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Investors cheer Madison Square Garden’s spin-off plans

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The New York Knicks are among the assets that would form a new publicly traded company.Photograph by Greg Nelson — Sports Illustrated

Madison Square Garden said it plans to separate the company’s live entertainment business from its sports related properties including the New York Knicks basketball team and New York Rangers hockey team.

The plan to separate the two businesses, along with the announcement of a plan to buy back up to $500 million in Class A shares, sent Madison Square Garden’s (MSG) stock up as much as 17% in premarket trading.

Madison Square Garden had been pushed to consider strategic alternatives since at least this summer, when hedge fund JAT Capital Management LP took a stake in the company. At the time, it was speculated the company’s sports assets had more value than the market had given the entire Madison Square Garden company when all assets were combined.

Under the proposed separation, which Madison Square Garden said it has been mulling since July, one portfolio will consist of the company’s bookings business, productions like the Radio City Christmas Spectacular, and its marketing and ticketing activities. The sports and media company will consist of three professional sports franchises: the Knicks, Rangers and the New York Liberty, along with development teams and regional sports networks.

The plan is to create two separate, publicly traded companies, though Madison Square Garden said it has set no timetable to complete the spin-off. Notably, the company named two new independent directors for election: Nelson Peltz, co-founder of Trian Fund Management LP, and Scott Sperling, co-president at private-equity firm Thomas H. Lee Partners.

“Investors favor companies with greater strategic focus on their core businesses,” said Chief Executive Tad Smith in a prepared statement. That comment is a nod to the trend of corporate spinoffs that has permeated many pockets of the economy, including tech giants, oil-and-gas producers and consumer-focused companies.

Madison Square Garden’s total revenue jumped 16% to $1.56 billion for the fiscal year ended June 30. The sports business was the best performer last year, with sales jumping 30% to about $612 million. The $57 million increase in revenue from that segment’s ticket-related revenue alone was more than all of the revenue increase for the MSG Media and entertainment businesses. The sports business also reported higher revenue for suite rentals, broadcasting rights, concessions and other event-related drivers.