MSG Madison Square Garden Company New

By William Louch 

Private-equity firm Silver Lake built its reputation on the back of investments in technology companies such as internet phone-service provider Skype Inc. and chip maker Broadcom Inc.

But in recent years, the firm, which manages more than $40 billion in assets, has established itself as a major player in the sports and entertainment arena as well, investing billions of dollars in businesses that include cinema chain AMC Entertainment Holdings Inc. and the parent company of U.K. soccer team Manchester City. Now, some of these deals are coming under pressure.

Companies in the sports, media and entertainment sectors are facing declining revenue as social-distancing guidelines and curbs on public gatherings have shut down sports leagues and the movie industry and led to concerts and cinema screenings being canceled world-wide.

Silver Lake's exposure to sports, media and entertainment companies now accounts for around 15% of its total portfolio, a near threefold increase since 2018, an analysis of the company's portfolio as of April 10 shows. Eight of the 53 investments currently listed on its website are in the sports and entertainment sector.

The strategic shift was a bet it could use its technological savvy to help these companies capitalize on the increasing convergence of sports, entertainment and digital media.

"Our market opportunity keeps getting bigger," said Egon Durban, Silver Lake's co-chief executive and the driving force behind its push into entertainment and sports, during a technology conference in 2015. "When we started, we were a sector specialist fund. By definition, today almost every company in the world, in one way or another, is now a technology company."

Although most of Silver Lake's portfolio is still concentrated in more resilient technology assets such as software companies, the recent lockdown demonstrates how investments in consumer-facing companies outside of tech are struggling in the current climate.

The downturn comes as Silver Lake is seeking billions of dollars in fresh capital from investors for its two largest funds -- its flagship buyout vehicle and Silver Lake Alpine, a fund which takes minority positions using either equity or debt.

Silver Lake's entertainment and sports portfolio already has started to suffer as a result of the coronavirus crisis.

U.S. cinema chain AMC received a $600 million investment from Silver Lake in 2018. On the day the investment was announced, Adam Aron, AMC's CEO, explained why Silver Lake and AMC were partnering up.

"They are very smart people and they have added a lot of value wherever they have been," Mr. Aron said. "They have terrific knowledge in tech and the media. Our company is a tech-enabled business. You can't do anything at AMC without having computers do it."

AMC is now at risk of defaulting on its debt after shutting more than 1,000 theaters globally to help curb the virus's spread. In early April, the company furloughed all 26,000 of its employees, The Wall Street Journal reported. Its shares had fallen to just over $2.60 each as of April 10, down from $20.60 a share at the time Silver Lake announced its investment.

AMC didn't respond to a request for comment.

Meanwhile, shares in publicly traded Madison Square Garden Co., in which Silver Lake announced it owned a small minority stake in 2018, have fallen sharply, to around $242.15 each as of April 10, from well over $300 a share six weeks ago. When Silver Lake disclosed its stake in February 2018, the company's shares were trading at just over $230 each. MSG declined to comment.

Madison Square Garden owns and operates famous venues including New York's Madison Square Garden, Radio City Music Hall and Beacon Theatre and sports franchises including the New York Knicks basketball team and the New York Rangers hockey team. The company's entertainment unit, which generates some of its revenue through ticket sales, earned $312.1 million for the fiscal quarter ended Dec. 31, MSG said on a February 2020 earnings call.

"It is going to be hard for people to sit in confined spaces next to a lot of people for a long time," said Steve Spitzer, a managing director at consulting firm AlixPartners LLP. "It is going to significantly impact the concert industry. I think the sports teams are going to see lower attendance of events going forward."

Other Silver Lake private assets also are facing challenges as people stay at home.

Entertainment business Endeavour Group Holdings Inc., for example, already has begun furloughing workers as many Hollywood film and television productions shut down. The Ultimate Fighting Championship, a mixed martial arts company it owns, was forced to postpone some of its live events because of the coronavirus pandemic.

City Football Group, which owns soccer teams around the globe, including England's Manchester City and the New York City Football Club, has seen soccer games suspended, leading to revenue losses from ticket sales.

Richard Masters, the chief executive of the English Premier League, estimated potential losses to clubs including Manchester City at more than GBP1 billion ($1.25 billion) if the rest of the season is canceled.

Silver Lake likely has steps it can take to shore up companies hit harder by the pandemic, including potentially injecting fresh capital from its funds into companies, expanding credit facilities or seeking stimulus money for those companies that are eligible.

But the falling valuations of existing holdings will have to be communicated with potential investors, said Eamon Devlin, a partner at law firm MJ Hudson LLP.

"Critically, for your performance and your track record, it is clear that the current crisis is going to impact most, if not all, managers," Mr. Devlin said.

The downturn and lower valuations also present a significant buying opportunity for firms like Silver Lake. Earlier this week, the firm announced it was investing $1 billion in Airbnb Inc. alongside Sixth Street Partners. Airbnb was looking to raise cash to bolster its finances as it looks to weather a drop in bookings as global travel slows.

Write to William Louch at william.louch@wsj.com

(END) Dow Jones Newswires

April 11, 2020 08:44 ET (12:44 GMT)

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