MSG sells Tao Group Hospitality to New York investor for $550M
The developers behind MSG Sphere at The Venetian sold off its majority stake in Tao Group Hospitality — a move that analysts have said may help the company pay for the Sphere’s rising construction costs.
Mohari Hospitality purchased Madison Square Garden Entertainment Inc.’s 66.9 percent stake in Tao Group for $550 million, according to a Monday news release. The deal is expected to close in May.
MSG and Mohari came to an agreement on the sale after a bidding process involving multiple parties.
Tao Group oversees the Tao, Hakkasan, Omnia, Marquee, Wet Republic and Lavo brands in Las Vegas and has a portfolio of more than 80 branded locations in over 20 markets across four continents.
In the fiscal year 2022, Tao Group generated about $485 million in revenue, $37 million in operating income and $67 million in adjusted operating income.
After the sale closes, New York-based MSG will enter into multi-year agreements with Tao Group for ongoing consulting, marketing and support services at Madison Square Garden in New York and the MSG Sphere in Las Vegas.
MSG did not disclose specifically what the proceeds of the sale would be used for, but analysts have said that some of it is expected to be used to pay for the Sphere’s rising construction costs.
A Securities and Exchange Commission filing Monday said the company “expects to receive at closing approximately $300 million of net proceeds (taking into account the payment of accrued management fees) in connection with the transaction. Proceeds from the sale are expected to be used for general corporate matters, as well as Sphere initiatives.”
Over the past few years, investors have been concerned about escalating costs of the 17,500-seat entertainment venue. The project had a $1.2 billion price tag. That ballooned to $1.8 billion in 2019, $2 billion in 2020 and $2.2 billion last year.
The company has blamed higher costs on construction delays from the COVID-19 pandemic and supply chain disruptions.
Earlier this month, the company announced it settled a two-year-old series of class action lawsuits from shareholders for $48.5 million stemming from the approval of a merger with MSG Entertainment in a cost-saving move. The company did not admit liability in the settlement in which plaintiffs alleged that the MSG Networks board of directors and controlling stockholders breached their fiduciary duties in negotiating and approving a merger with MSG Entertainment.
But the settlement also came on the heels of MSG confirming that Lucas Watson was no longer president of MSG Sphere. At the time, it said there were no immediate plans to replace Watson, and that James Dolan, the top executive for several Madison Square Garden companies, including the ownership of the NBA New York Knicks and the NHL New York Rangers, would take over supervision of the Sphere project.
The sphere-shaped venue is expected to open in September with performances by U2. An hour-long film, “Postcard from Earth,” by Oscar-nominated director Darren Aronofsky will open in October.
MSG acquired a majority interest of the Tao Group in 2017 — the same year Mohari was founded by entrepreneurial investor Mark Scheinberg.
Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.