ASB Partners Q224 Letter
Letter sent to LPs summarizing the performance of ASB Partners for Q224 with a discussion of $MSGE...Please see the risk disclosures.
July 11, 2024
Dear Limited Partner,
For the quarter and Year to Date ending 6/30/2024, ASB Partners’ unaudited net results were -.5 % and +3.1% respectively. The following tables summarize various concentration and performance metrics.
Selected Portfolio Discussion
Madison Square Garden Entertainment (MSGE)
“What we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it… protecting a terrific economic castle with an honest lord in charge.." —Warren Buffett
I think Madison Square Garden Entertainment ($MSGE) aptly fits Buffett’s description of a terrific economic castle.
Here’s the valuation:
With a free cash flow yield to enterprise value of approximately 5%, the valuation might seem high.
I thought a recent tweet I saw about Costco provides a useful framework for contextualizing the valuation:
While MSGE isn't as dominant as Costco, it possesses unique pricing power and durability within its live entertainment niche. The company is experiencing double-digit growth in Adjusted Operating Income, and management has expressed confidence in maintaining this growth in FY25
Despite reporting strong Q3FY24 earnings on May 9, the stock has been underperforming.
Overview of the business and current momentum:
MSGE is still in its first year as a standalone company, so it’s worth it to go through the different drivers and why management is bullish that they can continue double-digit growth rates in Adjusted Operating Income:
Here’s the revenue base:
Ticketing & Venue License Fees/Food Beverage & Merchandise (60% of Revenue)
The main drivers of Ticketing are:
1)The Christmas Spectacular
2) Venue Licensing (renting out Madison Square Garden to 3rd party acts)
1)The Christmas Spectacular
Management remains optimistic for the upcoming season, anticipating record ticket yields. Notably, 2023 had the highest ticket yield ever, and the show continues to be priced competitively against Broadway productions.
2.)Venue Licensing
There is potential to increase utilization (currently at 70%) and expand margins. The Garden, being the highest-grossing venue of its size in New York, benefits from unique pricing power due to its unparalleled location and lack of competition. There is an opportunity to increase both utilization (currently at 70%) and expand margins at the Garden:
As relates to pricing power, it makes sense that the Garden can charge its customers more every year, given The Garden is the highest-grossing venue of its size in the NY market and it really has no competition for a venue of its size in its location:
Sponsorship, Signage, $ Suites (31% of Revenue)
The key point here is that FY24 was a quiet year for sponsorship renewals, and FY25 should be much better, especially on the heels of playoff runs by both the Knicks and the Rangers:
This is a very high-margin revenue stream and should contribute nicely to earnings growth.
Arena License Agreements (8% of Revenue)
Not much to report on here, given the 35 year lease and fixed escalators :
Conclusion:
MSGE fits the paradigm of a bond with pricing power (as referenced above). It’s supported by iconic assets in one of the strongest live entertainment markets in the world. Management is confident they can grow their “coupon” at a double-digit rate, which will be returned to shareholders through deleveraging and share buybacks.
In a world of AI disintermediation and geo-political uncertainty, it’s hard to imagine live entertainment losing its appeal. It’s been observed (by the sociologist Emile Durkheim) that people go to communal events to experience something called "collective effervescence,” the sense of energy and harmony people feel when they come together in a group around shared purposes. As long as humans still crave this experience, MSGE will continue to benefit by monetizing its irreplaceable assets.
I appreciate your support. Please let me know if you have any questions.
Sincerely,
Adam Buckstein
Managing Member
646-353-8314