:21:29 AM
You guys make some good points.

The big issue here is that Spek mentions scaling back expenses if subscribers drop.  As we all know that isn't possible here.  Your costs are set to rise 3% each year, whether you add or remove subscribers.  If you have subscriber losses in MSGN, then that lost revenue will go almost directly against earnings.

I am out for now.  I still like the huge buybacks but I have a small gain and I don't know the odds well enough to proceed.
Title: Re: MSGN - MSG Networks
Post by: Sombunall on September 23, 2019, 11:35:29 AM
90% of their revenue is from affiliate fees... which come with price escalators.

That's how they're able to protect their margin... even in the face of subscriber losses.

The more and more I look at this, the more and more I like it.

Title: Re: MSGN - MSG Networks
Post by: vince on September 23, 2019, 01:29:26 PM
90% of their revenue is from affiliate fees... which come with price escalators.

That's how they're able to protect their margin... even in the face of subscriber losses.

The more and more I look at this, the more and more I like it.

Well yes but if subscriber losses accelerate, similar to last quarter, then they will not be able to offset it.  I do like this investment at these prices and I also like the fact that their ad business looks like it will continue to grow nicely which will also help offset the subscriber losses.  But we absolutely need sub losses to stay in the low (preferably very low) single digits.  I have read all the arguments about MSGN changing distribution if sub losses worsen but that is going to hurt a lot more IMO than some people think. 
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 23, 2019, 05:02:20 PM
https://seekingalpha.com/article/4293121-msg-networks-music-stopped

Good article and great primer for less familiar investors.

A few thoughts on what the author gets wrong...

MSGN has been rumored to have been for sale for a while, but in reality... they were not allowed, unless willing to risk tax free spin status, to sell for 2 years following the spin. Pretty much the entire time after that, this bounced between $20-$25. I've heard things ranging from the ask was initially a 2014 YES multiple, which would have been near $50 per share, and more recently that nothing under $30 would have been entertained. So to say, why wouldn't anyone pay $24 is wrong(especially when accounting for EV which consisted of about $300M more debt). The better phrasing of this is whether Dolan will accept market price...Its logic bending to suggest that myriad bidders would pay for shit RSN's but passed on MSGN at the same multiple. It takes two to make a deal and the guy who owns it is mandatory in his participation for that to occur. I've long thought the closing of the Fox/DIS stuff would be a catalyst to get a deal done as it indisputably made a market for these assets.

In the meantime, every company Ive seen who is setting up for a sale follows a similar but straight forward pattern. Buyback stock and reduce debt. Let them continue that, and IMO its only further upside if the teams get better, sports betting gets legalized to a greater extent, or they get new content deals with any of the major streaming providers. I think a single game ticket option would be tremendous.

I've reduced about 25%(~4.75% now) on this as the position is margined and cheap or not, no longer trading at $13-$14 anymore. But there is a lot going for this at these valuations and my belief is that many of the potential fears and disruptions are really just temporary problems. Often a question I like to present myself is "what if the worst case scenario isn't really so bad?". I think that's a lot of the case here but the fear and clouds hanging over the sector distort consensus and thus valuations.



Title: Re: MSGN - MSG Networks
Post by: benchmark on September 27, 2019, 10:31:50 AM
The tender expires midnight today, is that why the stock is dropping?
Title: Re: MSGN - MSG Networks
Post by: vpagano on September 27, 2019, 10:47:07 AM
Some brokers like IBKR have / had earlier deadlines. There, for example, I believe it was 1:00pm EST.
Title: Re: MSGN - MSG Networks
Post by: Cardboard on September 27, 2019, 11:00:30 AM
I sold it all on Wednesday. I was getting concerned since it wasn't able to move above $17.25 or below highest bid price of $17.50 in the auction.

At $17.50, they would be buying back 23.3% of all outstanding class A shares which is an enormous percentage. So the market seemed to say that there was enough supply to get $250 million worth of stock and possibly at a lower price than $17.50.

The stock is cheap but, if there is this kind of dumping or supply then I was concerned that it would go down by quite a bit following the auction. Maybe I was also influenced by another Dutch auction that I was involved in earlier this summer and where the stock retreated by around 15% following the auction.
Title: Re: MSGN - MSG Networks
Post by: dwy000 on September 27, 2019, 12:52:47 PM
I sold it all on Wednesday. I was getting concerned since it wasn't able to move above $17.25 or below highest bid price of $17.50 in the auction.

