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Sphere Entertainment's Lack of Financial Guidance

4.6

Clarence L. Polk

• November 08, 2023

Investors Left Unsatisfied as Sphere Fails to Provide Fiscal Year Guidance

Many investors were eagerly awaiting Sphere Entertainment's earnings report on Wednesday morning, hoping for some insight into the financial performance of its Las Vegas venue. Unfortunately, their hopes were dashed as the company provided no guidance for the fiscal year ending in June 2024 and offered minimal financial information on the highly acclaimed Sphere arena, which opened with a U2 concert in late September.

This lack of guidance appears to have influenced the drop in Sphere stock (ticker: SPHR), which is currently down by 4.7% to $31.82. In fact, it reached its lowest level since the arena opened earlier in the session.

Adding to these woes is Sphere's other business, MSG Networks. As cord-cutting continues to plague the network, its profit continues to erode. In the first quarter of its fiscal year, MSGN's adjusted operating profit dropped by 24% to $25.2 million.

Nevertheless, investors remain fixated on Sphere, despite its costly $2.3 billion construction price tag—approximately $1 billion over initial estimates.

James Dolan, the CEO of Sphere and a member of the controlling family, claims that the Sphere venue is already profitable. However, Dolan adds that its profitability "kind of depends on how you calculate." According to Dolan, the venue generates a staggering $1 million per day in ticket sales from its highly popular Postcard from Earth show by Darren Aronofsky. With multiple daily showings on most days of the week, ticket prices often exceed $100.

Despite these ambitious claims, investors are left wanting more. With no financial guidance and limited insights into its performance, Sphere Entertainment has left shareholders uncertain about its future prospects.

The Economics Behind Sphere Venue

Investors are eagerly trying to understand the economic potential of Sphere, a groundbreaking new venue. With its unique features, including a mesmerizing exosphere covered in over a million LED lights, Sphere is expected to rely on a combination of concert ticket sales, original productions, and advertising.

However, there is currently limited information available for investors to analyze. Sphere is valued at approximately $1.2 billion, with net debt amounting to around $750 million. A significant portion of the debt consists of non-recourse loans to MSG Networks, which will need to be refinanced within the next year.

Unfortunately, Sphere has faced some challenges recently. The company's stock experienced a nearly 10% drop on Monday, closing at about $33. This decline followed the announcement of Gautam Ranji's resignation as the chief financial officer. The company clarified that Ranji's departure was not due to any disagreements regarding accounting principles, financial statements, or internal controls.

However, according to The New York Post, Ranji's resignation occurred following a heated exchange with Dolan, the company's founder. During a conference call on Wednesday, Dolan mentioned that the decision was based on a lack of compatibility between himself and Ranji.

With these setbacks, it may be difficult for Sphere to generate significant investor excitement in the near future. Without clear insight into the earnings potential of its highly anticipated new arena, uncertainties remain.

By Andrew Bary