Looking for Value in 2023? Use Boyar’s Forgotten Forty as Your Roadmap

 

Forgotten Forty 2023

 

Most investors would just as soon forget 2022. With many global indices set to end the year deeply in in the red, “safe” fixed-income investments proving not to be so safe after all, and many former pandemic highflyers decreasing by 70% or more, investors have endured a year of carnage. Except for energy shares (advancing 74%) and consumer staples shares (advancing 0.6%) , there has been no place to hide, with all other S&P 500 sectors  declining -2.4% to -37.0%  YTD as of November 22nd.

Midterm Outlook

Contrarians that we are, this negative performance, in view of the historical record of market performance following mid-term elections, increases our excitement about the prospects for a select number of equities in 2023. After all, based on data from Carson Investment, we’ve entered the most traditionally bullish period of the 16-quarter U.S. presidential cycle: since 1950, the fourth quarter of midterm years and the following two quarters have been the strongest, with the S&P 500 delivering average gains of 6.6%, 7.4%, and 4.8%, respectively.

FTX Collapse and Equity Implications

The collapse of cryptocurrency exchange platform FTX wiped out a staggering amount of wealth, and few can predict what impact, if any, the crypto meltdown will have on equities going forward. Regardless, recent events reinforce the importance of conducting deep fundamental research.

2023 : The Year of the Stock Picker?

As famed value investor Shelby Davis once said, “you make most of your money in a bear market; you just don’t realize it at the time.” Last year, strategists at major Wall Street brokerage houses were optimistic about equities prospects for 2022, but this year they are much less hopeful, with many calling for little to no stock gains in 2023. Perhaps the major indices will flounder in 2023, but we believe that good stock pickers are facing a golden opportunity, as we detail in our annual Forgotten Forty issue, now available for preorder.

Forty stocks, forty one-page reports—each focusing not only on what we believe the stock is worth but also, more important, on the stock’s catalyst: the reason we expect it to go up in the coming year, and the reason we believe that investors should consider owning it.

Not all members of the Forgotten Forty are traditional value stocks, but all are companies we’ve previously featured in our full-length research reports. Each is a name we believe in, a name whose “value” we know inside and out—giving us specific reasons to believe it will outperform in 2023.

Free Sample Reports and Our Special Preorder Offer

For more insight into the thinking behind our Forgotten Forty picks, we invite you to read five sample reports featured in last year’s Forgotten Forty issue.

After you’ve done so, we encourage you to check out our special preorder bonus offer and gain immediate access to our October and November 2022 subscriber research reports before we present you with this December’s Forgotten Forty.

 

 

 

 

 

 

 

 

 

 

The information provided herein (a) is for general, informational purposes only; (b) is not tailored to the specific investment needs of any specific person or entity; and (c) should not be construed as investment advice.  Boyar Research does not offer investment advisory services and is not an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) or any other regulatory body.  Boyar Value Group offers investment advisory services through Boyar Asset Management, Inc. (the “Adviser”), which is an affiliate of Boyar Research and is an investment adviser registered with the SEC.  Registration with the SEC should not be construed as an endorsement of the  Adviser by the SEC nor does it indicate that the adviser has attained a particular level of investment skill or acumen. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Research assume no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Past performance does not guarantee future results. Investing in equities and fixed income involves risk, including the possible loss of principal. Certain information has been provided by and/ or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Research is not responsible for third-party errors. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein

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The Boyar Value Group’s 3rd Quarter Client Letter

The Boyar Value Group just released our latest quarterly letter to clients.

Please find an excerpt of the letter below:

Do Higher Interest Rates Mean That Stocks Need to Decline?

Pundits see higher bond yields as a sign that equity valuations need to further compress (after all, higher bond yields are competition for stocks), but a look at the historical record contradicts that notion. According to Bespoke Investment Group, the yield on the investment-grade bond index is ~5.6%, right around the 35-year median yield, and at the same time the P/E of the S&P 500 is close to its historical average, which Michael Santoli sees as a sign that “‘average’ equity valuations are not far out of whack.” Approximately 7 months ago, investors were willing to accept that same 5.6% yield they are currently receiving for investment-grade fixed income for lower-rated junk bonds. Times sure have changed! As Santoli also points out, “the most extreme overvaluation of large-cap stocks and wildest speculation in no-profit upstarts occurred at a time when Treasuries yielded 5-6% in the late-’90s. Appetites and crowd psychology drive markets in the shorter-term, not math.”

Are We in the Run-up to a Small Cap Rally?

Small cap companies are particularly attractive, in our opinion, and have been hit hard during the selloff, with the S&P 600 (an index consisting of smaller capitalization companies) declining 17% YTD through October 25. Not only are they historically cheap, trading at just 11.5x expected earnings (below their 20-year average of 15.4x and the S&P 500’s 16.5x), but they are significantly more insulated from the negative effects of a strong U.S. dollar than multinational companies that sell more of their goods/services overseas. According to the Wall Street Journal, components of the S&P 600 generate just 20% of their sales abroad versus 40% for the larger-cap S&P 500.

Please click here to read the letter

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Value Group (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions

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Volatility & Opportunities In Today’s Geo-Political & Economical Turmoil

Jonathan Boyar was interviewed on the Rollings Stocks program. He discusses where he is currently finding value despite both geo-political &  economic turmoil as well as what investors should be focusing on amid the volatility. Watch the interview below for insights and learn what businesses he believes are positioned to do well.

 

 

 

 

 

 

 

Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change without notice.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this video should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable.   Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors.  This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research.  Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this email.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions.  Clients of Boyar Asset Management own shares of Bank of America, Cisco and MSGS.

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Opportunities For Long-Term Patient Investors Who Can Withstand The Current Volatility

Jonathan Boyar was interviewed on Yahoo Finance where he discussed several opportunities for long-term patient investors able to withstand the current volatility.

 

 

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change without notice.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this video should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable.   Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors.  This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research.  Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this email.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions.  Clients of Boyar Asset Management own shares of Bank of America, Chubb, Cisco, HanesBrands and Apple.  

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Mark & Jon Boyar in Welling on Wall Street On the Upside of the Downside: Opportunity, Cheap

Mark & Jonathan Boyar were recently interviewed in Welling on Wall Street. The topics discussed include:

  • Their views on the economy and the outlook for stocks.
  • The investment thesis for over ten stocks they currently find to be undervalued.
  • A microcap stock they currently find to be attractive.
  • What areas of the market they would be avoiding.
  • Comparing the current investment climate to other historical periods.
  • And much more…

To Read the Interview, Please Click Here

 

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates.  This material is as of the date indicated, is not complete, and is subject to change without notice. Additional information is available upon request. No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this interview should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this article.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at https://adviserinfo.sec.gov Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions. Clients and employees of Boyar Asset Management own shares of some of the companies mentioned  in the interview including but not limited to Madison Square Garden Sports, Madison Square Garden Entertainment, Hanesbrands, Levi Strauss, Warner Brother’s Discovery,  Comcast, Bank of America,  AMC Networks,  Scotts Miracle-Gro, CVS, LabCorp,  and Townsquare Media.

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John Rogers, Co-CEO of Ariel Investments on founding Ariel at the age of 24, the techniques he employs when investing on behalf of clients and more…

 

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The Interview Discusses: 

  • Founding Ariel (which now manages more than $16 billion) at the age of 24.
  • Surviving the stock market crash of 1987 and how he turned this setback into an opportunity to grow both his firm as well as his reputation.
  • Why sitting on corporate boards such as McDonalds and Nike have made him a better investor.
  • How his investment process has evolved overtime.
  • How he constructs portfolios in terms of both diversification of industries and individual stocks. He also discusses how he thinks about the liquidity of a stock when making an investment.
  • Why he believes studying behavior finance is important.
  • His thoughts on position sizing and when he decides to sell a stock.
  • His investment thesis on both Madison Square Garden Entertainment and Madison Square Garden Sports.

And much more….

 

About John W. Rogers, Jr. 

John’s passion for investing began at age 12 when his father began buying him stocks as Christmas and birthday gifts. His interest in equities grew at Princeton University, where he majored in economics, and over the two-plus years he worked as a stockbroker for William Blair & Company, LLC. In 1983, John founded Ariel to focus on patient, value investing within small- and medium-sized companies. While our research capabilities have expanded across the globe, patience is still the disciplined approach that drives the firm today. Early in his career, John’s investment acumen brought him to the forefront of media attention and culminated in him being selected as Co-Mutual Fund Manager of the Year by Sylvia Porter’s Personal Finance magazine as well as an All-Star Mutual Fund Manager by USA TODAY. Furthermore, John has been highlighted alongside legendary investors Warren Buffett, Sir John Templeton and Ben Graham in the distinguished book: The World’s 99 Greatest Investors by Magnus Angenfelt. His professional accomplishments extend to the boardroom where he is a member of the board of directors of McDonald’s, NIKE, The New York Times Company and Ryan Specialty Group Holdings.
John also serves as vice chair of the board of trustees of the University of Chicago. In 2008, John was awarded Princeton University’s highest honor, the Woodrow Wilson Award, presented each year to the alumnus or alumna whose career embodies a commitment to national service. Following the election of President Barack Obama, John served as co-chair for the Presidential Inaugural Committee 2009, and more recently, he joined the Barack Obama Foundation’s Board of Directors. John received an AB in economics from Princeton University, where he was also captain of the varsity basketball team.

 

 

Click Here to Read the Interview Transcript

Transcript of the Interview With John Rogers:

[00:00:00] [music

Jonathan Boyar: Welcome to the world. According to Boyar, where we bring top investors, bestselling authors and business leaders, to show you the smartest ways to uncover value in the stock market. I’m your host Jonathan Boyar. I’m really excited today as our special guest is legendary investor John Rogers, who is co CEO of Ariel investments, a value oriented investment firm that he founded at the age of 24 Ariel, which has roughly $16 billion in assets under management specializes in investing in small and mid-sized companies and is among the most respected institutions in the industry. John’s professional accomplishments extend to the boardroom where he sits on the board of McDonald’s Nike, the New York times company, John, welcome to the show.

John Rogers, Jr. Great to be here.

Jonathan Boyar We have a lot to discuss, and I, I realize your time is valuable. You know, in the introduction I just gave does not really begin to cover all your accomplishments, but, you know, as I was researching you for this interview, one of your achievements really stuck with me, you know, while in, in Silicon valley and maybe commonplace to have a 24 year old founder, it’s really unheard of in the investment management business. Can you take us through how you did it?

John Rogers, Jr. Oh, well thank you for bringing up those days. You know, it was amazing. Now Ariel is the 39 years old, almost 40 years old. And you know, I think the reason I was ready to start the company at a young age was a couple things. One was that my father had started buying stocks for me every birthday and every Christmas after I was 12 years old, instead of toys. And I fell in love with the markets. I had a broker in Chicago and then I had a broker across the street from campus at Princeton. And I spent as much time as I could with those role models and mentors learning about the markets. And I thought, if you loved the stock market, you became a stock broker. And I went to work for William Blair and company when I graduated,  from Princeton. And it was a great place to train a great place to learn.

