RPR&C In The Media


Bloomberg BusinessWeek – If Dolan Sells the Knicks, Give JAT Capital (Some) Credit – quote by David Peirez

October 29, 2014 Posted in: RPR&C In The Media

Bloomberg BusinessWeek

October 29, 2014

If Dolan Sells the Knicks, Give JAT Capital (Some) Credit

Bloomberg BusinessWeek 10-29-14

Jim Dolan, president and CEO of Cablevision Systems Corporation and executive chairman of
The Madison Square Garden Company, at a press conference announcing the completion of three-year,
$1 Billion dollar face lift to Madison Square Garden on, Oct. 24, 2013 in New York City

By Alex Sherman and Beth Jinks

Sorry Knicks fans, a possible Madison Square Garden Co. split won’t mean Jim Dolan is giving up his ownership of the team. At least not yet.

Dolan’s 17-year tenure as majority owner of Madison Square Garden’s basketball and hockey residents — the New York Knicks and Rangers — has brought zero championships by either team. An April ESPN poll ranked him the worst owner in the National Basketball Association — and 82 percent of readers agreed.

Until recently, those fans had little reason to hope Dolan would sell the team to a better steward. Two things have helped change that outlook: the billionaire Steve Ballmer bought the Los Angeles Clippers for $2 billion in May, and John A. Thaler, an investor who now owns 9 percent of MSG’s stock, began a campaign for changes at the company.

Thaler’s JAT Capital Management LP first acquired MSG’s stock in 2012 — when it fetched between $30 and $45 — betting the Dolan family would eventually sell the sports teams after profiting from the rising prices of sports broadcasts. Since December, he has privately campaigned for better corporate governance, share buybacks, and a breakup of MSG, two people with knowledge of the matter said.

JAT Capital also had the backing of other large MSG shareholders that were frustrated by the company’s spending and share performance, three people said, asking not to be identified discussing private information. A hedge-fund manager who had never officially gone activist before, Thaler was prepared to run a slate of three candidates for the MSG’s board, to force some of its goals, these people said.

Ballmer’s Move

Founded in 2007, Greenwich, Connecticut-based JAT Capital has $2.5 billion under management and is focused on technology, media and telecommunications investments, including Time Warner Cable Inc., Yahoo! Inc. and Twitter Inc. Thaler was formerly a portfolio manager at Shumway Capital Partners LLC, and earlier an analyst at Merrill Lynch.

In May, Ballmer paid almost four times the previous record for an NBA team when he bought the Clippers. Splitting off MSG’s sports teams and cable networks in one company will make a sale of the Knicks easier for Dolan, because it can avoid a large tax bill a year after a spinoff, and because a buyer wouldn’t have to spend billions on lower margin real estate and entertainment joint ventures.

The split separates “good” MSG, the cable and sports properties, from “bad” MSG, Vasily Karasyov, an analyst at Sterne Agee & Leach Inc. in New York, said in a note to clients.

Stock Upside

MSG yesterday rose 11 percent to $72.99 a share, for a market value of about $5.7 billion. In its separate pieces, the company could be valued at about $95 a share, analysts estimate, 30 percent above its current price.

“Three years from now the split up will have been stabilized, and if the Dolans choose to sell the Knicks, they’ll be able to maximize the sale price,” said David Peirez a partner in the Garden City, New York law firm Reisman, Peirez, Reisman and Capobianco LLP.

The Dolans haven’t always been known for their scrupulous attention to shareholders. Jim Dolan has seen more presidents of the Knicks sued by employees than championships since taking over the team in 1997. The directors of Cablevision Systems Corp. (CVC:US), which spun off MSG in 2010, were sued by an investor in March for approving “grossly excessive” compensation for Charles Dolan and members of the family.

Harassment Lawsuit

The Dolans also have a tumultuous track record with presidents of the team. The Knicks floundered under Hall of Fame player Isiah Thomas as the team’s president and coach. His tenure included a sexual-harassment lawsuit by a female former team executive against Dolan and the team’s then-parent Cablevision.

A jury in that case in 2007 awarded $11.6 million to the Knicks’ former senior vice president for marketing and business operations. MSG said it settled two months later at the request of then-NBA Commissioner David Stern. Terms weren’t disclosed.

Stern said on ESPN that year that the Knicks’ owners were “not a model of intelligent management.”

Investors in both Cablevision and MSG have been skeptical of the Dolans’ decisions over the years, including Cablevision buying Newsday in 2008, according to Paul Sweeney, an analyst at Bloomberg Intelligence.