Optimum-MSGN Standoff Could Pressure MSG Networks' Finances: Analyst

JP Morgan analyst David Karnovsky shared views on the impact of the Optimum-MSGN carriage battle on Sphere Entertainment Co. (NYSE:SPHR) and Madison Square Garden Sports Corp. (NYSE:MSGS).

As per a press release dated January 1 from Optimum, a brand of Altice USA, Inc. (NYSE:ATUS), the carriage agreement between Optimum and MSG Networks expired on December 31, 2024.

Altice USA said, despite weeks of negotiations, MSG Networks insisted on high programming fees and mandated that its channels be available to most video subscribers.

Altice USA said this “all or nothing” stance would have increased cable bills, forcing most customers to pay for content they don’t watch.

Optimum (likely Sphere Entertainment’s top customer) accounts for 14% of SPHR’s FY24 revenue and 27% of MSG Networks’ revenue, says the analyst.

For Madison Square Garden Sports, which owns the Knicks and Rangers, Karnovsky writes that the bankruptcy for the RSN could reduce local rights fees and related cash flow.

The analyst considers it unlikely that the largest MVPD in a competitive video market would permanently forgo content from four major sports teams, but the possibility of a loss of carriage cannot be completely dismissed. The analyst highlights MSGN has long not been available on DISH, while Comcast dropped the channels in 2021.

Karnovsky estimates MSG Networks’ FY25 adjusted operating income to be $113 million, but losing the Optimum carriage would erase segment profits. Even a renegotiated deal at lower rates would further pressure MSG Networks’ financials.

Meanwhile, the analyst says that for Sphere Entertainment, the loss of Optimum carriage could be a net positive, potentially pushing MSG Networks toward a full default scenario and clearing over $700 million in non-recourse debt from the company’s balance sheet—boosting its valuation.

The analyst maintained an Overweight rating with a price forecast of $240 on Madison Square Garden Sports.

Meanwhile, Karnovsky reiterated the price forecast of $57 and an Overweight rating on Sphere Entertainment.

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