John Rogers, Jr. Cause as you know, Blair is our, you know, largest regional brokerage firm and you had all aspects of the investment bank there, the money managers, the brokers, the institutional sales people, et cetera. And I pretty quickly realized I was in the wrong business. I shouldn’t have been in the brokerage business. I really was meant to be an investment manager where I could develop a long term approach to investing. As I learned about that, I said, you know, if I can’t do this here at Blair, I’ll go off and start Ariel. And that experience again, was very helpful and giving me the confidence to start my early stocks worked out well. And that gave me confidence. And I also have to say that, you know, there was several African American entrepreneurs in Chicago who had done really well and started their companies at young ages. John Johnson had created Ebony and Jet magazine at an early age.

John Rogers, Jr. And George Johnson had created Afro Sheen a hair care product company at a very early age. So I think those African American role models gave me confidence that I could start Ariel  investments at an early age. And then finally I have to say that, you know, I was lucky. I had friends and family who believed in me and they were willing to help me raise the first couple of hundred thousand dollars to open up the doors and be able to pay the salary of a high school buddy of mine and give us the time to develop a track record and get some interest going around our small company.

Jonathan Boyar Yeah, building that track record, obviously by definition it takes time. Was it hard to convince people, even if you had a good couple of years to give a 24 25, 26 year old, you know, some money to invest?

John Rogers, Jr. Well, I think we did a couple things that helped give people confidence in those, in those early years.  One was, we started this newsletter called the patient investor and every issue I would talk about my views of the market. Talk about my favorite stocks, why I like the stock. And then I kept track of how the stocks performed on the back page. So people could see my thinking about the markets and see whether I was, you know, thinking creatively and had some logical thoughts around the markets. And we made the good decision to have the logo of the patient investor be a tortoise to remind people that old Aesop’s Fable that slow and steady wins the race. So I think that gave prospective investors some kind of confidence that we were gonna be prudent patient investors and not risky investors. And then the final thing was we went to friends and family also and raised about $500,000 and we put it what we called aerial fund. It was run just like a partnership, but it had a, a normal fee structure to it. And so we had a real live track record along with the, uh, paper track record that we had in our newsletter, uh, the patient investor.

Jonathan Boyar And you’d mentioned that in Chicago, there was a lot of very successful, you know, African American entrepreneurs. Did you gain access to any of them? Were any of them particularly helpful?

John Rogers, Jr. Yes, that was another really, you know, helpful part of our story, you know, growing up in the south side of Chicago and my parents had met at the university of Chicago law school and they knew some of these outstanding entrepreneurs and I had a chance to grow up with their children, go to grade school and high school with John Johnson’s daughter and son and George Johnson’s son, et cetera. So I did have great exposure to them whenever I had key questions or concerns as I was starting the business, I would go and see, you know, John Johnson go and see George Johnson. I still go and see George Johnson. Now he’s,, 95, 96 years old and still is sharp as a tack and still full of wisdom. And so, so helpful. So having those legends to lean on was critically important in those early years and giving me confidence to, to keep going.

Jonathan Boyar You probably needed a lot of confidence in, you know, you started in 84, 3 years later, you have the crash of 87 you’re 27, 28 years old. However you were at that time, you know, did you think you were going to fail then? Like that was a day that I can’t even imagine losing 20% or whatever it was in one day.

John Rogers, Jr. Yes. You’re too young to remember that it was a brutal day to lose over 20% in one day. I can actually remember I was at the wedding planner and I was having to keep stepping out of the meeting to get on the phone and see what was latest on the markets. It was a scary time, but in some ways it was a really, uh, defining time for us that Ariel, cause  we kept telling people we’re value investors. We told people, we believed in Warren Buffett fit’s mantra that you want to be greedy when others are fearful or what the legendary John Templeton always talked about buying when there’s maximum pessimism. So this gave us a chance to prove to ourselves that we were true contrarian, that we were gonna be willing to buy when there was an extreme stress. And at the same time, I think it gave our customers confidence when they saw us buying more.

John Rogers, Jr. They heard me on the phone, I’d call up clients and say, send us more money. This is a once in a lifetime opportunity to buy bargains. And the fact that we bought bargains during that crisis of 87, set us up for really good performance coming out of that year and into 1988. And I think our fund was in the top five in the country in 1988 and we got to be co mutual fund manager of the year in a strange way. It really set us up and helped to create our brand that and show people that we really truly work in Tris and really were true value. Investors

Jonathan Boyar Just wanted to shift gears for a second and you sit on numerous corporate boards, Nike McDonald’s, New York times company, your co CEO, Melody Hobson, a former World, According to Boyar guests sits on the Starbucks and JP Morgan board. And, and I want to be very careful on how I phrase this question as I’m not implying in any way, you’re acting on any material non-public information as your reputation is pristine. And I’m sure you don’t own those stocks for clients anyway, but by sitting on these boards, you gain access to so many data points and are able to really have an unbelievable insight into the economy and the US consumer and somewhat in the same way Warren Buffett does by owning a railroad and, and other businesses. Does your board service make you a better investor?

John Rogers, Jr. I think for sure it does. You know, I tell people, you know, I used to be on the bank one board for a number of years and I think I’m a better banking analyst now because of that experience, I was on the Aon board for 18 years and work closely with pat Ryan and watched him build that great business. I think I’m a better professional services analyst, financial services analyst, because of that experience. I chaired the audit committee there. I learned an awful lot about how that works. I was on the McDonald’s board when, uh, stock was like $14 a share and Jim can Lupo came back as CEO and created the plan to win. They got the stock back on track and learning how, how important it is for a management team to have a plan to win during difficult times and executing that plan consistently lessons that are just so important.

John Rogers, Jr. And I’m looking for that plan to win and the research that I do on all the companies that we follow today. The other thing about being on boards is you build great relationships with the other board members who are in many different industries and it’s great to get their insights of what they’re seeing in the economy and what have you. But I would say there’s no particular advantage here at air. I’d love to say that we have some kind of a secret sauce and, and  you know, real competitive advantage in this way. But if you think about it, you touched on Warren Buffett. Of course, he served on many, many boards over the years where you had great insights being on the board of Coca-Cola, et cetera, et cetera. You think of all the private equity firms, the KKRs of the world and the Blackstones and the Carlyles, all those executives serve on all the different boards, the companies that they invest in and get to see all aspects of the economy.

John Rogers, Jr. That’s very, very helpful. And then finally, I would say it’s the same if you’re on the board of a nonprofit, if you’re on the board of a university, like I and vice chairman of the university of Chicago, I learn a lot about how a major hospital is run and what’s happening with healthcare in this country, healthcare reimbursements and all the challenges that major hospitals and major universities face. And then finally, you’re also on the board with other key leaders like currently David Rubenstein’s, the chairman of the board of the university of Chicago to sit and talk with him and get his insights. It’s amazing, but that’s what he does. You know, he serves on literally dozens of boards over the years and that’s what makes David Rubicon, such a brilliant leader and thought leader because he has great relationships and his antenna is everywhere and he can have a sense of what’s happening around the world, literally because of his willingness to serve and help others and volunteer to chair the board at Duke and be involved again at the university of Chicago and other places. It’s the special, unique insights that he gained from those experiences.

Jonathan Boyar One of the things I really like to ask successful people is how they spend and organize their work day. How do you divide your day up in money management? There’s no typical day and, and I get it, but can you take us through that typical non-existent day? <

John Rogers, Jr. Yeah, well, parts are the same pretty much every day. You know, I get up in the morning and, and read five newspapers and that’s an important part of just getting the day started. I try to have a workout, you know, for 45 minutes to an hour every morning. And I started taking piano lessons roughly five years ago. So I try to get a little piano practices in the morning. So those are my three early morning endeavors. And then as I transition, as the morning starts to go, my co-manager of aerial fund, John Miller sends me the early research reports, uh, that have come out that morning from the major brokerage firms and see what you guys are thinking, see what others are thinking. And that’s gonna be a morning activity that John and I share. And then if it’s earning season, then you’re typically gonna, when you get to the office, you’re gonna have a series of calls with management teams.

John Rogers, Jr. Every quarter, we talk to all the management teams of all the companies we invest in our small and midcap value product. And so a good bit of the morning often is one of those calls after another seeing what’s changing this quarter, seeing if they’re executing their plan to win consistently or not from the different management teams. And then, you know, you typically gonna go to lunch at the Chicago club and often, and, you know, network with people. And it could be just could be something you’re doing from a civic standpoint or something you’re doing from a, you know, investment point of view or marketing point of view to build the brand and get the word out. But we think it’s important to get out and have lunch and, and network, you know, throughout the Chicago and business community. And you know, and then throughout the day, whenever you get free moments, you’re gonna be reading the latest magazines and newsletters.

John Rogers, Jr. And this is a job for readers as suggested earlier, you know, we were talking about how important it is to be able to get paid for reading. A good bit of my time is finding that free time to read the latest things that are going on in the market today. We had a conversation that Melanie hobson and created with a thought leader in behavioral finance and making sure that we’re on top of all the latest things that are happening, make sure that we’re keeping our research process fresh. So you’re, you’re trying to find time to make sure you’re thinking through things that you can improve on twice a week, we have a regular meeting with all of our portfolio managers and senior analysts to talk about what’s happening. We have a regular scheduling meeting to make sure that we’re on all the zooms and all the calls. And then typically as you move into the evening, there’s gonna be a dinner to go to or cocktail reception fundraiser around town for a community organization or a civic organization. We do believe it’s important to give back to the city that we love so much as, been so welcome to our small company.

Jonathan Boyar Sounds like an exhausting day, but a good one. One of the things that I read about you, I, I don’t know if it’s still true, but your technologically adverse, obviously, you know how to use it if you wanted to, but you choose not to really use email very much. You choose not to really use a computer. How does that help you

John Rogers, Jr. I was reading something. I think it was an Inc. magazine yesterday that was sent to me by a friend where Warren Buffett talks about, you know, how he spends his time and how important and how valuable time is. One of the suggestions in the article was that you control when you look at email and not allow emails to dominate your life. So I don’t email it all. You know, my assistant gets emailed the people that work at Ariel get emailed. I don’t, I don’t wanna have my time just hijacked by anyone trying to, to reach me. You can read more that way and absorb information better if you don’t have that barrage of, uh, email coming at you. So I think that’s been an important thing that I do to try to use my time more effectively. I often talk about that. I often go to McDonald’s and get away from the office and find quiet time there to read. It’s always sort of been a home away from home where, you know, I can just concentrate on things that are important to get done and think about what I hopefully need to be thinking about. So I am a believer that time being so important, I don’t want to let technology transform my life the way it can.

