Stocks of Sphere Company Significantly Slashed, Weighing Heavily with Possible Implications
Updated Analysis:May 10, 2025, 07:10h.
Last updated on: May 10, 2025, 07:10h.
Written by: Todd Shriber @etfgodfatherRead More Financial Gaming Business Mergers and Acquisitions
Stock Discount on Sphere Entertainment disguises its value* "Dolan effect" suspected as primary reason** Analysts believe shares are dirt-cheap**
After registered gains of almost 16% this week, Sphere Entertainment (NYSE: SPHR) still sit 19.37% south for the year - a plummet some market analysts attribute to the stock's hidden worth.
The stock garnered attention in the latest Barron's issue when the magazine outlined a case for Sphere being almost absurdly cheap. John Rogers Jr., founder and CIO at Ariel Investments, stated Sphere trades at a 50% discount from his estimated net asset value, as reported by Barron's. The company's market cap of $1.17 billion is about half the $2.3 billion spent to create the state-of-the-art Sphere Las Vegas.
Recently, MSG Networks - the regional sports network that long affected Sphere's finances due to outstanding liabilities - underwent a restructuring, now carrying a reduced debt load of $350 million, down from figures over $800 million.
When Sphere split from Madison Square Garden Entertainment Corp. (NYSE: MSGE) in 2023, the Dolan clan, who hold majority control of both companies, made MSG Networks part of Sphere to help cover operating costs initially. With positively improved financial health of the sports network, analysts speculate MSG Networks' days in Sphere may be numbered as the parent company could opt for a merger, sale, or spin-off.
The Dolan Factor affecting Sphere Stock
Another hurdle for Sphere shares - one harder to address than shifting from MSG Networks - is commonly known as the "Dolan effect." It affects Sphere as well as other public companies under Dolan family control - Madison Square Garden Entertainment and MSG Sports (NYSE: MSGS).
The "Dolan effect" reflects investor concerns that the family will prioritize control over what's best for all shareholders. MSG Sports, for example, is valued at below half the estimated worth of just the two teams because the Dolans are seen as unlikely to sell[1][2].
The "Dolan effect" isn't a wall street myth. It's a reality. MSG Sports, which oversees the New York Knicks and New York Rangers, carries a market cap of $4.61 billion. However, experts believe that the New York Knicks alone are worth an estimated $7.5 billion and the New York Rangers $3.5 billion[1][2].
Despite the reality of the "Dolan effect," Wall Street remains generally bullish on Sphere stock. Six of ten analysts covering SPHR rate it a "buy" or "strong buy," and the consensus price target is $47.80, implying potential gains of 47% from the May 9 closing[3].
Further reasons Sphere Stock is a steal
Analyst Peter Supino, Wolfe Research, cited by Barron's, supports the notion that Sphere is being undervalued. Supino estimates the Sphere Las Vegas' market worth to the operator is $1 billion, while the planned Sphere in Abu Dhabi is worth an additional $750 million[3].
Combined, these figures add up to $1.75 billion, which already surpasses Sphere's market value and doesn't consider potential revenue from the MSG Networks segment or future ventures[3].
Barron's suggests the possibility of Sphere being acquired by another live entertainment company, but this could be a long shot, especially considering CEO James Dolan took $18 million in equity compensation last year, hinting that he views the stock as too inexpensive to pass up.
Enrichment Data:
Sphere Entertainment (NYSE: SPHR) is perceived as undervalued due to a combination of investor skepticism labeled "Dolan effect," ongoing operational challenges, and complex financials, despite long-term valuable assets and strategic growth objectives.
Reasons behind Undervaluation
1. The "Dolan Effect"The "Dolan effect" represents persistent investor apprehension concerning James L. Dolan, Executive Chairman and CEO of Sphere Entertainment. These concerns stem from concerns about governance and past performance in Dolan-led ventures, which, despite recent improvements in core assets, have held down Sphere's valuation[1][4].
2. Financial Performance and Operating LossesIn Q1 2025, Sphere Entertainment posted revenues of $280.6 million, down $40.8 million from the previous year quarter, and an operating loss of $78.6 million, an increase of $38.2 million compared to the corresponding quarter of 2024. Despite recording an adjusted operating income of $36 million, this represented a decline of $25.6 million from the previous year’s adjusted figure. These losses and revenue decrease mainly stem from softness in the Sphere segment and MSG Networks, reflecting ongoing operational hurdles weighing on stock price[1][2].
3. Asset Strengths vs. LiabilitiesSphere Entertainment's primary asset is the flagship Sphere venue in Las Vegas, which has achieved explosive revenue growth since its 2023 opening, with concerts and events like UFC 306 and the Eagles residency driving high-margin sales and attracting significant foot traffic (over 500,000 guests recently). The company is also expanding with smaller Sphere variations and a new venue in Abu Dhabi, alongside partnerships with notable brands like Pepsi and Google[4].
However, the company's liabilities and overall capital structure, including debt levels and the waning MSG Networks segment, impose critical financial pressures. The net result is a robust physical and brand asset base overshadowed by near-term profitability issues and general caution from investors[1][3].
Potential for Mergers and Acquisitions
Market observers see Sphere Entertainment as an attractive target for mergers and acquisitions (M&A) for several reasons:
- Undervalued Asset Base: The combination of state-of-the-art venue assets and an underappreciated stock valuation (with a Price-to-Book ratio around 0.45) makes SPHR desirable for buyers seeking growth platforms at a bargain[3].
- Strategic Growth Opportunities: Sphere’s expansion plans with new venues, advertising innovations (“Exosphere” partnerships), and record-breaking events indicate expansion potential that could be accelerated or better capitalized if acquired by a more extensive entertainment conglomerate or strategic partner[2].
- Corporate Governance and Operational Optimization: Potential acquirers might believe they can unlock value by improving management efficiency, leveraging synergies with other media or live events divisions, and streamlining the company’s debt and cost structure to achieve profitability[3].
- Market Positioning in Live Entertainment: Sphere’s cutting-edge venues position it well in recovering live events market, attracting interest from entertainment media firms seeking to expand experiential footprint, particularly after the post-pandemic recovery phase[2].
- Despite the ongoing "Dolan effect" and operational challenges, Sphere Entertainment's stock is perceived as undervalued, with analysts believing shares are dirt-cheap.
- The financial analysis suggests that Sphere Entertainment's market value does not consider the potential revenue from the MSG Networks segment or future ventures, which could significantly increase the company's worth.
- The possibility of Sphere Entertainment being acquired by another live entertainment company exists, providing an opportunity for growth and value unlocking for potential buyers.
- Rumors speculate that the parent company could opt for a merger, sale, or spin-off, given the positively improved financial health of MSG Networks. This could affect Sphere Entertainment's stock value in the entertainment, finance, and investing business sphere.
