UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 20192022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to _____________
Commission File Number: 1-36900
MADISON SQUARE GARDEN SPORTS CORP.
(Exact name of registrant as specified in its charter)
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Delaware | | 47-3373056 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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Two Penn PlazaNew York, NY10121(Address of principal executive offices) (Zip | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Two Penn Plaza | , | New York | , | NY | | | 10121 |
| (Address of principal executive offices) | | | (Zip Code) |
Registrant’s telephone number, including area code: (212) 465-6000(212) 465-4111
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock | MSGMSGS | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ☑
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant has been required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act Rule 12b-2.Act. |
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Large accelerated filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Aggregate market value of the voting and non-voting common equity held by non-affiliates of The Madison Square Garden Company as of June 30, 2019Sports Corp. computed by reference to the price at which the common equity was last sold on New York Stock Exchange as of December 31, 2018,2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $5$3.3 billion
Number of shares of common stock outstanding as of July 31, 2019:
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Class A Common Stock par value $0.01 per share | — | 19,230,06119,696,838 |
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Class B Common Stock par value $0.01 per share | — | 4,529,517 |
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Documents incorporated by reference — Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 20192022 annual meeting of the Company’s shareholders, expected to be filed within 120 days after the close of our fiscal year.
TABLE OF CONTENTS
PART I
PART I
Item 1. Business
Madison Square Garden Sports Corp., formerly The Madison Square Garden Company, is a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, NY, 10121. Unless the context otherwise requires, all references to “we,” “us,” “our,” “Madison Square Garden,” “MSG”“MSG Sports” or the “Company” refer collectively to The Madison Square Garden Company,Sports Corp., a holding company, and its direct and indirect subsidiaries. We conduct substantially all of our business activities discussed in this Annual Report on Form 10-K through MSG Sports, & Entertainment, LLC and its direct and indirect subsidiaries. Our telephone number is 212-465-6000,212-465-4111, our website is http://www.themadisonsquaregardencompany.comwww.msgsports.com and the investor relations section of our web sitewebsite is http://investor.msg.com. We make available, free of charge throughinvestor.msgsports.com. Through the investor relations section of our web site,website, we make available, free of charge, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and proxy statements, as well as any amendments to those reports and other statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as proxy statements,1934. These materials become available as soon as reasonably practicable after we electronically file such materialmaterials with, or furnish itthem to, the Securities and Exchange Commission (“SEC”). Copies of these filings are also available on the SEC’s website (www.sec.gov). References to our web sitewebsite in this report are provided as a convenience and the information contained on, or available through, our web sitewebsite is not part of this or any other report we file with or furnish to the SEC.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks”), formerly known as The Madison Square Garden Company.. All of the outstanding common stock of the Company was distributed to MSG Networks shareholders (the “2015“MSGS Distribution”) on September 30, 2015 (the “2015“MSGS Distribution Date”).
Potential Spin-off TransactionOn April 17, 2020 (the “MSGE Distribution Date”), the Company distributed all of the outstanding common stock of Madison Square Garden Entertainment Corp. (formerly MSG Entertainment Spinco, Inc. and referred to herein as “MSG Entertainment”) to its stockholders (the “MSGE Distribution”). MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. In the MSGE Distribution, (a) each holder of the Company’s Class A common stock received one share of MSG Entertainment Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on April 13, 2020 (the “Record Date”), and (b) each holder of the Company’s Class B common stock received one share of MSG Entertainment Class B common stock, par value $0.01 per share, for every share of the Company’s Class B common stock held of record as of the close of business, New York City time, on the Record Date.
On June 27, 2018,July 9, 2021 MSG Networks merged with a subsidiary of MSG Entertainment and became a wholly-owned subsidiary of MSG Entertainment (the “MSGE-MSGN Merger”). Accordingly, agreements between the Company announced that its boardand MSG Networks are now effectively agreements with MSG Entertainment on a consolidated basis.
