The Future of Entertainment Lies in the Success of the Sphere – Insider Weekends

Key Insights:

• On March 2nd, U2 ended their 40 sold-out shows residency at the one-of-a-kind entertainment arena Sphere, and investors are eager to see what’s in store next.
• The Sphere has a number of revenue streams, including artist residencies and concerts, screenings of the immersive film Postcard from Earth and advertising on the Sphere’s Exosphere.
• While Phish and Dead & Co have been announced for a short six-week residency in the Sphere in April and from May to June respectively, another, larger artist has also been confirmed but yet to be announced.
• Second quarter fiscal 2024 results for the company were released in early 2024. While the company is still reporting a GAAP operating loss, adjusted operating income is positive and growing.
• Executive Chairman and CEO, Jim Dolan, who has a long history with the entertainment business recently made a $5.54 million insider purchase.

Sphere Entertainment Co. (SPHR): $44.29

Market Cap:$1.25B

Enterprise Value: $2.48B

With March 2nd marking the end of U2’s incredibly successful residency at the one-of-a-kind music and entertainment arena, Sphere, all eyes are on the company to see what’s in store for the next few years. We’re no stranger to the unique nature of the Sphere business model or venue, and wrote the following in a C-Suite Transitions article in late December:

Sphere: The inaugural 580,000-square-foot Sphere debuted in Las Vegas in September 2023, boasting a capacity for 20,000 guests and a year-round schedule of diverse events. The Sphere was designed by Populous, a global design firm specializing in stadiums and large-scale event venues.

Picture this: The Sphere, is not just the world’s largest spherical structure standing tall at 366 feet and stretching wide at 516 feet but also a visual wonderland with a massive 16K LED screen, spanning 160,000 square feet. The audio experience is just as thrilling with advanced tech for a 3D sound experience that’ll leave you in awe. But it doesn’t stop there; the Sphere adds an extra layer with 4D effects like haptic feedback, scents, and more, ensuring an unforgettable sensory journey. And let’s not forget the exterior—580,000 square feet of programmable LED displays that transform the Sphere into a mesmerizing spectacle.

Billionaire heir to a cable TV fortune and owner of the Knicks, the Rangers, Madison Square Garden, Radio City Music Hall, and other venues, James Dolan invested more than $2 billion in building the Sphere, surpassing its original budget by over $1 billion.

These include The Sphere ExperienceTM, featuring original immersive productions, concerts, artist residencies, and high-profile sporting and corporate gatherings. Sphere Studios in Burbank, with a 68,000-square-foot development facility and the 28,000-square-foot Big Dome, supports these endeavors as a specialized screening and production hub.

The Sphere opened on September 29th, 2023, and U2 were the first to play over 25 shows until December 2023. These initial shows garnered much critical acclaim and success for both Sphere and U2, with over 413,000 tickets sold generating $159.8 million in revenue. The residency was thus extended into March 2024, adding 15 additional shows. When the U2 shows weren’t being held, there were multiple screenings of Postcard from Earth, an exclusive, immersive experience movie made especially for the Sphere. The film cost around $61 million to produce, but is shown anywhere from three to four times per day when the Sphere isn’t used for a corporate booking or a live-act performance. Each ticket for the movie can cost anywhere from $80 to over $200.

Sphere Entertainment as a company itself is quite fascinating as it was created from a series of spinoffs from the Madison Square Garden Company, who operate the famous Madison Square Garden arena in New York City. We wrote the following on the multiple spinoffs in our first article about the company:

Sphere Entertainment Co., previously known as Madison Square Garden Entertainment Corp., was established on November 21, 2019, as a direct, fully-owned subsidiary of Madison Square Garden Sports Corp. (MSG Sports). On April 17, 2020, MSG Sports distributed all outstanding common stock of Madison Square Garden Entertainment to MSG Sports’ stockholders, a transaction referred to as the “2020 Entertainment Distribution.”

On April 20, 2023, Sphere Entertainment distributed its live entertainment division called MSG Entertainment (MSGE) common stock to its stockholders while retaining approximately 33% of MSGE.

Post-distribution, Sphere Entertainment kept the Sphere and MSG Networks businesses, while MSG Entertainment now owns the traditional live entertainment business. Stockholders of Sphere Entertainment received one share each of MSG Entertainment’s Class A and Class B common stock for every corresponding share held in the company as of April 14, 2023.

Sphere’s price has already run up by over 25% since we last wrote about the company just two months ago, but the biggest question on investor’s minds is what comes next. Can the growth or even potential for growth be sustained now that U2 has ended their residency? Considering how bullish we are on the company, our answer is yes.

