MSG reports $135M loss due to nightclub woes
Aaron Elstein
Senior Reporter - Finance
Madison Square Garden's owner reported a $135 million operating loss today, but it's not because the world's most famous arena has gone dark. Most of the red ink flowed from Tao, a glitzy nightclub that used to be New York's highest-grossing restaurant.
MSG acquired a majority stake in Tao Group Hospitality three years ago for $181 million as part of Chairman James Dolan's plan to diversify beyond sports and cable television. MSG bought an additional 15% share in the nightclub operator in January.
It seemed like a smart move at the time because Tao's Meatpacking District location generated $34 million in sales in 2018—the most of any restaurant in the city, according to Restaurant Business. Tao Las Vegas pulled in $43 million, the most of any restaurant in the country.
Then Covid-19 struck.
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"This disruption, along with the macroeconomic industry and market conditions, were considered a 'triggering event,'" MSG said in a regulatory filing.
In such an event, companies must estimate how much the future revenues and earnings potential of an asset has been impaired. After conducting that exercise, MSG wrote down Tao's value by more than $100 million.
That means a nightclub chain that many people have never heard of did more damage to MSG's bottom line than the perennially awful Knicks or the rebuilding Rangers.
MSG's total revenues fell by 18% for the quarter, to $424 million. Its sports segment remained profitable, but earnings fell by half, to $49 million.
Last month MSG spun off the Knicks and Rangers into a new company, MSG Sports. Shares in that company, the successor to the Madison Square Garden Co., fell by 6% Monday and put its market value at $3.9 billion, below the $6.25 billion value for both teams estimated by Forbes. The discount highlights how uncertain economic prospects are for even prestigious sports franchises in the age of Covid-19.
Other MSG holdings, including the Garden arena, Radio City Music Hall and Tao, are housed in a company called MSG Entertainment.
"Despite the unprecedented challenges facing our industry, we are confident in the strength of our assets," Andrew Lustgarten, president and chief executive of MSG Sports, said in a statement.
The firm declined to hold a conference call to discuss results with investors and analysts.
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