Overview
The Company owns and operates a portfolio of directors (“Board”) has authorizedassets featuring some of the Company’s management to explore a possible spin-off that would create a separately-traded public company comprisedmost recognized teams in all of its sports, businesses, including the New York Knicks and New York Rangers professional sports franchisesKnickerbockers (“Sports Spinco”). We refer to the potential spin-off as the “Sports Distribution.” On October 4, 2018, in connection with the Sports Distribution, a subsidiary of the Company submitted an initial Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (which has been amended). If the Company proceeds with the Sports Distribution, it would be structured as a tax-free transaction to all MSG shareholders. Upon completion of the contemplated separation, record holders of MSG common stock would receive a pro-rata distribution, expected to be equivalent, in aggregate, to an approximately two-thirds economic interest in Sports Spinco. The remaining common stock, expected to be equivalent to an approximately one-third economic interest in Sports Spinco, would be retained by the Company. There can be no assurance that the proposed transaction will be completed in the manner described above, or at all. The Sports Distribution is expected to be completed in the first quarter of calendar year 2020. Completion of the transaction is subject to various conditions, including certain league approvals, a private letter ruling from the Internal Revenue Service (the "IRS"), receipt of a tax opinion from counsel and final Board approval.
Overview
The Madison Square Garden Company is a leader in live experiences comprised of celebrated venues, legendary sports teams, exclusive entertainment productions, and other entertainment assets which include dining and nightlife venues and music festivals. Utilizing our powerful assets, brands and live event expertise, the Company delivers premium and unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. We manage our business through the following two operating segments:
MSG Sports: This segment includes the Company’s professional sports franchises: the New York Knicks (the “Knicks”Knicks”) of the National Basketball Association (the “NBA”(“NBA”), and the New York Rangers (the “Rangers”(“Rangers”) of the National Hockey League (the “NHL”(“NHL”). Both the Knicks and the Rangers play their home games in Madison Square Garden Arena (“The Garden”), also known as The World’s Most Famous Arena. The Company’s other professional franchises include two development league teams — the Hartford Wolf Pack of the American Hockey League (the “AHL”(“AHL”) and the Westchester Knicks of the NBA G League (the “NBAGL”(“NBAGL”). Our professional sports franchises are collectively referred to hereinIn addition, the Company owns Knicks Gaming, an esports franchise that competes in the NBA 2K League, as “our sports teams.” The MSG Sports segment also includeswell as a controlling interest in Counter Logic Gaming (“CLG”), a premier North American esports organization, and Knicks Gaming, MSG’s franchise that competes inorganization. The Company also operates two professional sports team performance centers — the NBA 2K League. CLG and Knicks Gaming are collectively referred to herein as “our esports teams,” and, together with our sports teams, “our teams.” In addition, the MSG Sports segment promotes, produces and/or presents a broad array of other live sporting events, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, and college wrestling.
MSG Entertainment: This segment features the Company’s live entertainment events — including concerts, and other live events such as family shows, performing arts and special events — which we present or host in our diverse collection of venues. Those venues are: Madison Square Garden (“The Garden”), Hulu Theater at Madison Square Garden, Radio City Music Hall,Training Center in Greenburgh, NY and the Beacon Theatre, the Forum,CLG Performance Center in Los Angeles, CA.
Our Strengths
•Iconic sports franchises with renowned brands;
•Enduring and The Chicago Theatre. Our MSG Entertainment segment also includes our original production — Christmas Spectacular Starring the Radio City Rockettes(“Christmas Spectacular”) — as well as Boston Calling Events, LLC (“BCE”), the entertainment production company that owns and operates the Boston Calling Music Festival, and TAO Group Holdings LLC (“TAO Group”), a hospitality group with globally-recognized entertainment dining and nightlife brands.
Our Strengths
Ownership of legendary sports franchises;
Iconic venues in top live entertainment markets;
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• | Marquee entertainment brands and content, including theChristmas Spectacular and the Radio City Rockettes (“Rockettes”);
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Powerfulmeaningful presence in the New York City metropolitan area, with established core assets and expertise for strategic expansion;one of the nation’s largest media markets;
Strong industry relationships that create opportunities for new content and brand extensions;
•Deep connections with loyallarge and passionate fan bases that span a wide demographic mix;
First-class experience in managing venues, bookings, marketing, sales•Multi-year sponsorship and hospitality in multiple markets;suite agreements through a strategic partnership with MSG Entertainment;
Ability to forge strategic partnerships that utilize•Long-term local media rights agreements with MSG Networks;
•National media rights agreements through the Company’s assets, core competenciesNBA and scale, while allowingNHL;
•Long-term arena license agreements with MSG Entertainment under which the Company to benefit from growth in those businesses;
Established history of successfully planningKnicks and executing comprehensive venue design and construction projects;
Extensive range of proprietary marketing assets, including a customer database that allows us to drive engagement with our brands; and
Strong and seasoned management team.
the Rangers play their home games at The Garden;
•World-class organization with expertise in team operations, event presentation and ticketing; and
•Seasoned management team and committed ownership.
