At a price tag of $2.3 billion and more than 2 years behind schedule, The Las Vegas Sphere has received its fair share of critics. Despite these initial hiccups, the company behind the project, Sphere Entertainment Corp (NYSE: SPHR) might have struck gold.
For context, aside from being the masterminds behind the newly built Las Vegas Sphere, Sphere Entertainment Corp (NYSE: SPHR) own the TV rights for MSG Networks who own the rights to televise New York Rangers, and New York Knicks home games among other teams. The Las Vegas Sphere represents the companies first new venture into the physical venue space. Nevertheless, early data suggests that the $2.3 billion gamble is about to pay off:
Revenue Streams
Last week, the Sphere Pitch Deck was leaked, and it was revealed that The Sphere is charging brands $450,000 for just 4 hours of advertising on the exterior of the Sphere. Assuming The Sphere manages to book the exterior for 12 hours day, this translates to a staggering revenue of $492 million annually from exterior advertising alone. This revenue stream alone almost justifies the initial construction cost, underscoring the Sphere's capacity to be a cash cow for Sphere Entertainment Corp (NYSE: SPHR).
However, The Sphere is not a one-trick pony when it comes to revenue generation. Beyond exterior advertising, numerous other avenues could rake in significant revenue including concessions, merchandise sales, parking fees, naming rights, and a percentage from ticket sales from over 600+ events expected to be hosted annually. A conservative estimate places the Sphere's potential annual revenue at around $800 million, a figure that accentuates its capability to be a long-term profitable venture for the company.
International Expansion
In addition to this, when we dig deeper into the financials it’s apparent that the hefty $2.3 billion price tag of the Las Vegas Sphere can largely be attributed to it being the maiden project. As a result, a substantial portion of the funds were channeled towards planning, research, and development of the project, costs that are for the most part only have to be incurred once.
However now with the blueprint in place, subsequent Spheres can be constructed at a fraction of the initial cost. Case in point plans for an additional Sphere in London England just got the green light, and early projections estimate the project to cost £800 million ($976 million), less than half the cost of the original. The reduced cost in establishing new Spheres significantly bolsters the scalability and profitability outlook of Sphere Entertainment Corp (NYSE: SPHR). Furthermore, the diversification into different geographic markets not only augments revenue but also mitigates risks associated with market saturation or economic downturns in a particular region.
Interest Rate Risk
However, concerns remain for Sphere Entertainment Corp (NYSE: SPHR), who most notably have $932.3 million in debt maturing between now and 6/30/2025. With interest rates flirting at 20-year highs, any refinancing of bonds in the near future will come with come with substantially higher interest payments presenting a risk for the company and investors.
Conclusion
Nevertheless, with exclusive television rights, multiple new revenue streams, and room for international expansion, Sphere Entertainment Corp (NYSE: SPHR) is an intriguing stock at its current valuation of $1.3 billion.
Disclosure: The content is for informational purposes only; you should not construe any such information as investment, financial, or other advice. I have no business relationship with any company whose stock is mentioned in this article.