MSGN - MSG Networks

[dwy000]

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.

[vince]

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

[Stuart D]

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?

[dwy000]

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.

[dwy000]

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.

[Cardboard]

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.

[Stuart D]

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.

[Stuart D]

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.

[dwy000]

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).

[Gregmal]

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.