On February 5th, Sphere Entertainment reported their Q2 fiscal 2024 (ended on December 31, 2023) results. Highlights from this release include the fact that Postcard from Earth grossed over one million dollars in average daily ticket sales on days when this Sphere Experience was shown, and MSG Networks business segment of Sphere Entertainment announced a joint streaming venture with YES Network. This streaming venture continues to exemplify MSG Network’s focus on streaming services, especially considering this quarter marked the first year of availability of MSG+, a streaming service for NBA and NHL fans to access MSG-produced games and content.

The Sphere business segment reported revenues of $167.8 million, with the Sphere Experience netting revenues of $92.9 million across 191 screenings during the quarter, event-related revenues producing $55.2 million (including concerts and one major sporting event), and other revenues (encompassing Exosphere advertising, suite license fees, sponsorship, and more) totaling $17.5 million. The company did report a GAAP operating loss of $159.7 but adjusted operating income was $14.1 million (excludes some depreciation and amortization costs, restructuring costs, mergers and acquisitions costs, and more).

With the MSG Network business segment revenues and expenses included, Sphere Entertainment as a whole reported revenues of $314.2 million, a GAAP operating loss of $159.7 million, and adjusted operating income of $51.4 million. Comparisons to the prior year quarter don’t account for revenue gained from the Sphere business, and thus, those comparisons aren’t necessarily the most helpful to understand performance.

It’s particularly interesting to see that it was the Sphere’s original content that generated the highest revenue for that business. As CEO and Executive Chairman James Dolan mentioned on the Q2 2024 earnings call, high-profile residencies will continue to generate profit but also attention and awareness for other events at the Sphere. The success of U2’s sold-out shows also gives the Sphere more leverage to negotiate better contracts with other artists in the future – in the U2 residency, the band kept 90% of the profits from ticket sales, while the Sphere got 10% and most service fees.

Rumors on the street are that another high-profile artist, like Beyonce or Harry Styles, are the next to be announced for residency in the Sphere. The company has confirmed that their next two acts for 2024 have been confirmed, one of which is Dead & Co, who will be playing for six weeks between May 16th and June 22nd. The third, presumably larger, artist has also committed – though it is up to the artist themselves to announce the show. Demand for tickets remains strong, and just like U2, Sphere expects residencies to last for longer simply due to demand for the artist. Planning for 2025 is also in development, and the company expects it to be another full year of residencies.

The success of the Sphere Experience also gives us hope that the company will continue to develop new shows to be shown in the arena. The Sphere’s location in Las Vegas offers a steady stream of tourists who are now beginning to view the Sphere as yet another experience to be done during their trip, much like the famous Cirque du Soleil – which is actually seeing ticket sales slow since the Sphere’s launch, indicating some level of competition.

On a larger scale, James Dolan mentioned on the earnings call that the Sphere business is supposed to be a franchise model – there exists a vision of multiple Spheres being constructed around the world. These new Spheres will likely incur their own construction and development costs, but the success of the Las Vegas Sphere gives us hope that profits can be sustained with these new Spheres, making the experiences more available to a global audience.

Overall, Mr. Dolan’s recent purchase of Sphere gives us renewed confidence that there is a lot more in store for the company in the years to come. The form of entertainment the Sphere arena offers is truly one-of-a-kind, enticing both audiences and artists alike. While the company is still in its early stages of development and is yet to become profitable, we’re definitely excited to see what might happen as the business grows. The upcoming announcement of the third residency artist will likely drive the stock price higher, and we hope to see revenues and profit follow that trend as well in the upcoming quarters.

Editor’s note: Tamanna Suria contributed to this article.

Welcome to edition 723 of Insider Weekends. Insider buying decreased significantly with insiders purchasing $52.52 million of stock compared to $147.76 million in the week prior. Selling also decreased to $4.59 billion compared to $5.79 billion in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio increased to 88.13. In other words, insiders sold more than 88 times as much stock as they purchased. This week, the Sell/Buy ratio was unfavorable again, compared to the prior week when the ratio stood at 39.25.

Notable Insider Buys:

1. Mercury Systems Inc (MRCY): $29.73

Director Scott Ostfeld acquired 377,913 shares of this Aerospace & Defense company, paying $29.26 per share for a total amount of $11.06 million. These shares were acquired indirectly through Jana Partners Management.

You can view the list of recent insider transactions for Mercury Systems Inc here.

2. Sphere Entertainment Co. (SPHR): $44.29

Executive Chairman / CEO James Lawrence Dolan of this entertainment company acquired 135,513 shares, paying $40.90 per share for a total amount of $5.54 million. Mr. Dolan increased his stake by 35.24% to 520,039 shares with this purchase.

You can view the list of recent insider transactions for Sphere Entertainment Co – Ordinary Shares – Class A here.

3. Transocean Ltd (RIG): $5.09

Director Frederik Wilhelm Mohn acquired 1,000,000 shares of this oil & gas drilling company, paying $4.89 per share for a total amount of $4.89 million.

You can view the list of recent insider transactions for Transocean Ltd here.

