The Sphere in Las Vegas just had its grand opening (via a U2 concert, kicking off a two-month residency in South Nevada), and the internet is abuzz with footage from the tech-powered entertainment venue. By all accounts, the "multi-sensory" experience doesn't disappoint. Ticket prices for major events are commensurate with the immersive entertainment, starting in the hundreds of dollars each.
For investors, perhaps the coolest thing about The Sphere is it's a real estate asset that you can invest in -- Sphere Entertainment (SPHR 3.81%) -- but with a catch. Is this a tech stock worth buying?
NYSE: SPHR
Key Data Points
The tech fueling the future of entertainment venues
Aptly named, The Sphere is a modern take on the ancient amphitheater. But rather than seats encircling just a stage with performers, the amphitheater is within a massive spherical structure encased in giant LED screens -- both inside and out. That's a big reason why the price tag to build the massive structure was $2.3 billion.
The exterior features a mind-boggling 580,000 square feet of LED screens, which can be programmed for stunning visuals and of course for ads too. And on the inside, there's 160,000 square feet of LED screens in a planetarium-style arrangement around the stage at the bottom. Those interior screens are in 16K resolution, double the maximum 8K that's generally available for purchase at your local TV store (and which themselves cost a hefty premium).
But the tech extends beyond the immersive visual experience. There are thousands of speakers, with some 10,000 of the venue's 18,600 seats also including haptic sound features that transmit the low bass vibrations through the chair. Other features include changing scents, temperature, and wind to create environmental effects coordinated with the show or event being watched and heard.
Another interesting bit: The Sphere's engineers and architects made virtual reality renditions of parts of the venue before they were built. That jives with Nvidia's vision of "digital twins," a type of metaverse application with real-world benefits for big businesses, giving them the ability to test expensive concepts before actually spending money to build them in real life.
Besides concerts, movies, and shows, The Sphere will also host select sporting events in the future as well.
Ok, so The Sphere is cool, but investing in it isn't so cut-and-dry
Though the first concerts are only just happening, and revenue streams (and ultimately profit margins on them) are largely unknown, it's not hard imagining The Sphere being a financial success. Management envisions The Sphere in Las Vegas being "the first of many," with future venues perhaps being built via a franchise model with financial partners, according to CEO and venue visionary James Dolan.
But here's the catch: Investing in Sphere Entertainment stock isn't a tech real estate pure-play. Dolan actually shook up his real estate and sports empire to make The Sphere happen. Back in 2018 when the Las Vegas project broke ground, The Sphere was still part of what was then called The Madison Square Garden Company. Today, that empire has been divided up into a number of separate businesses. Besides Sphere Entertainment, there's MSG Sports (MSGS +0.09%), which owns the NBA's New York Knicks and NHL's New York Rangers; and MSG Entertainment (MSGE 1.50%), which is the holding company for The Garden itself, as well as Radio City Music Hall, Beacon Theatre, and The Chicago Theatre.
Then there's MSG Networks, the media and TV distribution for the MSG sports teams. Sphere Entertainment still owns that business, and up until The Sphere's grand opening, it accounted for virtually all of the company's $574 million in revenue in fiscal year 2023 (the 12-month period ended in June 2023). A bit of MSG Network operating income ($96.5 million, to be exact) helped offset the $370 million in fiscal 2023 operating losses incurred by The Sphere itself.
My colleague Billy Duberstein also recently wrote about The Sphere's financials and pointed out that Sphere Entertainment retains about a 20% stake in MSG Entertainment.
With the marquee venue now open, though, is it time to buy Sphere Entertainment stock? Management itself says not to expect the full financial potential of The Sphere to be realized anytime soon. That hasn't prevented market optimism, though. Shares are up over 30% since the beginning of May 2023 (following the completion of the MSG Entertainment spin-off), valuing Sphere Entertainment at a market cap of over $1.4 billion as of this writing. Clearly, that's a steep price tag for MSG Network revenues alone but maybe not for The Sphere once it starts generating robust income.
This is still a small-cap stock but I find it intriguing. I might nibble a bit on this stock soon and see what unfolds for this new tech-powered real-estate marvel in the quarters ahead.
