Sphere Entertainment Stock Drops as Firm Says MSG Networks Bankruptcy Possible

Sphere Entertainment Co. (NYSE: SPHR) shares took a tumble recently as the company warned of a potential bankruptcy filing by its subsidiary, MSG Networks. The warning sent investors into a frenzy, with the stock price declining by 6.17% over the past 52 weeks. But is this a buying opportunity, or a sign of more trouble ahead?



The warning comes as MSG Networks faces a prolonged carriage dispute with Optimum, a brand of Altice USA, which has left MSG Networks dark for a significant portion of New York City viewers since the start of 2025. This blackout has impacted the reach and revenue of MSG Networks, which is home to the New York Knicks, New York Rangers, New York Islanders, New Jersey Devils, and Buffalo Sabres. The carriage dispute has also put pressure on Sphere Entertainment's financials, with Optimum accounting for 14% of its FY24 revenue and 27% of MSG Networks' revenue.



In addition to the carriage dispute, MSG Networks is burdened by significant debt, with $829 million of its debt coming due in October 2024. The company has been in discussions with its lenders to refinance this debt, but has not yet reached a resolution. If MSG Networks were to file for bankruptcy, it could potentially discharge its debt obligations, including the $829 million that came due in October 2024. This would significantly reduce Sphere Entertainment's debt burden, improving its balance sheet and potentially boosting its valuation.

However, a bankruptcy filing by MSG Networks could also lead to a loss of revenue for Sphere Entertainment. MSG Networks is a significant source of revenue for the company, accounting for 14% of its FY24 revenue and 27% of MSG Networks' revenue. If MSG Networks were to discharge its media rights agreements with MSG Sports as part of a bankruptcy filing, Sphere Entertainment would lose a significant recurring revenue stream. This could pressure the company's financials, as seen in the estimated $113 million adjusted operating income for MSG Networks in FY25, which would be erased if the Optimum carriage were lost.



Despite the potential risks, some analysts see a silver lining in a potential bankruptcy filing by MSG Networks. According to David Karnovsky, an analyst at JPMorgan, a bankruptcy could potentially improve MSG Networks' negotiating position with Optimum. With a lighter debt load, MSG Networks might be able to afford lower carriage fees, making a deal with Optimum more likely. This could help restore MSG Networks' reach and revenue, benefiting Sphere Entertainment in the long run.



In conclusion, the potential bankruptcy of MSG Networks presents both opportunities and risks for Sphere Entertainment. While a bankruptcy could lead to a loss of revenue and uncertainty, it could also result in debt reduction and improved negotiating power. Investors should carefully consider these factors and monitor the situation closely as it unfolds. As always, it is essential to do thorough research and consult with a financial advisor before making any investment decisions.