How the NY Knicks Lost over $100M at Tao Nightclub

Business is about trends. Some are sustainable. Some are not. There is a time to buy. There is a time to sell.

Understanding when the party has gone on too long and it’s time to cash out your chips is an admirable skill.

After the longest bull market in stock market history, Knicks Owner Charles Dolan decided that the trend of Bottle Service was just beginning. That people blowing $300 on Bottle Service would keep going. And money was no object.

And when a trust fund Billionaire comes calling, the people behind Tao knew it was time to sell.

Kudos to them.

Feb 1, 2017

TAO Deal: Madison Square Garden Company says it paid $181 million for a 62.5% stake in a new company called TAO Group. ~$250M total valuation for 19 venues.

It’s difficult to give you a direct comparison of how ridiculous this price is.

However, Red Robin Operates 555 Restaurants and RCI Hospitality operates 46 Bars and restaurants and these market caps reflect the impact of the Corona Virus.

Right now, you could buy an entire chain of restaurants for $145M or nightclubs for what Dolan and the Knicks paid for a partial interest in 19 restaurants. In fact, During the 2008 financial crisis, you could have purchased the entire Ruth’s Chris chain for $50M

May 2020

MSG Entertainment Posts Losses, Lower Revenue as Venues Remain Closed

“The company said the increase in operating loss includes the $102.2 million in non-cash impairment charges related to Tao Group Hospitality, its dining and nightlife unit that has had to temporarily shutter virtually all of its venues worldwide — in addition to one permanent closure.”

$90.2M Impairment Charge

Fiscal 2020 third quarter operating loss increased by $105.9 million to $107.6 million and adjusted operating income decreased by $16.8 million to a loss of $9.6 million, both as compared to the prior year period.

When this deal was announced, I wrote an entire article of how ridiculous this was for Seeking Alpha here.

This was my conclusion:

One could argue that there are some synergies between MSG and a VIP level customer. My issue is one of judgment and stewardship of investor capital.

Of course, the experts in bottle service and restaurants, The TAO Group, were looking to sell.

Investors should be concerned that they know when things cannot get better for the bottle service niche.