At $17.50, they would be buying back 23.3% of all outstanding class A shares which is an enormous percentage. So the market seemed to say that there was enough supply to get $250 million worth of stock and possibly at a lower price than $17.50.

The stock is cheap but, if there is this kind of dumping or supply then I was concerned that it would go down by quite a bit following the auction. Maybe I was also influenced by another Dutch auction that I was involved in earlier this summer and where the stock retreated by around 15% following the auction.

Carboard - isn't that the mantra of value investors?  Use the price swings that come about due to issues that have little to do with intrinsic value?  Or are you just looking for a lower (re)entry point?
Title: Re: MSGN - MSG Networks
Post by: Cardboard on September 27, 2019, 01:13:33 PM
Call it trader instinct if you want but, it smells to me.

We will see the auction results, stock price action and then I will reassess.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on September 28, 2019, 11:44:27 AM
Call it trader instinct if you want but, it smells to me.

We will see the auction results, stock price action and then I will reassess.

Bingo. I thought too that $17.xx's started seeing more resistance so lightened up a bit. I still have the position as core, and overweight, but there's nothing wrong with keeping yourself flexible. If it rockets up further, I've got no qualms about making that money. If it pulls back, I'm pleased to have made some very quick, easy money on the trade and will happily redeploy with a more favorable value profile.

I've said it a million times. I'm just trying to make money. I think $17.50-$18 is still easy money territory but longer term, if there's some pullback or consolidation below that after a run from $13.xx... I'm happy with my money and you can keep the "buy and hold value investor" badge....
Title: Re: MSGN - MSG Networks
Post by: writser on September 30, 2019, 05:32:03 AM
Results: https://www.sec.gov/Archives/edgar/data/1469372/000119312519258051/d782911dex99a5iv.htm

Quote
Based on the preliminary count by Equiniti Trust Company, the depositary for the tender offer (the “Depositary”), a total of 14,980,092 shares of MSG Networks’ Class A common stock, par value $0.01 per share (the “Class A Shares”), were properly tendered and not properly withdrawn at or below the purchase price of $16.70 per Class A Share, including 7,515,909 Class A Shares that were tendered by notice of guaranteed delivery.

In accordance with the terms and conditions of the tender offer and based on the preliminary count by the Depositary, MSG Networks expects to accept for purchase, at a price of $16.70 per Class A Share, approximately 14,980,092 Class A Shares properly tendered at or below the purchase price and not properly withdrawn before the expiration date, for an aggregate cost of approximately $250,167,536, excluding fees and expenses relating to the tender offer. Included in the 14,980,092 Class A Shares MSG Networks expects to accept for purchase in the tender offer are approximately 10,032 Class A Shares that MSG Networks has elected to purchase pursuant to its right to purchase up to an additional 2% of its outstanding Class A Shares. As MSG Networks expects to accept for purchase all the Class A Shares that were properly tendered and not properly withdrawn at a price at or below $16.70, MSG Networks expects there to be no proration factor. The Class A Shares expected to be purchased represent approximately 24.3 percent of the Class A Shares issued and outstanding as of September 26, 2019. The Company will pay for the Class A Share repurchases with a combination of available cash and borrowings under its existing revolving credit facility.

I bought some shares at ~$16.27 average during the drop-off last Friday, minutes before the IB tender instruction deadline, with the intention of tendering and selling the rest. That was probably a break-even very marginal idea but it worked out ok. I might be a fool for earning a few cents when the real opportunity is holding MSGN for the long term but determining long-term value is too hard for me.
Title: Re: MSGN - MSG Networks
Post by: Castanza on October 29, 2019, 05:23:57 AM
https://www.cnbc.com/video/2019/10/28/media-mogul-streaming-services-will-become-large-buyers-of-our-content.html

Ted Leonsis Interview on the future of streaming.
Title: Re: MSGN - MSG Networks
Post by: Gregmal on November 07, 2019, 05:56:10 AM
https://seekingalpha.com/pr/17690858-msg-networks-inc-reports-fiscal-2020-first-quarter-results

Result out. Do not look to reflect tender offer activity, but nonetheless, nothing special. That said, I dont need them to be anything special here.