Our Strategy
The Madison Square Garden Company pursues opportunities that strengthenOur strategy is to leverage the strength and popularity of our portfolio of live experiences and capitalize on our iconic venues, popularprofessional sports franchises and exclusive entertainment content,our unique position in one of the nation’s largest media markets to grow our business and increase the long-term value of our sports assets. Key components of our strategy include:
•Developing championship-caliber teams. Our core goal is to develop and maintain teams that consistently compete for championships. Competitive teams help support and drive revenue streams across the Company during the regular season and, when our teams qualify for the postseason, the Company benefits from incremental home playoff games. The ownership and operation of NBA and NHL development teams — the Westchester Knicks and the Hartford Wolf Pack — as well as the operation of our expertise in venue management, bookings, marketing, sales and hospitality. We believetwo state-of-the-art professional sports teams performance centers, are part of our strategy to develop championship-caliber teams.
•Employ a ticketing policy that gives the Company’s unique assets and capabilities, coupledCompany a direct relationship with our deep relationshipsfanbases. Our large and loyal fan bases have placed us among the league leaders in the sports and entertainment industries andticket sales as our strong connection with our diverse and passionate audiences, are what set the Company apart. We continue to look for ways to improve our core operations, while we explore new opportunities to grow and innovate. Specific initiatives we are focused on include:
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• | Developing championship caliber teams. The core goal of our sports strategy is to develop teams that consistently compete for championships in their leagues and support and drive revenue streams across the Company. We continue to explore new ways to increase engagement and revenue opportunities across the teams’ broad consumer and corporate customer bases.
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• | Monetizing our exclusive sports content. The Company has media rights agreements with MSG Networks that provide a significant recurring and growing revenue stream to the Company, subject to the terms of such agreements. In addition, these agreements and our relationship with MSG Networks provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG Networks’ award-winning regional sports networks.
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• | Utilizing our integrated approach to marketing and sales. The Company possesses powerful sports and entertainment assets that can create significant value for our business. For example:
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◦ | Our integrated approach to marketing partnerships allows us to use and sell our broad array of assets together in order to maximize their collective value, both for the Company and for our marketing partners. Our ability to offer compelling, broad-based marketing platforms, which we believe are unparalleled in sports and entertainment, enables us to attract world-class partners, such as our “Marquee” marketing partner, JPMorgan Chase, and our “Signature” marketing partners, which include Anheuser-Busch, Charter Communications, Delta Air Lines, DraftKings, Kia, Lexus, PepsiCo, SAP and Squarespace. |
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◦ | We continue to forge deep direct-to-consumer relationships with customers and fans, with a focus on understanding how consumers interact with every aspect of the Company. A key component of this strategy is our large and growing proprietary customer database, which drives revenue and engagement across segments, benefiting the Company through ticket sales, merchandise sales and sponsorship activation. This database provides us with an opportunity to cross-promote our products and services, introducing customers to our wide range of assets and brands. |
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• | Utilizing a unique strategy for our performance venues. The Company has a collection of performance venues through which we deliver high-quality live sports and entertainment. In addition to our New York venues: The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre, our portfolio includes: the Forum in Inglewood, CA and The Chicago Theatre. These venues, along with our venue management capabilities, effective bookings strategy and proven expertise in sponsorships, marketing, ticketing and hospitality, have positioned the Company as an industry leader in live entertainment. We intend to leverage our unique assets, expertise and approach to drive growth and stockholder value, and to ensure we continue to create unmatched experiences for the benefit of all our stakeholders.
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◦ | Maximizing the live entertainment experience for our customers. We use our first-class operations, coupled with new innovations and our ability to attract top talent, to deliver unforgettable experiences for our customers — whether they are first-time visitors, repeat customers, season ticket holders, or suite holders — ensuring they return to our venues. We have a track record of designing world-class facilities that exceed our customers’ expectations. This includes our renovations of Radio City Music Hall, the Beacon Theatre, The Garden and the Forum to deliver top-quality amenities such as state-of-the-art lighting, sound and staging, a full suite of hospitality offerings and enhanced premium products. In addition to better onsite amenities, we continue to explore new ways to utilize technology to improve the customer experience and create communities around our live events. From the way our customers buy their food and beverage; to how we market and process their tickets; to the content we provide them to enhance their sports and entertainment experience, we strive to give our customers the best in-venue experience in the industry.
