Before we get too carried away by the decision out of Cablevision (CVC)to spin off its sports properties – and, judging by Thursday’s 8% bulge inthe stock, it may well be too lateto rein in the animal spirits – let’s remember one thing: this is the Dolan-controlled media and sports empire we’re talking about here.
And with the Dolans, it’s all about execution. Something the Dolans haven’t demonstrated much apptitude for.
On the face of it, there’s a lot to like about the plan to off-load the Madison Square Garden properties, which would include theNew York sports venue euphemistically called – most often by Cablevision employees, it should be noted – the world’s most famous arena, as well as its associated cable sports networks and the Knicks and Rangers, the company’s professional basketball and hockey teams, respectively.
The spinoff would allow analysts and investors to analyze the value of the cable operations, without the muddle that the unprofitable sports operations have represented. The move would let the public market value the sports franchises as stand-alone operations, thus allowing investors to focus on things like asset value. The price of sports franchises has risen sharply, based on several of the recent transactions, and, as a free-standing company, investors could determine how much a professional sports team would be worth in a sale. Though Cablevision management said it didn’t plan to sell any of its sports assets.
Perhaps most importantly, the spin-off would prevent Cablevision from using the proceeds of its cable business to fund its sports business. Some investors – especially the ones who regard the sports businesses critically, seeing them as trophy assets for wealthy owners, but in this case using shareholder capital as the funding source – have been calling for this kind of breakup for some time.
The new MSG company would be an interesting ! experime nt in capitalistic engineering, as it would be one of the rare pure-plays on a sports business. Over the years, a handful of sports franchises, including the Cleveland Indians baseball team and the Florida Panthers hockey franchise, have listed and traded. But as they didn’t stay in the public domain very long, it’s difficult to determine whether the efforts proved successful or not.
Still, the lingering question – and the one that argues against the bullish response to Thursday’s announcement – surrounds the Dolans and their ability to execute on the plans. Their track record suggested this might be problematic.
Remember, the Dolans tried – three times – to take Cablevision private, but got rejected by shareholders in each initiative. The company also launched a money-losing satellite service, called Voom, whose disposition was so rancorous that it pitted family patriarch Charles Dolan, who wanted to keep the service going, against his son James, the CEO of Cablevision who wanted to shutter the service. Ultimately, James Dolan prevailed.
The Dolan’s track record certainly doesn’t improve when it comes to their stewardship of its sports franchises. The Knicks haven’t been to the playoffs since the 2000-2001 season. Even the Los Angeles Clippers – generally regarded as the worst-managed franchise in the NBA – have appeared in the playoffs more recently.