Jonathan Boyar I completely agree. And I wish I was able to, to do that. You know, email can be an unbelievable time waster and I fully agree it’s during the day. You know, how often are you looking at the market? Are you checking stock prices constantly once a day? You try not to. How does that work?

John Rogers, Jr. Yeah. Yeah. I learned a long time ago. It wasn’t healthy for me to check too often. You know, we’re long term investors, as I said, our logos at turtle, we do believe in patients. So I’m typically checking the markets. Maybe it’s three times a day, get the opening, get a midday update and then see things as the market’s closing. Yeah. Otherwise it’s just becomes a big distraction and your emotions go up and down. And I just think it’s not a healthy thing, at least for me to do. And of course, when I’m home during the COVID time, I’ve got the CNBC on the television all the time you go and glance at you can’t help it. Most of the time, I’m not in the room where the TV is. So I really, uh, don’t wanna be distracted by the volatility of the markets.

Jonathan Boyar Just shifting gears a little to your process, you built a, a terrific long term track record dating back to the mid eighties. I’d love to hear about how you manage your client’s money. Someone came to you with 10 million and wanted to separately manage account or whatever your minimum is. How do you construct a, a portfolio for that client?

John Rogers, Jr. Right now? We have basically three different strategies at Ariel. We were sort of slow to diversify. So the answer is little different because we have our international global team in New York and that’s run by Rupa Bon. And she’s a expert in the, you know, international investing. We have our project black, which is a private equity business in New York city. That me started a year ago. And so it’s been nice to have our connection to the whole private equity world and working to build large minority companies through private equity. But the work that is, you know, near and dear to my heart has been the small and midcap value space that I’ve invested in these last 39 years. And when we started, we were one of the early people in the small and midcap value space. So we’re not many, you know, you had Ralph weer at the acorn funds and a few others that were doing that work, but it was really relatively rare.

John Rogers, Jr. So if you come to me with a million dollars or 10 million, what have you, and then find out whether that’s the money that you want in the stock market or not, or are you diversified outside of Ariel? Cause we are a specialist. We know we can’t handle someone’s entire portfolio. We’ll handle a, a portion that is focused on small and the midcap value if you’re talking with us. So the portion that you’re feel comfortable with, we will typically have that portfolio placed in roughly 35 names. You know, over the years we found that 30 to 40 stocks is kind of our sweet spot and we try to focus in relatively few industries. You know, we believe deeply in Charlie Munger’s point of view that, uh, this shouldn’t be like Noah’s arc where you own two of everything, you know, so we really do want to invest in what we understand and industries we like to read about and study and can get to know really, really well.

John Rogers, Jr. And so of course that means there’s gonna be more volatility relative to benchmark because we are benchmark agnostic. So it’s not only a concentrated portfolio, but it’s going to be concentrated in a relative fewer number of industries, which we think is the best way for us to manage money. Our turnover is gonna be typically 20% a year or on average. So it implies, we own the same stocks for five years, but we have stocks in the portfolio that have been there 10 years, 15 years or more sometimes we’ll trade around the names. Sometimes we’ll own it, that same name for, you know, just the long run without ever, you know, selling out of it completely. But we want people to know that when they invest with Ariel, what’s gonna be with that long term perspective and how we put together their portfolios. And, you know, and then just the final thing I would say is that we really do want to pound away to people that they really do have to look out over the horizon. There’s gonna be times with our approach being concentrated portfolios, you’re gonna underperform and you’re not gonna look smart versus the indexes. And you’ve gotta be comfortable with that and ask, letting customers know that maybe you want to add to your portfolios when we’ve gone through a rough spot in underperformed, our benchmarks,

Jonathan Boyar You’ve had some huge successes along the way. Do you have a percentage that you won’t put in an individual name or sector? Like if it gets too big, is there a cutoff point or will you, if you’re confident in the business kind of let things ride?

John Rogers, Jr. No we’ve learned over the years, you know what our comfort level is on that and with our analysts and our fellow co-portfolio managers, we’ll say that we’ll alone 10% of a specific industry, you know, just make it up carpet manufacturers. We’re not gonna have more than 10% of the portfolio in companies like Mohawk. So for an industry itself, not more than 10% of the portfolio in one industry, individual security, wouldn’t be more than 6% in one individual security. 

Jonathan Boyar Is that at purchase or at accumulation

John Rogers, Jr. At accumulation, we’ll buy up until 5%, but we typically, we wouldn’t be buying at 6%. We’re gonna be again, lightning up at 6%

Jonathan Boyar For your own personal portfolio, where obviously you don’t have to answer anyone except for yourself. Would you feel comfortable making something 10, 15, 20%?

John Rogers, Jr. It only happens by accident. You know, as I mentioned earlier, you mentioned earlier, I’ve been on the McDonald’s board 18 years. And I got on the board at a time when the mark was really out of when stock was really out of favor, uh, maybe a year or so after the headlines and business week hamburger, hell. So as directors, do you get on a board, you buy stock and then you get granted stock every year. And those early years I was adding to my position. Cause I believed in the plan, the win that Jim canal Lupo had played out, I believed in the board and the management stock was really cheap. And so, because of all these years, it’s grown into a substantial asset. For me, it wasn’t intentional that it would become a significant part of my P my portfolio. But now that I’m on the board there for all these years, I’m not gonna sell the stock either.

John Rogers, Jr. That’s not, you know, I still believe in the long term story. I think it’s a great, great company and it’ll be hopefully, uh, I’ll loan it for another 20 years. That’s my idea. So, so individually I’ll end up sometimes with a large holding because it’s, uh, tied to a board that I’m involved in. Mm-hmm, <affirmative> the only two stocks that I own independently from my board service that I bought consciously. This Morningstar, when Joe Monto took the company public, I had so much confidence in Joe and Don Phillips and team that was there. Unfortunately I waited too long, but I did buy shares in Berkshire. And, uh, I wish I had bought it 30 years ago

Jonathan Boyar For a decent number of the names that you own. And looking through your 13 Fs, I could tell which ones are your names and which ones are your international names or global names. You know, a few companies you own more than 10% of the outstanding shares. How do you handle, or how do you think about the lack of liquidity there?

John Rogers, Jr. We’ve never worried much about that. You know, we’re buying companies that have strong cash flows that are real businesses that, you know, we’re confident we’ll be around for a long run where they have strong balance sheets. So we’ve not had trouble moving out of those types of businesses. You have trouble if you’re in a bad business that the, uh, balance sheets gone sideways and you’re in a trouble situation. And whether you’re a 5% or 10% owner, you’re gonna have trouble in that situation where everyone’s trying to get out at once. And there’s a steady amount of selling going on when you’ve made a mistake. That can be, I think, problematic, but we’ve worked really hard to make sure our companies have that kind of margin of safety with them that, uh, you know, you make mistakes. We’ve made our fair share over 39 years, but we rather own a lot of something we know and believe in and understand that’s less risky than having our dollars spread out over names that we don’t know well, or in industries, we don’t have high confidence in, and with management teams, we don’t have high confidence in just like in private equity.

John Rogers, Jr. You know, you wanna own a lot of companies you believe in, and Warren Buffett talks a lot about that. You know, he wants to own more of businesses. He loves and, um, believes in the long run, you know, companies themselves with a discounted present value of their future cash flows and not worry about their short term ups and downs

Jonathan Boyar In terms of how you position things, you know, looking at your, you know, fact sheets, you have a lot of three, 4% positions, and then you have some 1% positions. What makes something a 1% versus a four? Is it the upside? Is it the downside you’re looking at? How do you decide that

John Rogers, Jr. What we do is we have our buckets that all the portfolio managers and analysts work on and we talk about together and the buckets will put our companies together and our largest should be. And the companies we have the largest positions in should be the companies. We have the highest conviction in the story and are also the same time selling at bargain prices. So if it’s cheap and it’s a great business, it’s gonna be in the number one bucket, the lower bucket with those smaller percentages are gonna be companies that are either don’t have quite as much conviction in, and they’re no longer selling the same significant discount they’re getting close to their private market value. So the smaller positions can be typically are companies that, again, either you’re scaling out of, cause you’re losing conviction in the company or you’re scaling out because the stocks become very expensive. That’s where you’re gonna have in your lower tier bucket. In the way that we look at these names,

Jonathan Boyar Mentioning that, you know, things get very expensive. I found buying is really easy. The hardest part is selling. How do you decide when to sell? Is it a purely valuation call because there is, you know, momentum is a real thing. How do you figure that out?

John Rogers, Jr. There’s two reasons we sort of touched on a little bit. One is the question, socks get to be expensive. And typically when they’re getting expensive, they’re also sort of moving into the mid value, large value space. So we’re gonna be selling cuz of valuation. We’re gonna be selling because it no longer fits within our small and mid-cap position. That’s a good story. You know, you’re going well and you’ve gotta lighten up because of, and again, valuation or size when you make a mistake. And of course it inevitably happens in this business is when you have earnings, disappointments, the stocks get hit, they seem too cheap to sell. And then as you’re thinking about it and studying it again, it gets cheaper and cheaper and you think it’s cheaper. You know, it’s more and more of a bargain and it is hard to get away from a bad hand.

John Rogers, Jr. You know, it’s a difficult part of our business. We talk to a lot of behavioral finance experts and others, people from the poker world who tell you how hard that is. And that’s an important discipline to constantly push yourself, to be able to sell things that have not done well and not try to, you know, talk yourself into holding those losers or buying more of those losers. So if we lose confidence in the plan to win to management, if we think that the moat isn’t as strong as we originally thought, if we think that they’re making capital allocation decisions that are not intelligent, all those would be reasons for us to scale out of a position completely and realize that you can be wrong in there too. And the stock will come roaring back, but we do believe that we have to have that discipline to get away from those bad, that are the hardest things to sell.

Jonathan Boyar Since you world changed dramatically, technology has evolved. You famously from Ben Graham type stocks, you know, you know, to now buying kind of very high quality businesses. He’s also has the high, fast problem of only being able to buy really large companies at this point in time. How have you evolved and how has your strategy evolved since you started in, in the early eighties?

John Rogers, Jr. Well, it’s evolved in a number of ways. I mean, we have a, uh, one from the beginning. Now we have a strong, strong team. Primarily we do our recruiting at the university of Chicago and university of Chicago business school. And, uh, several of our analysts, you know, train there started out on summer interns, you know, having a great team of folks. Who’ve been with you through the ups and downs and inevitable crisis in this industry, you learn from each other. So the strength of the team is something that’s evolved over the years. And I would say, you know, Tim FLER and Ken curd and John Miller and Sabrina Carlo, you know, just in critical Charlie Bo Brisco has led all the improvements around our balance sheet work and creating our own proprietary debt ratings. That was something that we thought was really very, very important after the oh eight and oh nine crisis.