4. AMN Healthcare Services Inc. (AMN): $56.81

Shares of this health care company were acquired by 5 insiders:

• Chief Executive Officer Caroline Grace acquired 17,500 shares, paying $56.68 per share for a total amount of $991,906. Ms. Grace increased her stake by 180.82% to 27,178 shares with this purchase.
• CFO Jeffrey R. Knudson acquired 6,951 shares, paying $57.75 per share for a total amount of $401,420. Mr. Knudson increased his stake by 33.33% to 27,804 shares with this purchase.
• Director Douglas D. Wheat acquired 2,620 shares, paying $56.87 per share for a total amount of $148,999. Mr. Wheat increased his stake by 172.03% to 4,143 shares with this purchase.
• Chief Legal Officer Whitney M. Laughlin acquired 863 shares, paying $57.74 per share for a total amount of $49,830. Ms. Laughlin increased her stake by 6.33% to 14,490 shares with this purchase.
• Director Sylvia Trent-Adams acquired 175 shares, paying $57.02 per share for a total amount of $9,979. Ms. Trent-adams increased her stake by 4.87% to 3,772 shares with this purchase.

You can view the list of recent insider transactions for AMN Healthcare Services Inc. here.

5. Allegion plc (ALLE): $126.8

President and CEO John H. Stone acquired 10,000 shares of this locks and fixtures company, paying $132.41 per share for a total amount of $1.32 million. Mr. Stone increased his stake by 10.61% to 104,248 shares with this purchase.

You can view the list of recent insider transactions for Allegion plc here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc (WMT): $58.76

Shares of Walmart were sold by 3 insiders:

• Director  Robson S. Walton sold 2,072,000 shares for $58.65, generating $121.53 million from the sale.
• Executive Vice President Rachel L. Brand sold 50,271 shares for $58.82, generating $2.96 million from the sale.
• Executive Vice President John R. Furner sold 13,125 shares for $59.51, generating $781,069 from the sale.

You can view the list of recent insider transactions for Walmart Inc here.

2. Meta Platforms Inc  (META): $502.3

Shares of Meta were sold by 3 insiders:

• COB and CEO Mark Zuckerberg sold 387,175 shares for $485.44, generating $187.95 million from the sale. A majority of these shares were sold through the Chan Zuckerberg Initiative Foundation.
• Chief Legal Officer Jennifer Newstead sold 585 shares for $480.00, generating $280,800 from the sale.
• Chief Operating Officer Javier Olivan sold 490 shares for $488.03, generating $239,135 from the sale.

You can view the list of recent insider transactions for Meta Platforms Inc – Ordinary Shares – Class A here.

3. Medpace Holdings Inc (MEDP): $404.24

Shares of this diagnostics & research company were sold by 4 insiders:

• CEO August J. Troendle sold 256,928 shares for $401.82, generating $103.24 million from the sale.
• President Jesse J. Geiger sold 2,558 shares for $393.51, generating $1.01 million from the sale.
• General Counsel & Corp. Secy. Stephen P. Ewald sold 1,513 shares for $395.19, generating $597,923 from the sale.
• Director Ashley M. Keating sold 1,000 shares for $404.65, generating $404,647 from the sale.

You can view the list of recent insider transactions for Medpace Holdings Inc here.

4. Alpha Metallurgical Resources Inc (AMR): $386.02

Shares of this materials company were sold by 7 insiders:

• Chief Executive Officer Charles Andrew Eidson sold 59,184 shares for $369.75, generating $21.88 million from the sale.
• President & COO Jason E. Whitehead sold 57,900 shares for $380.85, generating $22.05 million from the sale.
• Director David J. Stetson sold 36,644 shares for $391.43, generating $14.34 million from the sale.
• CAO, GC & Secretary Roger Lee Nicholson sold 36,000 shares for $373.30, generating $13.44 million from the sale.
• Chief Commercial Officer Daniel E. Horn sold 28,672 shares for $374.70, generating $10.74 million from the sale.
• Director Kenneth S. Courtis sold 15,000 shares for $387.46, generating $5.81 million from the sale.
• Director Daniel D. Smith sold 4,000 shares for $370.00, generating $1.48 million from the sale.

You can view the list of recent insider transactions for Alpha Metallurgical Resources Inc here.

5. NVIDIA Corp (NVDA): $822.79

Shares of NVIDIA were sold by 4 insiders:

• Director Harvey C. Jones sold 65,000 shares for $815.87, generating $53.03 million from the sale.
• Director Mark A. Stevens sold 15,000 shares for $798.63, generating $11.98 million from the sale.
• Director Mark L. Perry sold 15,000 shares for $796.45, generating $11.95 million from the sale.
• Director Michael G. Mccaffery sold 8,250 shares for $636.18, generating $5.25 million from the sale.

You can view the list of recent insider transactions for NVIDIA Corp here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.