AMDP Investment Proposal Memo Final

To: Clark Hansen, CEO, AMDP
From: Jordan Diamond, R&D, AMDP
Date: March 10, 2023
Subject: Madison Square Garden Entertainment Corporation Investment Analysis

I have reviewed Madison Square Garden Entertainment Corporation (MSG) as a possible investment opportunity for AMDP. In making decisions about what to invest in, firms like ours judge investments based on social and environmental impact, not just financial performance. After considering our corporate commitments I do not recommend investing in MSG. Included in this memo:

• Our AMDP standards for investment
• MSG background and financial performance
• Analysis of MSG’s business practices
• Recommendation

AMDP Standards

Triple Bottom Line
Includes the “three Ps”:

• Profit: How businesses make key decisions designed to maximize profits while reducing costs and mitigating risks.
• People: How businesses impact and commit to society with focus toward creating value for all stakeholders, including customers, employees, and community members.
• Planet: How businesses drive change to make a positive impact on the planet (HBS).

Corporate Social Responsibility (CSR)
An approach in which companies integrate social and environmental concerns in their business operations and interactions with their stakeholders, instead of only considering economic profits (HEC Paris).


Social Enterprise
A business with certain social objectives as its primary goal. They attempt to make a strong societal impact while maximizing their profit, which is then used to fund their social programs (Corporate Finance Institute).


Carbon Footprint
A measure of carbon dioxide emissions resulting from the activities of an entity, including a business.  It is important to reduce the carbon footprint because greater emissions adversely affect the planet. Emissions impact climate, threaten wildlife, human health, and even economic growth (Britannica, DBS).


Company Overview

MSG is a publicly traded holding company viewed as a global leader in the entertainment industry.


MSG Entertainment is an independent spin-off from The Madison Square Garden Company (now MSG Sports) of non-sports assets. They had their IPO on the New York Stock Exchange in April 2020 at a price of $88.51 and currently, as of March 6, 2023, trades at $60.86 (Yahoo! Finance, Business Wire).


MSG’s subsidiaries include performance venues such as Radio City Music Hall, The Chicago Theatre, and notably “The World’s Most Famous Arena”, Madison Square Garden; regional sports networks; and dining and nightlife offerings through their controlling interest in TAO Group Holdings LLC. They also maintain a close relationship and affiliation with MSG Sports that owns the New York Knicks and New York Rangers professional sports franchises (Company Website).


Financial Analysis

MSG is performing strongly financially. Results from 2022 show an overall positive change from 2021.


MSG generates revenue from a wide range of streams:

• Ticket sales to events they produce or promote/co-promote
• Licensing fees for their venues
• Concessions
• Signage

Based on financial results from 2021 and 2022, MSG has been operating at a loss each year, however revenues increased by 112% between years. MSG has continually pointed out that COVID-19 has negatively affected their business since the core of their business is socializing people, which has been complicated for many months but is now improving.


There was an unbalanced profitability and inconsistent revenues among MSG’s 3 major segments during 2021 and 2022:

• Entertainment (38% of revenues) operated profitably with increase in revenues
• TAO Group (28% of revenues) operated profitably with increase in revenues
• MSG Networks (35% of revenues) operated at a loss with decrease in revenues

The only unprofitable segment, MSG Networks was recently acquired by MSG in July 2021. The acquisition was done to utilize the greater resources of MSG as a whole to pursue its business objectives. Realization of synergies in an acquisition takes about 2-3 years. Therefore, the profitability of this segment is currently unclear and may not have been realized yet. But, the other segments are performing well and MSG as a whole is growing financially (MSG 2022 10-k).


MSG and AMDP Standards

The Corporate Social Responsibility of MSG is compromised. There are conflicting and skeptical claims on their practices regarding the people and planet aspects of the triple bottom line.


Company’s Own Claims
MSG’s CSR efforts are summarized yearly in a CSR Report published publicly on their website. In the report, many of the company's efforts are around philanthropic initiatives and community engagement. Their Garden of Dreams Foundation provides the young people of their communities with access to educational and mentorship opportunities. In terms of sustainability, their venue locations encourage the use of public transportation. Within their venues’ operations, they describe efforts to reduce water consumption in restrooms; initiatives to reduce energy usage for lighting and temperature control; recycling plans; and key criteria when selecting vendors and suppliers (MSG CSR Report).