John Rogers, Jr. So the way that we analyze the balance sheet of our company has evolved significantly. We do a better job now of keeping track of the popularity of our stocks. And we have a numerical way of looking and seeing, which are the most popular names, which are the ones that are hated most on walls street. And making sure that we are understanding where the contrary bets are versus where the consensus bets are. We think that’s an important improvement in our process. We’ve worked really hard through our behavioral finance work, you know, and being fortunate to have Dick Thaler at the university of Chicago and reading gang of conman’s work and understanding a lot around behavioral finance to work on our behavioral weaknesses, you know, trying to understand do we have, you know, just human nature that you’re gonna have confirmation bias. You know, you’re gonna look for information that confirms who you already think, and you know, it’s just, there’s recency bias.

John Rogers, Jr. You know, you get caught up with what’s the, in the here and now and swept up in the emotions of that moment. You have a hard time, you know, you have the endowment effect where you fall in love with what you already own, you know, instead we could go through, but so working hard at understanding our behavioral biases as a group is a critical improvement in the study and research and have the professors help us understand where our weaknesses are, is something that we’ve worked hard at, improving in our process, and then creating an environment with our, our meetings, with our analysts and portfolio managers to make sure we’ve created a safe environment for people to challenge conventional wisdom challenge each other’s perspective. So we actually have, uh, you know, double’s advocate that we added about a dozen years or so ago to make sure that the contrary voice is always heard in our meetings.

John Rogers, Jr. And we think that is, uh, really, really, uh, really important. And then finally, you know, there’s many things, but the last one I’ll mention is that we started working with BIA associates. I know probably 15 years ago or so. And they’re a group that helps you ask better questions and read the body language of people you’re talking to to see whether they’re being truthful or dishonest or not is, you know, a big part of our jobs, you know, your job. And my job is to talk with analysts, talk with management teams and determine the veracity of what they’re telling us again, are they being truthful? Are they being Eva? So, so having, uh, not only B teach you how to do that, but also coaches along the way, help us prepare the right questions, help determine who’s the best at, you know, doing these interviews. That’s the big improvement for us. The BIA work has been really helpful.

Jonathan Boyar That’s fascinating. I guess that’s kind of probably former CIA spy type people who are doing, I mean, what are the backgrounds of those

John Rogers, Jr. Type? Exactly. A lot of them are former CIA, FBI, uh, government agents who, um, know how to ask the right questions and then determine whether people are being truthful, their body language and the follow up questions you ask. And, you know, it’s interesting. You’ll see, when you ask a tough questions, how people will like move around and they’ll do this anchor shift and start to fiddle with their, their face and hands on their face. Things like little things you’ll notice that you really, I never really noticed before, you know, but once you know what to look for, it’s just been fascinating.

Jonathan Boyar Probably helps with poker too.

John Rogers, Jr. Yeah. I do love to play poker and, uh, I have not used it there cause I’m not questioning anybody.

Jonathan Boyar So I’ve been wanting to ask you about this for a while. I think you probably know where I’m going on this you’re among the, the larger shareholders of Madison square garden sports and the largest shareholders in, in Madison square garden entertainment. I think you own 22% of the company or so, you know, it’s a name we own, we own both, you know, both companies suffer from the so-called stolen discount. Can you take us through your investment thesis for both companies and how you see value being unlocked? And maybe also you mentioned project better at McDonald’s how that might work with the Dollins because things could be better.

John Rogers, Jr. Yeah, well I think it was the simpler one is that man square garden sports is a simple, you know, story. You know, sports teams have become more and more valuable as, you know, the television contracts just go up and up and up, you know, live sports is still popular on all the different medium where you can watch content. And um, so we think if you look at what the KNS are worth and the Forbes valuation and what the ranges are worth and is the stocks are selling it a substantial, substantial dis stock is selling a substantial discount of what we think the private market value is for the Knicks and the Rangers combined. And we think the story’s just getting better and better. Of course the, which you guys have talked a lot about. And we agree with, we think the gaming is a big, big deal.

John Rogers, Jr. I was reading a big story this week in business week around what’s going on in the gaming world. And people love to bet. And these we know, and, and sports betting now and online sports betting and the rest of it, we think it’s gonna be a major initiative. That’ll help the Nixon and Rangers. So we just think that’s a pretty simple, straightforward story. It’s a selling less than what comparable transactions, when you think the company’s really worth magic square garden entertainment of course, is, is more of a conglomerate, I guess you could call it. They have many major businesses. And it’s when we look at the sum of the parts we think the stock is selling it well, you know, maybe, you know, as much as a 60 to 70% discount from its private market value, our one analyst has the value as high as $153.

John Rogers, Jr. One of our analysts. And even if you take a more conservative, you have 137, the stock selling in the high fifties, it is extremely, extremely, we think undervalued. And as you know, the core business, we think owning the garden itself, this iconic building that is, uh, full all the time with not only sports, but of course, entertainment and concerts and the like, and being right in Midtown Manhattan, that it’s just really valuable that the air rights are very, very valuable. There’s gonna be a real benefit from gaming there too. Also, you know, you don’t know exactly how it’s all gonna play out, but maybe it’ll be a sports book in the garden or in Penn station. And so we just, we love the garden. We just think it is a unique facility in the world. You talk about having a mode around the company. I think that’s one, that’s just is a people don’t understand the value.

John Rogers, Jr. Most of the analysts valued it based funds and tax valuation from years ago in New York that does not realistic. And the other key that, of course, they’ve spent 2 billion now on the sphere in Las Vegas, which is a, an arena that’s gonna hold 19 to 20,000 people with the best sound system, best technology, best visuals ever, ever. And we think it’s, uh, it’s, it’s a special, beautiful, new, you know, iconic feature in Las Vegas that will open up next fall. We think that if it works out there, they’ll be able to take it around the world to other major cities of London being the first one and do a capital light type of a model. And the growth there will be substantial from the sphere they’ve already, they haven’t announced publicly yet, but all the rumors are the Bono’s gonna be the opening act at the news sphere and we’ve gone there to visit and seen the construction.

John Rogers, Jr. And it just it’s like no other arena in the world. It’s just nothing close to it. And the advertising possibilities on the outside of the arena, the naming opportunities, you just go on and on about how powerful those spheres going to be. And then they own with wiring in Las Vegas, they own towel. And Hawkathon two of the fastest growing nightclub, restaurant entertainment, places generating an enormous amount of cash, enormous amount of profitability. We think that wall street doesn’t give it a proper multiple for the growth rate that’s there. And I think that’s kind of one of the hidden gems within the structure, which is, you know, they’re going to be spinning these companies into two. My part of my thesis is it’s a way to show off the beauty of what’s going on, uh, with Tao and Hawkathon and, and those types of assets, the area that’s been the most troubled of course, has been the regional sports net that was bought guess a little over, was it 18 months ago or so time flies.

John Rogers, Jr. And we all know that traditional cable is dwindling. And so the kind of fees that cash flow, they were able to count on steadily decreases seemingly six to 7% a quarter. But at the end of the day, we do think, believe that the direct to consumer initiative, they’re gonna come up with that they hope to roll out during this, this year’s basketball hockey season will be a powerful way of sort of turning the tie there, you know, having a more positive story for the regional sports net. And we think that the, again, the gaming will be really helpful there too. The advertising is gonna be on the regional sports net. It’s already there, lots of great ads that come on regularly. And then of course they own the Rockettes and they own the Chicago theater and they have all these other added ancillary businesses that we just think there’s gonna be more visibility after the spin spin. And we have two companies independently trading. I think the value gap will start to close for sure. And once the sphere opens up, it’ll be another catalyst for change. So it’s, uh, we’re quite excited about it. It’s already went on a long time about it, but it’s just, it’s a stock where we keep sitting, sitting here trying to figure out what are we missing? Can’t quite put it together.

Jonathan Boyar We’re in the same camp on that, for sure. And, you know, everyone loves to hate the Dolans, but I think they’re better than people give him credit for. I looked on Bloomberg, you know, cable vision from when it went public to when it was sold to alt you know, significantly outperform the S and P 500, but, you know, wall street has lost faith in the dos. And in some ways it’s, it’s been self inflicted. They’ve done some things, you know, the Madison square garden network transaction, et cetera, that probably were not in everyone’s best interest, but how do we actually make money on it? Because, you know, valuation is not its own catalyst. What’s gonna make people start to believe in the Dolans. Does this thesis on Madison square garden sports? Is that predicated on some sort of sale of the team? Like kind of, how do you think about that?

John Rogers, Jr. I do, you know, I, you never know for sure. And, you know, I’ve spent some time with Jim Dolan had some really good friends. Who’ve worked for Jim Dolan who have a lot of respect for him. Uh, I played basketball in college with Steve mills who was a longtime president of the NS. And, you know, he’s always has spoken very highly of Jim and his leadership. So I do think that the discount is way, way overdone. I think the way that you start to see some progress, you know, the team they put in and charge the Nicks, you know, Leon rose and worldwide west, the new gen, you know, the general manager who was, you know, held on and, uh, bringing in Tom Tito as the coach. I think there’s real hope that they will start to win again. And I do think that if you get them a winner in New York city, the value of that franchise will just go up.

John Rogers, Jr. You know, there’ll be more and more people who will wanna buy the team. And I kind of think that Jim Dolan’s heart of hearts, he’s more of an entertainment person than sports person. I mean, I haven’t, I’m just speculating. And I know you guys have speculated on this too, so it wouldn’t be a shock to me that if he sold the teams at some point and just focused on the entertainment vehicles, cuz he loves it. As you know, he has his own band that he plays in and you know, he has a passion for that. He has great relationships in the industry with all the artists who are out there. So if you had to push me on that, I think eventually they’ll sell the company, use the cash to help strengthen the entertainment side of the business and think it’ll be a win-win for everyone over the long run.

Jonathan Boyar He sold a team, New York sports fans would certainly be very happy. And you know, I, I do think he’s much better than people give him credit for, I haven’t had the chance to meet him, but he has done right by shareholders over the long run. I mean, one of the things I like point out is I I’ve been saying they should sell the team for years and the right thing has been to hold onto them. They’ve just only gone up and up and up in value. But I guess one of the questions I’d have for you is, is I struggle with this sometimes is how do you really value what the kn and the Rangers are worth? Obviously you have Forbes Ando, and, and they’re saying this and you have some precedent transactions, but you know, as a value guy and a fundamental investor, you’re paying a rich multiple, how do you kind of, you know, meld the two?

John Rogers, Jr. Well, I think if you look, if you look at the past history, many of the transactions that have occurred in professional sports have been around the valuations are above the valuations from Forbes. So that gives me confidence. There’s some margins of safety built into the valuation that we have for the mix and the Rangers. I think the other thing that’s changed though, since the earlier years, you know, cause Forbes have been, I dunno how many years they’ve been keeping track of sports teams, but transactions have happened steadily over the years. I think it’s transformative. What’s happening with sports betting and the way they’re gonna make watching sports games more and more interactive, you’re gonna have people just loving the content and interacting with the content in ways that people could never have imagined. And that can only help the ratings go up already. People are talking about the next television contract being way more than the last way, more than the next expectations. And I think it’s, you continue to see, you know, what’s happened with the NIS and the other ways that just the value of things that they control and own the teams. I think you can make a case that relative to the fors value it’s this is selling it even a bigger discount than you would’ve said two years ago before all of this took off.

