MSG Sphere $1.2B price tag is making investors nervous

The cost of the under-construction MSG Sphere at The Venetian is giving investors the jitters.

In Madison Square Garden Co.’s fourth-quarter earnings call Tuesday, the company estimated the project will cost $1.2 billion while general contractor AECOM estimated $1.7 billion. Company executives said talks are underway to resolve the difference.

The company’s stock price plunged $26.10, or 9 percent, to $267.33 a share on volume 10 times the daily average Tuesday, and continued to drop Wednesday. Shares closed Wednesday at $261.13, a drop of $6.20, or 2.3 percent.

Analysts on Tuesday’s call were left with limited answers on what to expect going forward.

“Do you see a similar path toward double-digit returns on this level of spend or is there a different return profile we should have in mind?” analyst Bryan Goldberg with Bank of America Merrill Lynch asked.

MSG President Andrew Lustgarten responded with more details of the venue. However, the company noted in documents filed with the Securities and Exchange Commission that it anticipates “MSG Sphere in Las Vegas will generate substantial incremental revenue and adjusted operating income on an annual basis.”

Goldberg also asked the discrepancy between the company’s cost forecast and AECOM’s forecast, asking “when do you expect to land on a final benchmark figure, and is this an item you intend to disclose going forward?”

MSG Executive Vice President and Chief Financial Officer Victoria Mink responded with, “We think it could run into the fall. It also could be extended further and, of course, we will see when that’s resolved with the appropriate disclosure would be at that time.”

BTIG analyst Brandon Ross also commented on the “wide gulf” between the two figures and went on to ask about the timing of plans to spin off the company’s professional sports teams, the New York Knicks of the NBA and the New York Rangers of the NHL, to help finance the project in part.

“We acknowledge, it’s taken a little longer than we would have liked,” Lustgarten said in response referencing the spin-off. “We’re fully committed to moving it forward, and it’s just a process and we’re working our way through it.”

Las Vegas Sands Corp. spokesman Ron Reese said Tuesday the cost of Sphere construction will not affect the company, which contributed the site as part of its partnership with MSG.

The Review-Journal is owned by the family of Las Vegas Sands Corp. Chairman and CEO Sheldon Adelson. The Sphere is a project by Madison Square Garden and Las Vegas Sands Corp.

This story has been updated to clarify information related to the project’s financing.

Contact Nicole Raz at nraz@reviewjournal.com or 702-380-4512. Follow @Nicole0Raz on Twitter.