If you use any of the popular social media platforms, there's a good chance you saw the incredible footage from rock band U2's opening concert inside Sphere Las Vegas on Sep. 29. Sphere was under construction for a whopping five years, but it promised to reimagine live entertainment. The early reviews suggest it's doing just that.
Here's the good news: You can own a slice of its success, because the property is owned by a publicly-traded company: Sphere Entertainment (SPHR -1.78%). It's headed by James Dolan, who owns basketball's New York Knicks and hockey's New York Rangers via the Madison Square Garden Sports company.
Given that it only opened last month, Sphere Las Vegas is still a blank slate in terms of financial results, but there are grand plans in the works and no shortage of potential. Here's what you can expect if you buy Sphere Entertainment stock.
Image source: Getty Images.
The Sphere could change the way people perceive live entertainment
James Dolan has plenty of experience managing live venues. As the CEO of Madison Square Garden Entertainment, he operates wholly-owned properties Madison Square Garden (of course) and The Chicago Theater, as well as leased properties including Radio City Music Hall and The Beacon Theater.
But if you've ever attended a live concert, you know the quality of your experience in a traditional stadium venue depends largely on your seats, particularly when it comes to sound. Dolan's desire to solve that problem dates back almost a decade, eventually serving as the inspiration for Sphere.
The company broke ground on the Las Vegas venue in 2018 with a construction budget of $1.2 billion. Five years and several budget blowouts later, it's finally open with a finished price tag of $2.3 billion. While that degree of cost overrun would be enough to make any project manager wince, early signs suggest it might be an exceptional long-term investment.
The entire surface of the spherical-shaped building, inside and out, is covered in LED displays. The exterior (the Exosphere) is a massive digital billboard, and on the inside, it delivers an immersive visual experience for the audience in 16K high definition, complete with 168,000 speakers designed to deliver quality sound to all 20,000 visitors.
As I mentioned, Sphere's first act is rock band U2, who have signed on for a 25-show residency. It has also attracted the attention of sports leagues like Formula 1 racing, which will rent the venue for several days during its Las Vegas Grand Prix. But Dolan says Sphere is designed to be busy 365 days per year with multiple events per day -- not to mention the Exosphere's potential to generate advertising revenue.
Sphere Entertainment's financials are bolstered by Madison Square Garden Networks
Sphere Entertainment was originally part of Madison Square Garden Entertainment, which was responsible for its entertainment venues and a set of television networks. However, Madison Square Garden Entertainment was spun off into a separate company earlier this year, leaving Sphere Entertainment as its own entity operating two businesses: Sphere Las Vegas and MSG Networks.
Since Sphere Las Vegas only just opened, it generated only $2.6 million in revenue during fiscal 2023, which ended June 30. Dolan says investors shouldn't expect the property to reach its full economic potential in the short term, and the company hasn't provided any guidance, so it's tough to predict how much of a financial success it will be. However, Dolan looks forward to licensing the venue's 23 private suites in multiyear agreements and converting the significant interest from advertisers into revenue in the near term.
Right now, the majority of the Sphere Entertainment company's revenue is instead generated by MSG Networks, which brought in $571 million in fiscal 2023. It televises live sports from five teams: the NBA's New York Knicks; the NHL's New York Rangers, New Jersey Devils, and New York Islanders; and the National Women's Soccer League's Gotham FC. But over the long term, investors probably won't be buying Sphere Entertainment stock for the networks segment.
Sphere stock could be a great long-term investment
Nothing like Sphere Las Vegas exists anywhere else in the world, but that won't be the case for long. The company plans to build another similar property in London, and Dolan has been vocal about his desire to tackle more locations in the future.
The company has also designed smaller replicas with just 2,500 seats, which will allow for a much faster expansion into other markets. Plus, Dolan expects lower construction costs for those future projects thanks to the experience the company acquired building the first Sphere and his desire to involve partners in future projects.
Dolan says Sphere completely changes the business model for live entertainment. Because live acts typically want to perform Wednesday nights through Saturday nights, traditional venues can sit empty a few nights per week. Sphere, however, creates its own visual content in its Burbank, Los Angeles studio that is designed to draw in the public during the days and nights when major acts are absent.
Sphere has the potential to be 365-day-per-year operation, which would make it the envy of most venue operators around the world. Its first visual show -- The Sphere Experience -- will open this month.
The company is valued at just $1.4 billion as of this writing, and it does have nearly $800 million in net debt. However, its revenue stream from MSG Networks is extremely reliable, and live sports rights are always valuable.
Investors who buy this stock now should be prepared for Sphere to report lumpy results in the near term as the company builds up its business. Management is also likely to undertake further capital raises or debt deals to fund additional properties. With that in mind, it will be important to hold the stock for at least the next five to 10 years as Sphere realizes the full potential of its various concepts.