Vegas Sphere Post-U2: New Acts, Earth Show, Licensing Deals

The investor enthusiasm reflects growing optimism that Sphere CEO Jim Dolan’s idea for a distinctive concert arena with a state-of-the-art sound system and a massive display screen can become a financial success.

Although the stock had been moving up prior to the opening, the company is valued at less than the $2.3 billion construction cost of the Sphere venue. Sphere, the company, is now valued at about $1.4 billion.

While Barron’s has written favorably on Sphere, Wall Street remains skeptical with just two of the eight analysts tracked by Bloomberg carrying Buy rating on the stock. “No hyperbole in calling it a revolutionary leap in live/experiential,” wrote Macquarie analyst Paul Golding who has a Neutral rating on the stock. Celebrities such as LeBron James raved about the arena.

Investors will be focused on a number of developments in the coming days and weeks that could affect the stock. These include the next musical groups to play in the arena, the debut of Darren Aronofsky’s Postcard From Earth—an immersive film, progress on the development of more Spheres around the world, and any financial guidance on the Sphere’s profit potential. 

An announcement is expected soon on the next acts to play the 17,600-seat Sphere. U2 so far is the only announced group. There is speculation the next ones could be the Eagles or Phish.

In a recent Barron’s interview, Sphere Chairman and CEO James Dolan said: “We have other acts lined up, but we want to get through the opening before we get into that. You’ll hear about that in the first or second week of October.”

Then there will be the Oct. 6 debut of Postcard From Earth, a roughly hour-long show that the company calls an immersive, “multisensory” experience. It will be the arena’s main initial attraction and profit center, appealing to Las Vegas tourists. There will be an average of about 13 shows a week in the first month at ticket prices ranging from $49 to $249.

Lightshed Partners analyst Brandon Ross saw Postcard From Earth and was impressed, tweeting Sunday that it “was beautiful and further demonstrated the capabilities of Sphere beyond how U2 utilized the canvas.” The canvas refers to the massive interior LED screens covering 160,000 square feet. Ross is bullish on the stock.

When the company reports its September-quarter results in November, Wall Street will be focused on any financial guidance and progress on the development or licensing of other Spheres around the world including London, where the company already owns a parcel of land for development.

Complicating the Sphere investment story is that the company has two businesses: the Sphere arena and Madison Square Garden Networks, which broadcasts New York Knicks and Rangers games. This structure reflects the reshuffling of assets among three companies controlled by the Dolans—the others are Madison Square Garden Sports (MSGS) and
Madison Square Garden Entertainment
(
MSGE
)—in recent years. MSGS owns the Knicks and Rangers, while MSGE owns the Madison Square Garden arena in Manhattan.

The regional-sports cable franchise is viewed as a negative, because the business has been in decline. Sphere Entertainment has about $1.2 billion in debt, with around $900 million of non-recourse debt attributable to the cable business. That cable debt comes due in about a year.

The company had about $400 million in cash on June 30 but that total rose in the third quarter with the sale of about $500 million of stock in Madison Square Garden Entertainment, which was spun off from Sphere earlier this year.

Sphere Entertainment has not given specific financial guidance for the arena or the entire company, stating in its fiscal 2023 10-K that it anticipates the venue will generate “substantial revenue and adjusted operating income” annually. Investors would like to hear specifics.

 Gabelli Funds portfolio manager Chris Marangi told Barron’s recently that he sees $200 million in annual Ebitda—earnings before interest, taxes, depreciation, and amortization. That could take some time with the Street consensus calling for about $100 million of Ebitda in the current fiscal year ending in June.

One bullish factor is the Sphere’s advertising potential using its exterior with 1.2 million individual LED “pucks” or light sources. That potential was apparent when the arena was lit up for the first time around July 4. There already have been four marketing campaigns using what the company calls the “exosphere” with the first for YouTube’s NFL Sunday Ticket.

On Monday, there was a marketing slide deck purportedly from the company posted on the Internet that said it was charging $450,000 for a one-day marketing campaign. Sphere declined to comment.

The Las Vegas Sphere cost about $1 billion over the initial budget and was capital-intensive. The company is aiming to develop other Spheres using an asset-light model that could involve lucrative licensing deals.

“We’re enthusiastic about building more Spheres. The first step is to put out a product,” Dolan told Barron’s before the opening. “There has been a lot of interest already, but the product isn’t really real until it’s out.”

Ross has written: “A future global network of Spheres would allow artists to actually “tour” the shows they create for Vegas and create further cost leverage for original content. Jim Dolan’s SPHR ambition has been unbridled. We doubt he is ready to stop in Las Vegas.”

The Sphere’s success would be a vindication for Dolan, the often criticized chairman of Madison Square Garden Sports. Given the Sphere’s potential in Vegas and globally, Dolan could be right. 

The Sphere is his baby. It was his idea and he pushed for the arena’s development in the face of skeptics who felt it cost too much would never make much money. The Dolan family controls the company through supervoting stock.

“There isn’t anyone more excited than me. This one has my name all over it,” Dolan said.

Write to Andrew Bary at [email protected]