Jonathan Boyar You’ve been unbelievably generous with your time today. I, um, and you know, I want to thank you, you know, for appearing on the show, I learning about your fascinating career, your views on names that we own, like Madison square, garden, sports and entertainment, and you know, kind of how you manage money is just really insightful. And I really thank you for your time.

John Rogers, Jr. Well, thank you. I enjoyed the conversation and I’ve always enjoyed working with you and, and your team and the quality of research you guys provide. It’s been, uh, really appreciate, uh, thoughtfulness.

Jonathan Boyar Well, thank you for that compliment. That is very much appreciated and we value you as a, as a subscriber. I hope you enjoyed the show to be sure you never miss another world. According to Boyar episode, please follow us on Twitter at @boyarvalue until next time.

 

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Jonathan Boyar on the “Dolan Discounts” at MSGS and MSGE

Jonathan Boyar was a guest on Andrew Walker’s Yet Another Value podcast where he discussed the investment case for both Madison Square Garden Sports and Madison Square Garden Entertainment. Both were recently featured in our recently released Fresh Looks: A Special Opportunity Issue.

To read/view more of Andrew’s fantastic content, please visit his substack page.

 

Click Here to Read the Interview Transcript

Andrew Walker: Hello. Welcome to Yet Another Value podcast. I’m your host, Andrew Walker. If you like this podcast, it would mean a lot if you could listen, rate, subscribe, and review it, wherever you’re listening to it. With me today, I’m happy to have on, Jon Boyar. Jon is the CIO at Boyar Research. John, how’s it going?

Jonathan Boyar: Thanks for having me. Things are going really well.

Andrew: Thanks for coming on. I’m excited to have you on. I think this is your 4th appearance, actually. But I’ll get to that in a second. Let me start the podcast the way I start every podcast. First, a disclaimer to remind everyone who’s listening. Nothing on here is investment advice. Please do your own research. Consult a financial advisor. We’re going to talk about two of my favorite companies to follow. One of my favorite sports out there today. So I’ll be a little more fun than normal but please remember all of that. And then second with the pitch for you, my guest, people can go listen to your prior three appearances for a whole pitch. But you’re on today because for people on YouTube, I’m holding up right now. You came out with a Fresh Looks, which has about 15 or 20 stock companies that just reviewing them.

And the thing that was interesting to me, I put it in my monthly note last year and we were talking about before, the last time you did like an inch or a year Fresh Looks, I believe was April 2020, and then you come out with one towards the end of July 2022, which I think the markets up like 10% since then. Obviously, the markets just raced since April 2020. And I was kind of joking, “Hey, when Jon puts out a Fresh Looks, read it, don’t read whatever you want to do, but just go buy stocks because that’s when things are getting pretty hairy out there.” I read through the Fresh Looks and really enjoyed it. The thing I wanted to talk about the most in it and I think the thing you want to talk about the most in it was the Dolan discount stocks. Two of my favorite stocks are MSGE and MSGS. And I’ve rambled a lot. I’ll just pause there. Why should investors be paying attention to MSGE and MSGS right now?

Jon: Once again, thanks for having me on this. This is a lot of fun. In terms of why should they be paying attention to MSGE and MSGS, stocks are cheap. There are catalysts. They’re really high-quality assets. They’re the definition of assets that really can’t be replicated, which is something we like a lot at the Boyar Value group. Just to a quick step back for those of you who don’t know the Boyar Value group really has two arms. We manage money as an RIA, we also sell research. A Fresh Looks is one of the pieces that we recently did. These are stocks that we liked MSG just by way of background is a company that we have been following for years. Literally, since it was before I was born.

The reason why I say that is MSGS and MSGE were part of a company called Cablevision, which was one of the largest cable companies in the US and was sold to Altice, I think 2016 at a price we never thought we would get. But as I said, it was part of that conglomerate, I guess, for lack of a better word. In 2010 or so, they decided to spin out MSG from Cablevision. What’s really interesting thing to note while I was looking back, we profiled it. And Andrew, I’m happy to send you the report. We profiled MSG in March or so of 2010. The enterprise value of MSG at the time was $1.5 billion. Essentially, it consists of what is now MSGS and what is MSGE and the enterprise value of those two businesses now is roughly $8 billion.

So there’s been a lot of value that’s been created. But I still think there’s a long, long way to go. One of the reasons why these stocks are cheap, and I guess, I probably should take a quick step back and just explain what those assets are. MSGS owns the Knicks and Rangers, essentially. That’s their main asset. MSGE owns and we’ll talk about this because it’s a little more nuanced, owns what is Madison Square Garden. It owns the air rights above Madison Square Garden. It owns Regional Sports Networks. It has long-term leases and things like Radio City Music Hall. It has the Rockettes franchise, and something called the Sphere in Las Vegas. That’s just putting everything kind of on the table. Both of these companies are selling at significant discounts tool. We perceive that they’re actually worth it due to something that people on Wall Street call the Dolan discount.

And that is perceived to be the Dolan family as extremely unfriendly to minority shareholders. There are certain aspects of that that are 100% true. But over the long run investors who have invested alongside the Dolans have been rewarded. They just have to be patient, which is a problem that most people on Wall Street seem to have. I went on Bloomberg this morning, I was just kind of curious. So I looked, and it looks like Cablevision went public in 1986 and was sold as I mentioned earlier to Altice in 2016. If you include dividends, that’s Cablevision stock increased in value by 3585% percent roughly versus the S&P, which increased in value by 1900% roughly. So it’s been significant. I am not saying the S&P is necessarily the best gauge. I guess, it could’ve done a media index or whatnot, but it shows that over the long run, value has been created.

Andrew: But let me just hop in there because I think this comes to, I want to talk about all aspects, MSGE and MSGS. MSG has been a popular topic on this podcast. Chris McIntyre came on with a very concentrated pitch on them. You and I talked about when MSGE was buying MSGN and how that deal made no sense. So we’ve talked about that. But I want to start with that first point you made, right? Like, people give MSGE and MSGS a Dolan discount, and investors who have invested in the Dolan’s over time have done very well. You mentioned Cablevision, that performance is insane. MSG from 2010 to 2021 has done great. I think it’s easy to look at and say, “Hey, if we just invest and close our eyes and forget that James Dolan is terrifically mismanaging the Knicks on the court product, we will make money over time.”

Yes, that has worn out, but there’s a part of me that also wonders like Cablevision was mainly James Dolan’s dad. I also wonder if the assets are just so good. Warren Buffett’s got the thing. You want to have a company that’s so good that even a monkey can run it. Because one day a monkey will be running it, right? There’s this ham sandwich open crew but I won’t go into it. But I do wonder if these assets were just so good that they’ve just overcome how bad the Dolan’s are? And kind of blinded us to that. I’ll give two examples, Cablevision, guess what? Having the cable rights in the greatest cable boom of all time from the 80s to early 2010s and kind of tri-state area, one of the richest areas in the country, yeah, that’s probably going to be a really good business.

For the Knicks, okay, from 2010 to today, the stocks are up about 10x, I think. That’s great, but I’m just looking at the average NBA franchise value in 2010 was 350 million. In 2022 it was about 2 billion, I believe? It hasn’t really outperformed the average franchise. Five times the league’s flagship franchise kind of 10 times. It doesn’t seem it’s really outperforming just how good these assets are. Does that make sense?

Jon: Absolutely. But yeah, it’s really the only way to buy those types of assets and play that trend, at least in the public markets. I guess, if you have money, you can invest in a company called Archos, which is a PE firm that buys these things. I’m not saying that this is John Malone/Warren Buffett that is not.

Andrew: I got some problems with John Malone these days. [inaudible] [crosstalk] talking about that another time.

Jon: I’m not saying he’s Barry Diller. I’m not saying he’s whoever named your really good capital allocator. But I don’t think he’s as bad as people think. One of the things that are really worth noting is, myself included have been saying sell the teams, you’ll create value. I did a hashtag sell the team or whatever that create some traction on Twitter. But the best move he could have made or he did make is not selling the teams. He could have taken that check at getting $3 billion or whatever could the Knicks, whatever he would have gotten in 2013, 2014, or 2015. But he saw the value of sports media rights. Obviously, he could’ve seen sports gambling. That kind of came out of nowhere to some extent but that’s the sports media rights of the 2020 kind of decade. I think that’s going to really increase value.

Yes, it’s the only real way to buy these franchises. If we had a different owner, would there be this discount? I highly doubt it but that’s the opportunity. Sometimes we found that, I’m not saying he is, but some of our best investments have been investing in companies that are horribly managed because that leaves an opportunity. Not to go on a sidetrack, but just, for example. We’ve talked about Warner Brothers Discovery, right now, I don’t want to get started but one of the opportunities there is Warner Brothers has been mismanaged for, I don’t know. It’s part of AT&T. They don’t know how to run a media company and then they were part of Legacy Time Warner. They were being propped up for sale.

So that creates opportunity for Zazzle and Company who I think know how to run a media company. They’ve done it. Again, I don’t want to get sidetracked.

Andrew: I can get very sidetracked on Warner Brothers Discovery.

Jon: Yes but it’s just an example. An ideal situation is to buy, get something really cheap, great asset with a great cap allocator. How many times do you really get that? You have to kind of be willing to give on one of those things.

Andrew: Well, I think if it works for you, we’re going to talk about both MSGS and MSG. But let’s start with MSGS because I think the story is they’re simpler. I have two questions on MSGS. I’ll make it three questions. I think it’s a very simple story we talked about. Let’s just do quickly, again, for the forgotten 40 people, there’s a nice little chart here that I can cheat off of. But let’s just quickly talk to MSGS some of the parts. Basically, MSGS owns two things. They are in the Knicks and the rangers. They have a very little bit of net deck but they own the Knicks in the Rangers. At today’s share price, they’re trading about $170 per share. We can say the enterprise value there, market cap at low for billions. Let’s say 4.3 billion to make a nice even number. When I buy 4.3 billion, I’m paying for the Knicks and Rangers, what am I actually getting there?

Jon: You’re getting the Knicks and the Ranger. Believe it or not, peoplepy attention to Forbs, values, and now there’s a rival company, forgot the name of it. Basically, Forbes journalists went in and they valued the Knicks at six billion dollars. How they come up with that valuation of somewhat of black box but they come up with it. As I said, this is actually used in negotiations. In many many instances, the Forbes value ends up being extremely conservative. So for 4.7 billion or whatever it is now, you get the next which are worth well in excess of six billion dollars at least in my opinion or in our opinion. And then you get the Rangers which Forbes values at two billion dollars. I believe it’s two billion dollars. You’re basically getting paid to own the team.

