Will investors sell the Rangers and buy the Knicks after the MSGS spinoff?

Madison Square Garden Sports (MSGS) plans to complete its spinoff of the New York Rangers business on October 26. The transaction will separate the company's basketball and hockey operations into two publicly traded companies. The deal is still contingent on NBA and NHL approval.

Following the closing of the spinoff, Madison Square Garden Sports (MSGS) will be renamed MSG Knickerbockers Corp. It will own the NBA’s New York Knicks and their NBA G League affiliate, the Westchester Knicks. Shares will trade on the New York Stock Exchange under new ticker MSGK, replacing the current MSGS ticker. The newly spun-off company, MSG Rangers Corp., will own the NHL’s New York Rangers, their American Hockey League affiliate, the Hartford Wolf Pack, and the MSG Training Center in Greenburgh, New York. Those shares will trade on the NYSE under MSGR. James Dolan will serve as executive chairman and chief executive officer of both companies.

Shares of MSGS have traded sideways for about six weeks, and the company is still valued below $10B, which Seeking Alpha analyst Brett Ashcroft Green thinks is low based on the recent $12.5B sale of the Los Angeles Lakers. He also highlighted hedge fund manager Joel Greenblatt's theory that institutional investors, when faced with a spin-off, will usually sell the smaller market cap company and double down on the larger one with the proceeds from the smaller one. "The Knicks are the trophy asset and the larger market cap of the two, and I think investors are likely to sell off the Rangers stock and pile into the Knicks piece," wrote Green.

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