Industry Claims
Research documents by Morgan Stanley claim MSG’s disclosure rate on sustainability is 44%. Reports from 2022 and 2023 indicate no change in MSG between years in the disclosure rate and changes they have made to their practices. Despite no changes to these metrics other claims are negative (Morgan Stanley).


MSG has been under criticism for their use of facial recognition technology to identify and prevent people on an exclusion list from entering their venues. Many on this exclusion list include lawyers suing the company. The owner and chief executive of the company, James Dolan, has been known to have an autocratic style of leadership that leads to these types of practices (New York Times).


Referencing a current project of MSG, the MSG Sphere London is currently under construction but faced backlash from the community concerning light pollution, and noise and transportation issues. Trium Environmental Consulting issued an environmental statement assessing the impacts of the MSG Sphere London on its surrounding areas. It confirmed the concerns of the community and projects adverse effects on traffic, and light and noise pollution. Even with these concerns and statements, MSG still broke ground on the project (Trium Environmental Consulting, The Guardian) .


Recommendation

I do not recommend investing in MSG.

Looking at this investment from the perspective of the triple bottom line, MSG is strong in profit, but lacks in the people and planet components. From the financial perspective, MSG fits our profile and investing can earn a positive and profitable return for AMDP. But, by our own standards this alone does not justify investment. Even with the efforts in their community they describe in their CSR report, the historic and current unhealthy practices of MSG in relation to the people and the planet are not up to par with our standards. Although metrics claim there have not been changes to their sustainability practices, acts to track and ban people from their venues and pursuing projects even with scrutiny are not qualities of an AMDP investment. A profitable investment in MSG would come at the cost of tainting our image as a firm dedicated to investing in companies with strong corporate social responsibility.

 

Works Cited

Bryant, Miranda. “Like a Sun on Earth”: Las Vegas Warning If Dazzling Venue Built in London’s East End. Jan. 2023, https://www.theguardian.com/uk-news/2023/jan/28/msg-sphere-las-vegas-london-venue-concert-hall-sleep-light-pollution.

Corporate Social Responsibility Report 2022. https://www.msgsports.com/wp-content/uploads/2022/11/MSG_2022_CSR_Report.pdf.

Form 10-k. Securities and Exchange Commission, 30 June 2022, https://s23.q4cdn.com/910947899/files/doc_financials/2022/q4/7087bddc-22c0-4e87-95dd-c0543c8601c7.pdf.

Hill, Kashmir, and Corey Kilgannon. “Madison Square Garden Uses Facial Recognition to Ban Its Owner’s Enemies.” New York Times, 22 Dec. 2022, https://www.nytimes.com/2022/12/22/nyregion/madison-square-garden-facial-recognition.html.

Importance of Reducing Carbon Footprint. Feb. 2022, https://www.dbs.com/digibank/in/articles/lifestyle/importance-of-reducing-carbon-footprint.

M&A Synergies. Dec. 2022, https://corporatefinanceinstitute.com/resources/valuation/mergers-acquisitions-ma-synergies/.

Miller, Kelsey. The Triple Bottom Line: What It Is & Why It’s Important. Dec. 2020, https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line.

MSG Entertainment Becomes New Public Company. Apr. 2020, https://www.businesswire.com/news/home/20200420005434/en/MSG-Entertainment-Becomes-New-Public-Company.

MSG Entertainment Completes Acquisition of MSG Networks. July 2021, https://www.businesswire.com/news/home/20210709005231/en/MSG-Entertainment-Completes-Acquisition-of-MSG-Networks.

MSG Sphere London Environmental Statement. Trium Environmental Consulting, Feb. 2019, https://www.queenelizabetholympicpark.co.uk/-/media/lldc/planning/msg-sphere-planning-documents/msg-es-non-technical-statement.ashx?la=en.

Selin, Noelle Eckley. Carbon Footprint. https://www.britannica.com/science/carbon-footprint.
Social Enterprise. Dec. 2022, https://corporatefinanceinstitute.com/resources/esg/social-enterprise/.

What Is Corporate Social Responsibility (CSR)? https://www.hec.edu/en/faculty-research/centers/society-organizations-institute/think/so-institute-executive-factsheets/what-corporate-social-responsability-csr.

https://www.msgentertainment.com/.

https://finance.yahoo.com/quote/MSGE/.