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A Cablevision Spinoff Could Shake Up Leagues
May 8, 2009, 7:57 am
Garden

If Cablevision Systems decides to go ahead with a spinoff of its Madison Square Garden business, the deal would reverberate through the world of professional sports, The New York Times’s Ken Belson writes.

Cablevision, one of the largest cable operators in the New York metropolitan area, said Thursday it would “explore the spinoff” of the Garden business, which includes the Knicks, the Rangers and the MSG Network.

Such a move could have a significant impact on the N.B.A. and the N.H.L. because the two sports franchises are among the most lucrative in their leagues. It could also influence plans for developing Madison Square Garden and the neighborhood around it, which includes Penn Station and the James A. Farley Post Office.

In a conference call, company executives declined to provide more information about their plans for the Madison Square Garden group, which also includes Radio City Music Hall, the Beacon Theater and other sites.

Some analysts suspect that the Dolan family, which controls 70 percent of Cablevision’s voting rights, could spin off M.S.G., selling the cable business and focusing on the sports and entertainment business.

“Cablevision watchers (and we’d put ourselves in that category) have long pondered possible endgames, and the notion that the Dolans would retain ownership of M.S.G. and the New York sports teams long after the rest of the assets had been divested has always been viewed as among the most likely outcomes,” Craig Moffett, a senior analyst at Bernstein Research, wrote in a note to investors.

That result would mean that the Knicks and the Rangers, who have had strained relations with their leagues recently, would remain in the hands of the Dolans.

The Dolans have had a contentious relationship with the N.H.L., even filing an antitrust suit against it in 2007 over its efforts to consolidate team Web sites on NHL.com. In its court filing, the Rangers called the N.H.L. an “illegal cartel,” which prompted the league to threaten to strip the franchise from its owners. The case is pending, but early rulings have gone favorably for the league.

Both teams have been criticized for spending tens of millions of dollars on marginal players. The Rangers’ payroll last season was reported to be $56.4 million, a little less than the N.H.L. salary cap of $57 million.

The Knicks have led the league in payroll for several years and paid a league-high $20 million in luxury tax for the 2007-8 season.

Without Cablevision’s corporate largesse, the Knicks could be forced to exercise more restraint. The franchise has already become more fiscally prudent in its first year under Donnie Walsh, the new team president.

In November, Walsh traded two of the team’s highest-paid players, Jamal Crawford and Zach Randolph, shaving $27.4 million from the 2010-11 payroll. When relations soured with point guard Stephon Marbury, Walsh refused to waive him and eventually got Marbury to give back $2.2 million (of a $20.8 million salary) in a buyout agreement. Including taxes, the buyout saved the Knicks $4.4 million.

The Knicks are committed to $71.5 million in player salaries next season, a decrease of $22.5 million from 2008-9. In the summer of 2010, they will be under the salary cap for the first time in 14 years.

Despite keeping a low profile, James L. Dolan, chairman of Madison Square Garden and son of Cablevision’s chairman, Charles F. Dolan, is actively involved in running the Knicks and the Rangers and appears eager to continue doing so.

“Chuck is not getting younger, so at some point the real valuable asset is selling the cable company,” Bob Gutkowski, former president of the MSG Network and Madison Square Garden, told The Times. “Jimmy Dolan has said many times he wants to run these assets for the rest of his life.”

If someone offers to buy Cablevision or M.S.G., they will have to negotiate clogged credit markets, which could delay a sale. Cablevision has tried to take itself private but failed partly because it had trouble getting financing.

Mr. Moffett values Cablevision’s cable operations at $11.5 billion, down from about $16 billion before the financial crisis began.

Any sale could take at least a year to complete because buyers would have to raise the money and then clear regulatory hurdles in Washington.

The value of M.S.G., which generates about 14 percent of Cablevision’s revenue, is unclear because so few teams change hands.

Mr. Moffett estimates that M.S.G. is worth $2.9 billion, thanks partly to the potential for developing the land above and around Madison Square Garden.

Richard Greenfield of Pali Research, however, said if M.S.G. were separated from Cablevision, it would be worth about $1.5 billion, slightly more than what the company paid for the assets between 1994 and 1997.

The potential spinoff of M.S.G., he told The Times, “is the first step to selling Cablevision.”

The MSG Network’s value is muted because without baseball games to broadcast in spring and summer, it has fewer viewers than the regional sports networks YES and SNY, which broadcast Yankees and Mets games.

Without land for a new arena, Cablevision has decided to revamp Madison Square Garden. On Thursday, the company said that work was under way and that it would be finished for the 2012-13 season, but that the cost for the project is higher than the $500 million originally estimated.