So there’s some cost basis and tax issues there which we adjusted our valuation. But it’s essentially the way we look at it. It’s pretty much a double from here maybe we’re being a little aggressive, I don’t know. Time will tell. But there are things that are going to help unlock that value, I think sooner than we think. So it’s a really kind of interesting situation.

Andrew: So I think I don’t disagree with you. So I used to be very long MSGS and I kind of moved on but I always still follow it just because I don’t disagree with that Math. But when I was along it, one of the things I did was exactly what you did. I took, “Here’s the Forbes value for every sports team that has traded in the past.” I think I was 12 years at the time. “And here’s what they actually went for.” The average premium was around 28%, you mentioned 30%. The really interesting thing was the larger the city that it traded the bigger of a premium of went for. Because if you had the option if you had unlimited money and somebody said, “Hey, you can own the Knicks, or you can own the Oklahoma City Thunder.” You’re going to pay up more for the next because then you’re the face of the league.

Right now, the Thunder have a lot of draft picks though so it might be a little more fun running them. I think you see what I’m saying there. But I guess the question I would have on just a sales price is, look, if you’re talking five billion dollars plus 20% premium, a six billion dollar check, that’s different than seven years ago when it was a two billion dollar check. There just aren’t a lot of people who could write a six billion dollar flat-out check. So I guess my one question would be, on that premium, are there people around who can actually write checks that big and pay that premium? Or are they going to start running into a situation where, “Hey, the value is so big, like they just can’t get the premium that they would kind of want and deserve because there’s just not enough money out there?”

Jon: Yeah, no, that’s a great point and a fair question. One of the things that could happen is that as I mentioned earlier, private equity firms that are involved. I think I have to wait a 20% of a team in the NBA after [inaudible] what it is in the end.

Andrew: I believe that’s correct. I believe that’s correct.

Jon: So they could take stake in the team, which would help put a marker on it, which I think would help unlock value. That’s one thing that can happen. Worth noting, you look at the shareholder base of Madison Square Garden sports right now. Silver Lake, the private equity firm owns 9% of the company. I can’t pronounce his name but he’s an Egyptian billionaire. He’s an Egyptian billionaire. He owns six percent of the company. You have the Bill and Melinda Gates Foundation that up the stakes from one-and-a-half percent to 3%. And then, you have KKR owns I think one and a half percent of the company.

There are people there who as a group combined maybe it’s not one person who buys it. It’s group the way I think the 76ers went about where you get a group of people who buy this and I don’t think there’s any shame in going halfsies or thirds with [inaudible].

Andrew: What was that Jay-Z own point, one percent of the nets for a while and everyone would call him a Nets minority investor even though his ownership rounded down to what you and I have known of the nest?

Jon: Yeah, I mean, these things could happen. These are clearly big checks. There’s also people who now just have massive amounts of wealth. If Steve Ballmer wanted to buy a team today, I don’t know his financial situation, he probably could do it. He’s never said he’s shoulder share of Microsoft stock.

Andrew: Bomber owns the Clipper.

Jon: No, absolutely. I’m saying if he was going to do it again. There are people out there who could do it or you do it as a group. And I’m not saying Bill Gates doesn’t seem like that’s his personality is going to buy the team. I think it’s interesting to see that all of these long-term-oriented investors who are not necessarily trying to beat an index but are trying to make money. Silver Lake to some extent, but Egyptian guy, the KKR and these others, and Bill Gates for the foundation’s money are taking these long term use. To me, the hardest thing about investing is people because their investors for them to take short-term views and that’s why a lot of people get frustrated and put their put their hands up and will avoid the stock. But if you’re able to have that luxury of time, you could make a lot of money.

Andrew: Again, I don’t want to spend too long on MSGS because I want to talk MSG but there’s one thing that will change issues but I do just want to ask the other question on. MSGS is the big ten over, I believe it was over this weekend just got a massive massive contract from a bunch of different people. If you listen to the most recent MSGS call, I’d encourage anyone to go listen to it. It’s really interesting. They talk about great business momentum. Renewals are up 9%, double-digit increases in cap spending during the season. I think the Knicks will be better this year. The Rangers coming off a deep playoff run, I think it’s going to be really good. Sports betting is just going to be this is the first year where it’s going to be there in full. But the most interesting thing to me is if you think back to when all of the NBA teams really inflected, it was in the mid 2010’s when first Steve Ballmer bought the clippers for two billion dollars, which was way more than anyone would thought they would go for.

And then within a year, the sportswriters renewals came in with the TNT ESPN contract, and they like, tripled and no one realized how high they were going to go. And if I remember correctly, MSGS is stock. It was MSG at the time was up like 30% in three months or something on the heels of this news. I do just keep wondering. Big Ten just got that massive increase, NBA sports rights are coming up in the 25 26 season. They’re probably going to get renewed in the next 18 months. Everyone I listen to, I’m a big NBA fan, thinks that it’s going to be a big number. I wonder if the markets are a little bit sleeping on in the next two years you get a massive renewal and then Forbes comes out and says, “Hey, our value of the Knicks isn’t six billion anymore. It’s nine billion because sports rights have gone through the roof.” So I’ll just pause there and let you comment on kind of that overall environment.

Jon: Yeah, no. They get a share, I believe it’s pro-rata of the leak deals. It’s a prime beneficiary and these are big, big, big numbers. Yeah. I think that sports and news are obviously what people watch live and that’s extremely valuable for folks when they’re paying off for it will content spending moderate. I don’t know. I think it probably will. I just don’t know if it will for sports. I think if the days of, hey, a comedian 40 million dollars or whatever for a special are long gone. Netflix is not going to be doing that anymore. But these things are really valuable and that’s one of the things that’s going to drive the price of these things I think higher and higher. So that’s also another Cal. So yeah, I think it’s 2025 2026 but that will happen before then the number will be announced well in advance, etcetera or they’ll be whispers of what’s going to happen. Look what happened with the Cricket stuff in India. I mean these are huge numbers.

Andrew: Yeah, it’s the last thing where you get it and people have to appointment view it. It’s definitely the last thing where people were bothered to watch advertisements. Because you watch a game, there’s natural breaks, you kind of have to sit through it. Whereas if I’m watching Hulu, the other day, I was at my in-law’s house and Hulu with ads, and I have Hulu without ads and we’re trying to watch something at night and an ad popped up. My wife and I were like, “What is happening here?” It just totally discombobulated. Only place you’ll watch ads. Only place monoculture. Only place you bring it and 10 million hardcore NBA fans are going to subscribe to your service day one. It’s the best cost leader out there.

All right, let me do a transition question for MSGS to MSG. You mentioned Steve Ballmer and you hear lots of complaints with Steve Ballmer. His check book is so big. The Clippers can spend way too much money. The other thing is the Warriors. The Warriors and the Clippers do not care about the luxury tax apparently. For the Warriors, it’s because they built the Chase Arena and apparently that thing just mince money. So my transition question from MSGS to MSG is like MSG owns the Garden, the Garden most of the value in it, it comes from New York City. But a lot of value got the Knicks and Rangers everything. As you think longer term, I know we’ll talk air rights and I know were talking about all this. But one day, the Garden, will it be like the Chase Center where they redo it and it’s just this absolute money-making, money printing machine. Not that it’s even doing poorly now but it’s there that kind of optionality down the road.

Jon: There’s definitely an option down the road. One, they redid it. In some ways, it’s analogous to the sphere, which we’ll talk about in a little bit, where they want massively over budget and people got all upset. I think that was
around the financial crisis. I could be wrong.

Andrew: They redid it 2010 into 2011, a billion dollar spend and people were furious at the time. And I think nowadays they say, hey it was probably like a 15% IRR and everybody’s pretty happy with a 15% IRR.

Jon: So they have experience in doing this. There’s a lot of things that could happen. It seems crazy now that people are not as with New York City in the state of it, that they may be building things around Penn Station. It’s a little too complicated or too much to probably go into the whole details of what’s going on there. But there is the possibility of the Garden potentially being moved at some point in time as part of a larger strategic move. So a lot of things could happen. So, yes, you could have a redo of the Garden at some point in time.

The answer is I don’t know, but it’s certainly a possibility and that will help. Although it’s worth noting the MSG called talking about how food and beverage is really doing extremely well. All these things are doing really well. It’s now a 12-year-old arena, so it’s not the shiny new thing anymore and there could be value.

Andrew: Yeah. MSGS another thing they call out is they talk premium and I do think if you redid MSG today especially in New York City, I think there would be like just kind of more devoted to the sweets and the really high-end stuff where the money is really made. I’m no expert in stadiums. I think MSG is designed for a little bit of an older model and yes, they’ve redone it. But I think you can do a lot more with sweets especially in a city just as rich with as much finance and media, as much entertainment spend as New York City had, that would be my thing.

But let’s turn over to MSG. MSG, you and I are talking straight just under $60 per share. We can talk some of the parts. We can talk everything. The last time I think I had you on was we’re decrying how crazy the MSG NMS GE merger was. I still think it was crazy but we actually were going to record this podcast last week and then we said, “Oh, earnings are coming up. Let’s wait>” It’s a good thing we waited because MSG said they might do a spin-off coming off. There’s all this stuff going on. I’ll pause there. What’s going on with MSG? How are you thinking about that these days?

Jon: Yeah, it was very interesting. It was Thursday night going to the city with my family. I get this alert saying MSGE is now looking to do a spin-out. Essentially what they’re doing. I think it makes a lot of sense is you’re having… Basically, what I talked about with Sphere which I encourage anyone just to Google the Sphere Las Vegas. See what it is. It’s basically a state-of-the-art entertainment system. the greatest sound system and light system in the world that’s coming out in Vegas that’ll come out in the second half of 2023 it looks like at this point. It looks like it’s going to cost two billion dollars to build. I wrote out an article many years ago saying, I wish they never did this, but it is what it is. This is what you get with the Dolan sometimes.

So what they did was MSGE is separating the two companies. You’re going to have the Sphere, it’s something called Town Nightclubs, which is going to be one company, which will actually, I believe will be the MSGE company. I’m not 100% sure.

Andrew: Ton and the Sphere will stay in the current ticker is my understanding. We can talk about this is an interesting structure. They’ll spin out 2/3 of the other assets which is mainly the Garden, the Rockettes,
and the long-term lease on Radio City. I think those are the main assets that may be missing one. They’ll spin out 2/3 of that to shareholders and that will be in a new company that they’re calling I think that’s the Live Entertainment company.

Jon: Yeah, they haven’t had a name on it like that. I don’t know why they didn’t seem to call the other one MSG Sphere and this MSG entertainment. Whatever it is. But you also, in what I consider MSG entertainment would also be the RS and the Regional Sports network is another kind of major assets. I don’t think I haven’t seen where they’re putting the air rights.

