Madison Square Garden Sports (NYSE: MSGS) has filed a Form 10 Registration Statement with the SEC for the proposed spin-off of its New York Rangers business from the New York Knicks, which currently both sit under the MSGS banner. In February, the MSGS board approved a plan to explore a split to unlock shareholder value.
The confidential filing does not ensure the split is completed. “Completion of the transaction would be subject to various conditions, including effectiveness of the Form 10 Registration Statement, any required league approval, receipt of a tax opinion from counsel and Company board approval,” MSGS said in its release.
The spin-off is expected to be structured as tax-free for shareholders, but there are other tax consequences to this deal.
A new federal tax law expands a 2017 tax provision that limited the compensation public companies could deduct for tax purposes. The 2017 provision capped the deduction at $1 million each for the CEO, CFO and the next three highest-paid officers. The new law expands the number of employees to also include the next five highest-compensated ones starting with the 2027 tax year.
An independently traded Knicks team would pay its top five executives and top five players $195 million—nearly 90% of that is to players—triggering $55.4 million in taxes, per Seaport Analyst Research Partners analyst David Joyce, after excluding the $1 million per employee in maximum compensation. The Rangers would incur a post-spinoff incremental tax of $19.8 million on $76 million in salaries.
