What happened

Shares of Madison Square Garden (MSGN) took a dive last month after the live entertainment specialist posted an underwhelming earnings report and revealed cost overruns associated with its new Vegas area, Las Vegas Sphere. According to data from S&P Global Market Intelligence, the stock finished August down 13%. 

As you can see from the chart below, the stock dove 9% on August 20 and continued to slide from there.

MSG Chart

MSG data by YCharts

So what

Revenue in the fourth quarter -- generally a slow one, as it's the off season for the NBA and NHL -- was down 17% to $263.6 million, missing the analyst consensus of $270.6 million, but the decline in revenue was primarily due to changes in revenue recognition rules. Without those changes revenue was up 3%. On the bottom line, MSG, which owns a number of arenas and theaters in addition to its namesake property, lost $3.08 per share during the seasonally slow period, worse than the $1.94 it had lost the year before. That result was worse than analyst expectations of a $2.61-per-share loss. 

Midtown Manhattan including Madison Square Garden

Image source: Getty Images.

What really seemed to spook investors was the company's update on the Las Vegas Sphere space located at the Venetian Resort. In May, the board of directors had approved a preliminary cost estimate of $1.2 billion, but since then the cost estimate has risen to $1.7 billion, following the company's hiring of AECOM as the general contractor for the project. However, MSG believes that the estimate is too high and is reviewing the matter with the goal of reducing the cost. 

The conflict over the cost of the project could cause the Sphere to be delayed past its scheduled opening in 2021 or simply make it more expensive than MSG had projected. For a company that had $170 million in adjusted operating income last year, a $500 million construction overrun is going to have a significant impact on business and the ability to fund future projects. 

CEO James Dolan said, "Looking ahead, we remain confident in the strength of our core businesses and expect fiscal 2020 to be an important year as we work to complete the proposed sports spinoff and begin to usher in the company's next chapter, with MSG Sphere in Las Vegas starting to take shape."

Now what 

The company did not issue guidance for fiscal 2020, however, as Dolan indicated the issues to watch with the company are the spinoff of MSG Sports, the division that owns the Knicks and the Rangers, and the construction of the Sphere. Live entertainment has proven to be a hot commodity in recent years, and MSG holds a number of marquee properties. Whether the company can extract their full value still remains to be seen.