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Madison Square Rides On Partnerships, Sports Business Hurts

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The Madison Square Garden Company (MSG - Free Report) holds a strong brand position by maintaining iconic venues in top live entertainment markets. The company’s efficient innovations in operations, and continual expansion through acquisitions and partnerships put it on long-term growth trajectory.

However, intense competition in the sports business and tricky nature of consumer discretionary spending are potential headwinds.

Efficient Operations, Acquisitions and Partnerships are Major Positives

Madison Square continues to benefit from ongoing efforts to reinstate growth through multi-marketing agents. The company’s iconic venues hosted a diverse range of concerts, marquee events and family shows, with immaculate operational expertise.

Further, in order to strengthen footprint and explore additional opportunities, Madison Square has been consistently relying on partnerships and acquisitions.

In the fiscal fourth quarter, Madison Square witnessed double-digit growth regarding sponsorship and signage. The company renewed partnership agreements with Delta Air Lines, Charter Communications and Kia, and added Squarespace as its partner, who would sponsor the first ever Knicks Jersey. In the entertainment business, the company partnered with Hulu and Montefiore Health System.

Recently, Madison Square also announced that it entered a multifaceted partnership with PepsiCo (PEP - Free Report) , which is serving as its official signature food and beverage partner. Madison Square also procured a majority stake at the entertainment, dining, and nightlife company, TAO, which enabled it to grow its portfolio from 19 venues to 26.

Strength in Entertainment Business Bodes Well

Madison Square continues to exhibit stellar performance in its entertainment business. The last-reported quarter marked the company’s third quarter in a row, wherein live entertainment revenues grew in double digits year over year.

In the fourth quarter of fiscal 2018, revenues from the Entertainment segment were $185.6 million, up 47% year over year. The upside was primarily driven by the inclusion of operating results for TAO Group and higher overall event-related revenues at the company's venues.

Growth in event revenues can be attributed to higher sales at The Garden, the Forum as well as Radio City Music Hall. The company has several live entertainment services lined up for 2019.

Weak Sports Business — A Concern

Madison Square has been delivering sluggish performance in its sports segment. The company hadn’t derived any profit from NBA and NHL seasons that ended during the third quarter. Further, with not-so-impressive performance of the Knicks team, the sale of tickets has further become a challenge. We expect headwinds related to ticket sales to continue.

In the fiscal fourth quarter, revenues from the sports segment declined 26% year over year to $132.5 million. The downside can be attributed to lower league distributions and the absence of playoff-related revenues. Per Madison Square, professional sports teams' regular-season ticket-related revenues, as well as food, beverage and merchandise sales, declined as well.

Given the underperforming sports business segment, Madison Square has recently contemplated the spin-off of its sports business from the entertainment segment. Moreover, Madison Square faces increased competition from the Yankees, Mets, Giants, Islanders and so on.

Higher Dependence on Consumer Discretionary Spending

Madison Square, along with other leisure companies such as Vail Resorts (MTN - Free Report) and Live Nation Entertainment (LYV - Free Report) , is highly dependent on the fickle nature of consumer discretionary spending. Cyclical nature of the entertainment industry and the worsening of global economic conditions might, in turn, dent the company’s revenues and profits.

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