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◦ | Leveraging our live entertainment expertise to increase productivity across our performance venues. Part of what drives our success is our “artist first” approach. This includes our renovation of the Forum, which set a new bar for the artist experience by delivering superior acoustics and an intimate feel, along with amenities such as nine star-caliber dressing rooms and dedicated areas for production and touring crews. This talent-friendly environment, coupled with more date availability and our top-tier service, is not only attracting artists to our West Coast venue, but also bringing them back for repeat performances. We will continue to use our “artist first” approach to attract the industry’s top talent with the goal of increasing utilization across all our venues through more multi-night and multi-market concerts and other events, including more recurring high-profile shows that help expand our base of events. Examples of this strategy include our residencies, which feature legendary performers playing our venues each month, and have included Billy Joel at The Garden and Jerry Seinfeld at the Beacon Theatre.
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◦ | Selectively expanding our performance venues in key music and entertainment markets. We believe our proven ability to deliver entertainment-focused venues, coupled with our unique capabilities, technologies and “artist first” approach, can deliver a differentiated experience for artists, fans and partners. In May 2016, the Company announced plans to build a state-of-the-art new entertainment venue in Las Vegas, one of the world’s most important entertainment destinations. In February 2018, we further unveiled our vision for MSG Sphere, which we believe will change entertainment by pioneering the next generation of immersive experiences. The Company broke ground in Las Vegas in September 2018 on its first MSG Sphere venue, which is currently under construction, with the goal to open the venue in calendar year 2021. In February 2018, we also announced the purchase of land in Stratford, London, which we expect — once we have received all necessary approvals and have further advanced our design for the venue — will become home to the second MSG Sphere. MSG Sphere venues will utilize advanced, cutting-edge technologies to create an entirely new platform that is expected to redefine how immersion and storytelling come together in entertainment experiences. Because of the transformative nature of these venues, we believe there will be other markets — both domestic and international — where MSG Sphere can be successful. The design of MSG Sphere will be flexible to accommodate a wide range of sizes and capacities — from large-scale to smaller and more intimate — based on the needs of the individual market. Controlling and booking a network of world-class venues provides the Company with a number of avenues for potential growth, including driving increased bookings and greater marketing and sponsorship opportunities. As we explore selectively extending the MSG Sphere network, we will be open to multiple types of transaction structures, including owned, operated, and joint ventures. As we work with various companies to develop the technologies needed for MSG Sphere venues, we are focused on obtaining appropriate strategic rights with respect to intellectual property.
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• | Expanding our entertainment dining and nightlife venues. The Company owns a controlling interest in TAO Group — a leader in the hospitality industry. TAO Group currently operates 29 entertainment dining and nightlife venues in New York City, Las Vegas, Los Angeles, Chicago, Singapore and Sydney, Australia with globally-recognized brands that include: TAO, Marquee, Lavo, Avenue, Beauty & Essex and Vandal. TAO Group is actively developing opportunities in select markets — both domestically and internationally — to expand. Over the past year, TAO Group opened TAO Chicago, along with new entertainment dining and nightlife venues as part of Moxy Chelsea hotel in New York City. TAO Group also debuted three new venues in Singapore — Marquee, Avenue, and KOMA.
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• | Growing our portfolio of proprietary content. We continue to explore the creation of proprietary content and attractions that enable us to benefit from being both content creator and venue operator. This includes opportunities to develop theatrical productions for our existing and planned venues. For our planned MSG Sphere venues, we are developing a set of tools that will allow both MSG and third parties to create content for the platform, making content creation an intuitive experience — whether someone is adapting existing content or developing original creations that maximize the potential of the venues’ technologies. We expect to use these tools to create our own catalogue of content and original productions, establishing a library of unique and compelling material that can be used across MSG Sphere venues.
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• | Exploring adjacencies that strengthen our business. As part of our commitment to creating unmatched experiences, we explore adjacencies that strengthen our position in sports and entertainment. Potential opportunities include new types of events and festivals, and new opportunities in hospitality, clubs, and food and beverage. Examples over the last several years include the Company’s purchase of a controlling interest in BCE, the entertainment production company known for creating and operating New England’s premier music festival — the Boston Calling Music Festival; TAO Group, a hospitality group with globally-recognized entertainment dining and nightlife brands; and CLG, a premier North American esports organization.
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• | Continuing to explore external strategic opportunities. We continue to seek strategic opportunities to add compelling assets and brands that resonate with our customers and partners, fit with our core competencies and allow new opportunities for growth across the Company. One of the ways we try to capitalize on our unique combination of dynamic assets, established industry relationships and deep customer connections is through strategic partnerships that bring together the expertise and capabilities of each partner, and enable us to team with recognized leaders in their fields and benefit from growth in those businesses.
