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There’s a reason Madison Square Garden CFO David Brynes spent a good portion of the company’s quarterly conference call last month explaining the advertising, marketing and promotional potential of the $2.17 billion MSG Sphere project.
The investment community wants to know how the public company plans to recoup the cost of building the entertainment attraction behind the Venetian.
In the four years since the automaker, costs have increased by more than $300 million. The Sphere, which is expected to open in 2023, now costs more than the $1.9 billion Allegiant Stadium, even though the venue is one-third the capacity of the 65,000-seat home of the Las Vegas Raiders.
“We feel very good about the sponsorship opportunities, especially in Las Vegas,” Bryans said in response to a question from JPMorgan entertainment analyst David Karnofsky. “[Las Vegas]is the number one entertainment destination, and The Sphere will be the number one immersive experience the city has to offer. Companies and brands want to be associated with that experience.”
The Sphere features an outdoor high-resolution LED screen covering 580,000 square feet around a circular structure. Madison Square Garden is talking to potential corporate advertisers in major industries, Brynes said. MSG plans to have The Sphere’s outdoor LED feature run in time for the Formula 1 Las Vegas Grand Prix, a 3.8-mile portion of which wraps around the building.
“Even more encouraging is that some of these Sphere sponsorship conversations were with existing major sponsors of (other) MSG entertainment venues,” Brynes said. “Clearly, the company recognizes the value of Sphere event sponsorship.”
Madison Square Garden said the price for MSG Sphere was first announced in 2021 at more than $1.8 billion, but prices have risen due to inflation, global supply chain issues and the complexity of the project.
MSG is financing the remainder of construction costs, including the Tao nightclub and restaurant group, New York City’s Madison Square Garden and Radio City Music Hall, and the company’s investment in the NBA’s New York Knicks, from cash on hand and cash flow from the company’s operations. Ownership and NHL’s New York Rangers.
Concerts, live performances, advertising and ticket sales for sporting events, and leasing the building for corporate events will all “generate significant revenue and annual operating income at attractive margins once we open,” Brynes said.
Still, Karnovsky and other analysts worry that construction costs will continue to rise.
“Given the lack of details on the company, the financial outlook for the Las Vegas Sphere project remains unclear,” Karnovsky wrote in a Nov. 10 research note. “(MSG) expects to have sufficient liquidity to complete the project, and it notes a significant planned cross-business cost reduction program.”
Sphere’s costs are likely to continue to rise for similar reasons as they did in November, Macquarie Securities entertainment analyst Paul Goldin said in a Dec. 13 research note. He noted that the possibility of spinning off several of the company’s traditional live entertainment businesses into a separate public company could also help fund Sphere’s completion.
Gaming industry consultant Brendan Bussmann said The Sphere will have similarities to Allegiant Stadium in that ticket sales won’t be the facility’s sole source of revenue.
“Just by ticket sales alone, it’s hard to do the math on this project because it needs high occupancy and a lot of activity to make it happen,” said Bussman, managing partner at Las Vegas-based B2 Global. .
“Obviously, Madison Square Garden has figured this out because construction costs have gone up to make sure it still works out,” Bussmann added. “But this could be an important event for the job.”
In an email, Jefferies gaming analyst David Katz said he suspects Madison Square Garden “underestimated the cost (of the sphere) from the start.” Provide cash flow to fund the project.
“For example, given the potential options for lease funding, we think it’s an interesting option,” Katz said. He also said revenue from ticket sales, advertising deals and marketing would be valuable revenue streams.
“Having recently toured the property, we believe it could become a must-see property in Las Vegas,” Katz said.
no hints about content
In addition to the outdoor LED screen, a 160,000-foot LED screen will surround viewers inside the 366-foot-tall spherical structure. Screens over three football fields will be augmented by more than 164,000 individual speakers.
The building will include 17,500 permanent seats across five floors with 20,000 standing spaces for entertainment, concert accommodation and sporting events such as boxing.
MSG Sphere will also include 23 luxury suites and a grand 5.7 million cubic foot entrance located in the main atrium.
The carrier hasn’t revealed much about the potential content.
in July, billboard magazineciting multiple unnamed sources, Madison Square Garden Entertainment may have reached an opening night deal for The Sphere with U2, the legendary Irish rock band that is the second highest-grossing band of all time after the Rolling Stones .
Billboard opening night will be the first date of The Sphere’s many shows. MSG spokeswoman Natalie Ravitz declined to comment for this article, saying “we do not have any announcements regarding the opening of the MSG Sphere at this time.”
Madison Square Garden is completing a design studio in Burbank, California, where the creative production and engineering teams can develop content for The Sphere’s exterior and interior LED screens.
In November, MSG announced that a company associated with the Voyager space program had sent a state-of-the-art immersive camera rig to the International Space Station to capture content for the next 60 days for The Sphere program.
“Our vision for MSG Sphere is to create immersive experiences that take audiences to new places, and there are few more breathtaking vistas than space,” Andrew Shulkind, senior vice president of MSG Sphere Studios, said in a statement. said in a statement.
On the call, Byrnes said the studio is working with artists and global performers “to develop what we think will be great content for The Sphere in Las Vegas.”
While the facility was built with musical performances in mind, MSG officials said floor seating and stage areas could be reconfigured for boxing, mixed martial arts and other sporting events that don’t require the large floors associated with stadiums.
The success of the MSG Sphere can be judged by comparison with two other venues, Allegiant Stadium, which recently announced Planned investment of $7.5 million The 18,000-seat T-Mobile Arena, which MGM Resorts International built in partnership with entertainment giant AEG and opened in 2016, cost $375 million.
These two facilities are primarily used to host major sporting events, but they have already proven their worth as recreational facilities to the Las Vegas tourism market.
in the ranking billboard, Allegiant Stadium topped the list of sports venues with the highest entertainment revenue in 2022 with $182.5 million for 24 shows, attracting more than 1 million viewers. These numbers do not include sports such as Raiders home games, UNLV football or non-conference college football games.
Meanwhile, T-Mobile, home of the Las Vegas Golden Knights, college basketball championships, boxing championships and the UFC, ranked fourth among venues of 15,000 seats or more for entertainment, earning nearly 1.247 for 58 shows billion and attracted a total audience of 731,000.
Bussmann believes The Sphere will take hold in Las Vegas. In May, Madison Square Garden launched a multi-year partnership between the MSG Sphere and Formula One.
“Las Vegas is still one of the only places where you can have a venue like The Sphere, both in terms of size and number,” Bussmann said. With a new arena and a baseball diamond, add that to your other existing large stadium assets, and things can get tense very quickly.”
‘What’s next for Las Vegas’
MSG and Las Vegas Sands, which owns 19 acres near Koval Lane, held an elaborate groundbreaking ceremony for The Sphere in September 2018. the government at the time.Brian Sandoval called development“A new chapter in the history of the entertainment capital of the world.”
At that time, MSG officials did not disclose the cost of Sphere, only saying that it would be completed in 2021.
The pandemic disrupted 2020 even after Gov. Steve Sisolak declared construction a vital business for the state, allowing work to continue.
In 2021, Las Vegas Sands announced it would sell its stake in Las Vegas for $6.25 billion with real estate investment trust VICI Properties and private equity firm Apollo Global Management. VICI now owns the Sphere venue, which is included in its $25 million annual Venetian lease agreement, paid for by Apollo.
The Venetian will be connected to the Sphere via a covered walkway above Koval Lane. In May, after MSG executives Provide media visits In keeping with the placement of the last beam in the building’s exterior structure, The Venetian said the resort will have a close relationship with the Sphere.
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