MSG Entertainment Explores Tao Group Sale, Fertitta the Rumored Buyer: Report

Madison Square Garden Entertainment Corp. (NYSE:MSGE) has hired Goldman Sachs to explore a sale of its controlling interest in the Tao Group nightclub and restaurant empire, according to a report in the New York Post.

The money is needed to offset the ballooning construction cost of the MSG Sphere in Las Vegas, the Post wrote. And the rumored front-runner to pony up is Tilman Fertitta.

The report, which relies on information from two anonymous insiders, said the billionaire hospitality titan – whose empire includes Golden Nugget casinos in Nevada, Louisiana, Mississippi, and New Jersey, as well as the NBA’s Houston Rockets –  is rumored to have already submitted a first-round bid for Tao Group.

Tao Group’s Sin City venues alone include Asian and Italian restaurants, namesake day clubs, and the nightclubs Hakkasan, Marquee Nightclub, OMNIA Nightclub, and the Wet Republic Ultra Pool. The bulk of those venues are located at Strip resorts.

Last month, a Morgan Stanley analyst valued Tao Group at $524 million. By that estimate, MSGE’s 67% stake would be worth $274 million – after subtracting Tao Group’s $85 million in debt. However, the Post’s sources said that MSGE’s owner, billionaire James Dolan, wants nearly $800 million as Tao Group expands beyond its Las Vegas and New York City base to the Middle East. (In April 2021, Tao Group acquired Hakkasan Group, which operates four venues there, for $99 million.)

According to the Post’s sources, Dolan is desperate to close a $600 million gap caused by overruns in the construction budget for the MSG Sphere. The price tag for the spherical Las Vegas entertainment venue – slated to open in the second half of 2023 behind the Venetian, possibly with U2 as its first residency – has nearly doubled to $2.175 billion.

Trouble in the Garden

In 2017, MSGE acquired its Tao Group stake for $181 million, with Tao founders Noah Tepperberg, Jason Strauss, Marc Packer, and Rich Wolf retaining a minority stake in the business. Even before the pandemic shutdown, Tao Group brought trouble to the Garden. In 2019, it risked defaulting on its debt when its revenue halved and Tao lender JPMorgan refused to roll over its $100 million loan into a new one. So MSGE stepped up to loan Tao Group $49 million, according to the Post article.

On Dec. 6, MSGE announced it would separate its live entertainment business – including its eponymous arena, Radio City Music Hall, and the Beacon Theatre in New York City – from the MSG Sphere and Tao Group, which would be rolled along with MSG Networks into a single, publicly traded company to be known as MSG Sphere Corp. (MSG Networks owns two regional and national entertainment networks, as well as a related streaming service, and exclusively carries live local games from five NBA and NHL franchises.)

On Dec. 22, the MSG Sphere project announced it had borrowed $275 million from a JPMorgan-led lender group.