Andrew: Say that again.

Jon: I haven’t seen or they haven’t announced I believe where they’re putting the air rights that MSGE…

Andrew: I could not imagine that you would spin out the Garden and not include the air rights with the actual physical property. I just couldn’t imagine you would do that but I guess there’s a chance they keep it inside.

Jon: Yeah. They just didn’t specifically call that out. I would say the logical.
It also wasn’t logical than doing the MSGN deal. There are certain things that I just rather assume nothing and just see what happens. So essentially everything in MSGE except for the Sphere and Town Nightclubs is one entity, and the other asset is the other structure.

Andrew: Yes, so let me just talk about this structure first. So they said, “Hey, we’re going to spend two-thirds of Garden, Rockettes off to shareholders and we’ll keep one-third at the Spear and Tau company.” That’s a really strange way to do it. Companies do two-thirds one-third spins. It’s more 80/20 sometimes, but it’s just strange to spend two-thirds up. Am I remembering correctly that’s originally how they were going to structure the MSG SMSGs spin and then they called it off and just did a full spin?

Jon: I don’t remember what the proportion was but I do look at it and the research service did a big report and spinouts maybe five or six years ago. Companies that retain portions on the spinouts actually do significantly better.

Andrew: Interesting. And I’m just remembering the big asset that they’re going to spin out with the Garden that we were forgetting was Networks. They’re putting Network sits in with the Garden as well but yeah.

Jon: Yeah. So I think maybe they’re keeping it. One they can always spin it out further later on optionality. If they need more cash later on, this is an asset that they could sell. I would hope that wouldn’t be the case. But they’re claiming that the MSG Sphere which is exactly going to cost about two billion dollars to build. They’re exploring for future ones more for cap light ways of doing it. I don’t know. Franchise model is the way I would put it. This is not a Burger King but I think it just might give them some optionality.

Andrew: Let’s stick with thi Sphere then because I know I’ve got a lot of smart friends who are long MSGE and the maths just hit you over the head. This is a three billion dollar EV company. A lot of the debt is at the MSGN level, not the corporate level. So they’ve got about 1.7 billion of debt. About 1 billion of that is networks that which I’m not even sure if networks covers the debt these days but we can talk about that later. But the math hit you over the head when you say, “Hey, this is a three billion dollar enterprise company.” They’re going to spend 2 billion on the garden, 1.5 of that’s already on Sphere. The Gardens almost certainly worth 2 billion. Networks, if we’re giving them full credit for the debt is worth probably 500 to a billion. Rockettes are worth 500. The math starts hitting you over the head.

So I’ve got a lot of friends here longer than just the math hit you over the head thesis. We didn’t even talk air rights there. But then I’ve got a lot of friends who are shorted on, “Hey, these guys are putting two billion dollars into the Sphere and they think they’re going to be more Spheres beyond this, what world are they living in?” This is awful capital allocation. Originally, they thought it was going to cost one point three billion dollars and it would have been a bad investment there. So I guess I just want to ask like, my two friends, some people look at asset value. Some people look, this is just lighting money on fire left and right, like how do you look at the MSGE?

Jon: When we did our valuation of the Sphere, we value it at a 50% of the construction costs. Then we put a big haircut on the cash. I forgot what percent of it to account for. As I said earlier, actually I wrote an article for Forbes three years ago saying I didn’t like this thing? I wish they didn’t do it. They have the best assets in the world minus the Sphere for entertainment? Why are they doing this? But let’s take the contrarian article part of it and maybe James is correct building the state-of-the-art menu, 20,000 seats in Las Vegas that has the world’s greatest sound, greatest lights, huge sponsorship opportunities, huge utilization. Maybe he’s right. I mean, I don’t know if it’s officially announced but it floated that U2 is going to be the opening act and that do a residency there.

Vegas is if you pick a venue for this would be the perfect one. There’s no
ROI given is I don’t think they know what it is. I think this is not good capital allocation, I fully agree. But based on kind of what you said before, they just have so many great assets that it’s hard to ignore unless you also as a physician you put it kind of accordingly. Doesn’t have to be a 10% position in a portfolio. There’s a lot of up potential upside where it could become a 10% position if all things go well. So it’s a different way kind of looking at it. So I think there are certainly issues there, but as I said earlier, the issues create the opportunity.

Andrew: Yeah. Let’s talk about another piece that has issues inside of it and that’s MSG and networks, right? So the last time you were on, they were merging MSGE into MSGN and I think both of us thought that was a terrible deal. The reason was MSGN has been a standalone RSN forever. Our argument was that makes absolutely no sense. They need to sell to a bigger company that’s kind of got an umbrella where they can go negotiate and say, “Hey, you drop us, you’re not just losing MSGN, you’re losing ESPN, you’re losing Disney,” something along those lines. There would have been massive synergies and said they sold it. They did a related party transaction, MSG MGN merge. I think they said on the queue for a call. They said, “Hey, MSGN has done its job. It got us a lot of cash flow that we directed into the Sphere.” Oh my God, I can’t believe they said the quiet part out loud.

But today, you look at MSG networks, Comcast drop them in October of 2021. Once one person drops you, you’re always worried that someone else is going to drop you. They say MSGN is going to release a direct-to-consumer standalone app, I believe in the second half of the NBA regular-season, NHL regular season. I just look at that and I say, “The best time to release an app is before the season starts.” I think there are some restrictions on why they can’t do that but I look at that, I look at Comcast dropping them, and I say “MSGN seems mismanaged these days and it seems like a really terminal asset.”

Jon: Interestingly, I think MSGN was the first Regional Sports networks or back to where you said, Charles whose 95 years old, the patriarch of the family was responsible for that. Yeah, it’s a challenge business but I would say that sports gambling is this will help them tremendously both in terms of sponsorship opportunities. It’s now I believe for MSGS their largest kind of advertising. It sports game. It’s sports gambling. Even if the Knicks are terrible, which is a good assumption. People watch games if they bet on them, higher advertising fees. I think they increased by $10 million this past year and it was a shortened season. It was the last season which was shortened.

So there’s a lot to like. I realize also your the bear case will be that DraftKings, etcetera, won’t spend as much money going forward. But, I think the sports gambling is going to surprise people on the upside for them. We talked about it before, I fully agree that MSGN they should never have done it. It was inappropriate, it’s bad use of funds. It’s just different shareholder base, but it is what it is. I mean, the only good thing to say is I own shares in both. So I kind of got both but I didn’t like it. It’s kind of funny also, I don’t know if you saw anyone who was involved, any of the plaintiffs lawyers involved in that or not allowed at Madison Square Garden.

Andrew: Say again?

Jon: Any of the plaintiffs lawyers who were suing them, are actually banned from Madison Square Garden.

Andrew: Oh, that’s hilarious. Devon Charles Oakley can’t.

Jon: Yeah.

Andrew: Banning the plaintiffs lawyers does make sense. MSGN, I am worried that it is a terminal assetb ut as you said, like, sports betting is so huge for these guys and we still haven’t even started really touching into the sports betting where like the real in-game stuff where you’re watching the game and you can just press, “Hey, I think Julius Randle is going to score a bucket on the next game.” Once you start getting that in there, the feast will be so high and like look at us, MSGN and guess what? It’s still called MSG Network, right? Every other RSN that I’m aware of, I’m sure there’s someone missing but the major RSN I’m aware of, have all rebranded to Bally’s Regional Sports networks or whatever.

It seems like there’s a hundred million dollars of very easy value going to Caesar’s DraftKings and FanDuel and saying, “Hey, right now, highest winner. We’re going to rebrand MSG Network to FanDuel Network for the next seven years. Highest bidder wins. Let’s go.” It seems like there’s 100 million of value easy there. There’s lots of value. And the one good thing that I’ve always liked about MSGN, every other RSN has about five year contract rights. If I remember correctly, MSGN has the Knicks and Rangers locked up till about 2035. That’s still 13 years, that’s a lot longer. It’s in a major market, it’s so great.

One thing I want to talk that, I think you’ve done more work than most we have talked on, the air rights for the Garden. I don’t think we’ve really talked about air rights on this show. So the Garden is on fire right now. They talked about Harry Styles going to do a 15 day tour, I think it’s the best gross that they’ve ever done in 2022. They were having the best gross, just sell out every night. So the Garden is on fire, but nobody really talks about air rights. So I just want to ask you what are we talking about wwhen we say, “Hey, the Garden’s air rights.” What’s the value? What’s the plan to develop those?

Jon: For those who haven’t really seen it or what not be, the garden is a relatively low building. They have the rights to build up. I forgot how many feet but they have 2.5 million I think of buildable feet. So they have the right to do that. Realistically, you’re not going to do that, you’re not going to have condos in touch of Madison Square Garden, I think it’ll be a little weird.

Andrew: It would be kind of cool though if you had the 30th floor apartment and during games, you were feeling the crowd scream as things are- that’d be kind of cool.

Jon: Yeah, you can. The in-laws are convoluted and I’m just doing this in a very basic sense, but you can essentially transfer or sell your rights to other people. There’s a whole movement to develop that area. The governor wants to do it. Vornado wants to do what they want to build the office towers. To me, it seemed a strange time to build office towers. It’s been going once [inaudible] city. But maybe that’s up being more forward thinking that I’m being. These are rights are very valueble. You literally can sell air. And it’s not like this is pie in the sky. There’s been transactions through the years on these things especially churches and other places of worship have sold these. So that’s something that you look at. I’ve looked at some of the sell-side reports on MSPE and this is one of my criticism of the sell-side. There’s no word of air rights mentioned there. They’re valuable. They could be worth hundreds and hundreds of millions of dollars.

When they monetize them? I don’t know. Will they? I’m not sure but it’s certainly possible. One of the things I fully agree with you, I mean, I think the MGM MSG Network kind of has a somewhat nice ring to it, but they’ll go to the highest bidder. Not saying they would do this but just think what would naming rights of the Garden go for. I mean, just think about how crazy what do they pay for crypto.com? I hope they got paid in advance by the way.

Andrew: Yeah. I think got 300. When crypto went through, I did the math and I was like, “Oh, the Garden would go for something for quite a bit. But I do think, you never know.

Jon: I’m not saying it’s going to happen, it’s not.

Andrew: I do think the Garden they like it kind of as a brand rightly or wrongly but it is Madison Square Garden presented by something if I remember correctly, right? It’s like MSG presented by Chase or something. I can’t remember.

Jon: They have big sponsorship with Chase but as I said, I think that’s
not going to happen but it just shows the value of it.

Andrew: I’m from New Orleans, I remember for years. It was the superdome, right? I could have never imagined this was the Superdome maybe from New Orleans over blue, but at the time was the biggest thing. It hosted some of the biggest things. And then guess what? Mercedes came along with a really big check. And they said, “Oh, now it’s the Mercedes-Benz Superdome or something.” This could be the Bindle Madison Square Garden or something. So it can definitely happen.

Jon: It’s just there’s just so many things that could go right. People are just focusing on the negatives. So that’s where…

Andrew: When I look at your valuation, you’ve got the air rights for MSG 2.5 million billable square rights at $300 per square foot, that comes out to 800 million dollars which that is a lot of money against, as I said, this is an enterprise value company of about 3 billion. So just want to ask, where did that $300 per square foot number come from?

Jon: We just look at comparable transactions that happened. Obviously, it’s a weird time to be in New York right now. The way that might be aggressive, probably is, but we also valued, as I said, the cash balance is 75% of the current cash balance. We valued that Sphere basically half of it what it cost to build. That part of it, who knows? But it’s worth a lot of money and it will one day I think be monetized and will be pretty interesting.

Andrew: Just real quickly. So, we’ve talked networks, we’ve talked Garden, we’ve talked to air rights. The other big piece, I mean I don’t think Tau is worth that much. I know they like to say, Vegas reopening it’s going to be an international business. I don’t think tells worth that much these days but the Rockettes are real brand. Every now and then, we’ll like glimpse a little bit of their financials, but what do you think the raw the Rockettes are worth inside of MSGE?

Jon: We don’t have an exact value of it but your writing is substantial. Part of their results why they weren’t nearly as good as they could have been for the years, seems like a long time ago, but a large percentage of the Rockettes shows this year were cancelled because of Omicron. [inaudible]

Andrew: It’s so easy to forget, it’s like forever ago. But I remember when the press release came out, it was like December 7th or something and said, “Hey, we have to cancel the rest of the Rockettes show for Omicron.” The Rockettes run from November to December. They don’t run a huge amount of time. They make a lot of money in that time, but they don’t run very long. So if you cancel those shows, that’s peak earning season gone.

Jon: Yeah, there’s other things I guess you put another cities. I’m not sure what what you would do. Obviously, you want to keep it special in New York. But the Rockettes are valuable. There’s just so many assets under there. They have a stake in DraftKings. They have a stake in a kind of a micro cap company called [inaudible].

Andrew: Yes, I know [inaudible] media. Yeah.

Jon: Which we own full disclosure and full disclosure in MSGE and MSGS. I’d imagine after this conversation, you would think I do own it, but there’s a set full disclosure. So this is a lot of assets there. James could be more sinister reasons for doing it but is I think help highlighting that value of some of these assets. It’ll be interesting to see what happened and it was fascinating that post-market the MSPE was up about 16% that Thursday night. It’s now giving back more those gains then some. Bottom line’s to cheap stock.

Andrew: No, disagreement there. Let me write this up with one last question, just switching back to MSGS site. I know you cause a little bit of a stir. You went on CNBC and said, I think for years, people have kind of whispered, “Hey, Dolan’s putting the feelers out that he’s going to sell the team.” We went through MSGS and how much more value there would be if they sold the team. But you went on CNBC, and got a little bit of traction where you said, I think he might sell a team. A bunch of Knicks fan said, “Hashtag, sell the team.” I believe Dolan had leaked to the New York Post, “We’re not selling the team right now.” But if I asked you, what are the odds you and I are sitting here talking in three years, five years, seven years, and the Knicks and Rangers are still inside of MSGS as a publicly traded company with James Dolan control. What would you kind of say the odds of that are?

Jon: I don’t know what the family dynamics and how everything works in terms of estate tax but Charles is 95 years old. His family owns a substantial amount. There could be a state reasons for them to sell. It is certainly a chance but I think if you give me a seven-year number, I would say that it is well above 50% that they would sell it. But it’s hard to put probabilities on it. But I think there’s a significant chance that they sell it and I think there’s even more of a significant chance that they sell part of the team to a private equity firm to put a value on it. At the end of the day, he controls everything. But what if someone comes in and then buys a real substantial stake of 15, 20% of the team or whatnot and tries to agitate for things. I mean, it makes it very uncomfortable for him.

Andrew: I don’t disagree with anything but the most interesting thing you said in there, which I hadn’t really thought about is Charles is 95. After he passed away, the most common things and family ownership when you own a sports team is after kind of the patriarchy pass away, a lot of agitation for change and especially, I mean, I think the Dolans have plenty of money after the Cablevision sale. But that MSGS take is going to be worth a lot, and it doesn’t pay out any cash flow, right? Well, the Dolans pay themselves pretty nice board fees, but that pales in comparison to what if they sold and they didn’t have to have all their friends being like, “You guys suck as owners” behind their back all the time. There could be some really interesting family dynamics there and I’d almost be curious to go higher or like inheritance lawyer or something to go dig through and say, “Hey, how vulnerable is James going to be once dad passed away?” Because you see that a lot. I mean, the bus family had a lot of dynamics there, they managed to Lebron’s Lakers but there were some weird dynamics there.

Broncos sold or maybe will sell after their patriarch had died. Even the Allen Family, rumors a lot of those assets for sale. And trust me, the Allen family was not hurting for money.

Jon: Yeah. There’s a bunch of siblings there. I think James has veto rights on it. I could be wrong,but I believe that’s how it’s set up. But their family dynamics can create a lot of strange things. So there’s a lot of optionality there. As I said before, this is not an instant gratification stock, but for people who are patient and you look at some of the investors in both MSG MSDS, besides the ones I name, you have Mario Gabelli. You have the folks at aerial, some of the best investors that I know. Very long-term patient investors. Those are the top shareholders and one or both companies. So I think it’s worth if you have more than a year time frame. It’s worth taking a look at.

Andrew: Are you basketball fan?

Jon: I am, I mean, I watch but not a huge fan.

Andrew: I was just going to ask. Do you want the Knicks to trade for Donovan Mitchell? And you can say I’m not super up to date on that.

Jon: I’m not up to it, I couldn’t give you an intelligent answer. It’d be nice if Lebron James was on the team. Besides that, I…

Andrew: You just reside with the Lakers so I don’t like that’s happened. But I know my listeners only listen to me for my takes on basketball. I will be apoplectic if the next trade all of the graphics and everything for Donovan Mitchell, but I think is very overrated. I’m willing to wait one more year and play out free agency next year but that is just. It wouldn’t be bad to make a playoff run but I would not be a big fan of that, but cool.

Hey Jon, this was great. Again, Jon came on because he just put out a fresh look on through the link, to it in the show notes. If anybody wants to check that out, everybody should follow Jon because he follows especially if you like, as I’ve said many times, if you like quality companies at reasonable prices like that is Jon’s wheelhouse. That is what Boyar does all the time. MSG, MSGS, they’re more than quality, I would say. And they’re probably more than cheap, but there are management questions. But Jon, thanks so much for coming on and looking forward to chatting with you soon.

Jon: Great. I thank you for having me. It was a lot of fun

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates.  This material is as of the date indicated, is not complete, and is subject to change without notice. Additional information is available upon request. No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this interview should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this article.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at https://adviserinfo.sec.gov Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions. Clients and employees of Boyar Asset Management own share of both Madison Square Garden Sports and Madison Square Garden Entertainment.

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6 Stocks With Significant Upside

Is the recent stock market advance a bear market rally or the beginning of a new bull market? Regardless Boyar Research has identified 6 stocks that we believe to have a significant upside from current levels that also have catalysts for capital appreciation. We invite you to watch Jonathan Boyar’s presentation below that will outline the investment thesis for these 6 companies. 

One of the companies mentioned in the presentation was recently featured in our latest research issue Fresh Looks: A Special Opportunity Issue. In this special issue, you’ll receive reports on 13 companies,  including in-depth reports on nine companies that we have researched in the past and that we believe to be well-positioned moving forward. In addition, you’ll receive updated one-page summaries on four additional companies that fall within these criteria. Any purchase before August 19th will include two of the most recent issues published by Boyar Research (7 full-length reports)  as a bonus. 

 

 

 

 

 

 

 

The information contained herein reflects certain opinions and projections  of Boyar Intrinsic Value Research (“BIVR”)  as of the date of publication, which are subject to change without notice at any time subsequent to the date of issue. BIVR does not represent that any opinion or projection will be realized. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any data presented. Prospective investors should not treat information in these materials as advice or recommendations in relation to legal, taxation, or investment matters. Past performance is no guarantee of future results.

Statements herein that reflect projections or expectations of future financial or economic performance or potential performance of accounts managed by affiliates of BIVR are forward-looking statements. Such “forward-looking” statements are based on various assumptions, which assumptions may not prove to be correct. Any projections and forward-looking statements included herein should be considered speculative. Accordingly, there can be no assurance that such assumptions and statements will accurately predict future events or affiliates of BIVR actual performance for any accounts that it manages, and no representation or warranty can be given that the estimates, opinions or assumptions made herein will prove to be accurate.

The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. Affiliates of BIVR may invest in securities of micro/small-and medium-sized companies and these companies tend to have a shorter history of operations, be more volatile and less liquid and may have underperformed securities of large companies during some periods. Value securities may underperform other asset types during a given period. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. Investing involves risk, including the possible loss of principal and fluctuation of value.

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Investors need to beware of false bargains, says Jonathan Boyar in a new CNBC interview

Jonathan Boyar joins CNBC’s ‘Closing Bell: Overtime’ to discuss Warner Brothers Discovery, Madison Square Garden Sports and why he believes it is a great time to be a value investor.

Disney was featured in our Fresh Looks  Opportunity  issue, we wanted to offer you access to that report which highlights the additional upside that we see. Please click here to download your copy. 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change without notice.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this video should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable.   Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors.  This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research.  Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this email.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions.  Clients of Boyar Asset Management own shares of The Walt Disney Company, Warner Bros. Discovery and Madison Square Garden.

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Bank of America, Disney, and Uber All Look Like Bargains

The Boyar Value Group was recently featured in Barron’s in an article penned by Nick Jasinski discussing stocks that appeared in our recently released Fresh Looks: A Special Opportunity Issue.   An excerpt from the article is below.

“We’ve become increasingly bullish over the medium to long term,” says Jon Boyar of the Boyar Value Group, which includes an investment firm, Boyar Asset Management, and a research arm, Boyar Intrinsic Value Research. “Has the market bottomed? I have absolutely no clue. But I think many stocks have reached a point where the risk/reward is solidly in investors’ favor.”

Boyar’s approach is a more opportunistic style of value investing than traditional value investing, which tends to focus on buying the cheapest stocks. That means defining value relative to his team’s estimates of a company’s future potential, not necessarily relative to the broader market or the company’s industry. Last week, Boyar Research put out a report called “Fresh Looks,” highlighting about a dozen stocks whose share prices have declined more than their business prospects. The median stock in the report was recently down 25% year to date and 32% from its 52-week high….

To read the entire article, please click  here (a subscription may be required).

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. . This material is as of the date indicated, is not complete, and is subject to change without notice. Additional information is available upon request. No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this interview should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this article.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at https://adviserinfo.sec.gov Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions.

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