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Our Business
MSG Sports
Our Company is synonymous with some of the greatest sporting events in history. Today that tradition continues with our commitment to delivering a broad array of world-class sporting events that create lasting and indelible memories for sports fans. Our MSG Sports segment includes some of the world’s most recognized sports franchises, as well as a diverse selection of other live sporting events, that the Company promotes, produces and/or presents, primarily at The Garden, Hulu Theater at Madison Square Garden and the Forum.
Our Sports Franchises
The Knicks and Rangers are two of the most recognized franchises in professional sports, with storied histories and passionate, multi-generational fan bases. These teams are the primary occupants of The Garden, playing a combined total of 82 regular season home games, oftenconsistently play to at or near capacity attendance.crowds at The Garden. Tickets to our sports teams’ home games are sold through membership plans (full season and partial plans); group sales; and single-game tickets, which are purchased by fans on an individual basis (as opposed to third-party sales). We generally review and set the price of our tickets before the start of each team’s season; however, we dynamically price our single-game tickets to better align with fan demand.
•Maximize the value of our exclusive live sports content. With today’s rapidly evolving media landscape, live sports telecasts have become increasingly valuable to distributors and advertisers. In October 2015, the Knicks and the Rangers entered into 20-year local media rights agreements with MSG Networks, creating a significant recurring and growing revenue stream for the Company. These agreements provide MSG Networks with exclusive local linear and digital rights to home and away games of the Knicks and the Rangers, as well as other team-related programming. MSG Networks makes this content available to our fans on its regional sports networks, MSG Network and MSG+, and through its live streaming and on-demand platform, MSG GO. In addition, our Company also receives a pro-rata share of fees related to the NBA’s and NHL’s national media rights agreements. Following the 2020-21 season, the NHL entered into U.S. national media rights agreements with The Walt Disney Company and WarnerMedia, LLC that will expire following the 2027-28 season. The NHL’s agreement with Rogers Communications (Canada) expires following the 2025-26 season. The NBA’s agreements with The Walt Disney Company and WarnerMedia, LLC expire after the 2024-25 regular season.
•Utilize our unique assets and an integrated approach to drive sponsorship and suite sales. Our Company possesses powerful and attractive assets that also benefit from being part of a broader sports, entertainment and media offering as a result of our Company’s various agreements with MSG Entertainment. These agreements enable us to partner with MSG Entertainment on an integrated approach to marketing partnerships and corporate hospitality solutions to drive sponsorship, signage and suite sales. For allexample:
◦Our assets are highly sought after by companies that value the popularity of our sports teams,franchises, the numberdemographic makeup of home games increases if they qualifyour fans, and our unique position in the New York market. The attractiveness of our assets is further strengthened by the Sponsorship Sales and Service Representation Agreements and Arena License Agreements with MSG Entertainment which create compelling, broad-based marketing platforms by combining our professional sports brands and MSG Entertainment’s live entertainment and media assets. This integrated approach to marketing partnerships — which delivers unrivaled sports, entertainment and media exposure in the New York market — has already attracted world-class partners such as JPMorgan Chase, Anheuser-Busch, BetMGM, Caesars Sportsbook, Delta Air Lines, DraftKings, Infosys, Kia, Benjamin Moore, Lexus, PepsiCo, and Squarespace, among others. In addition, our presence in esports with CLG and Knicks Gaming provides us with the opportunity to introduce both our existing marketing partners and new brands to esports’ global fan base, primarily comprised of millennials and Generation Z — attractive, yet hard-to-reach, demographics for advertisers.
◦Our Arena License Agreements with MSG Entertainment enable MSG Entertainment to offer corporate hospitality solutions that bring together our live sporting events with MSG Entertainment’s live entertainment offerings and provide for the playoffs.sharing of revenues from such offerings. For example, The Garden offers a variety of suite and club products, including 21 Event Level suites, 58 Lexus Level suites, 18 Infosys Level suites, the Caesars Sportsbook Lounge (formerly the Madison Club), Suite Sixteen and the Loft Club. These suites and clubs — which provide exclusive private spaces, first-class amenities and some of the best seats in The Garden — are primarily licensed to corporate customers with the majority being multi-year agreements,
most of which have annual escalators. We believe the unique combination of our live sporting events and MSG Entertainment’s live entertainment offerings, along with the continued importance of corporate hospitality to our guests, positions us well to continue to grow this area of the business.
•Continue to invest in the fan experience. The strong loyalty of our fans has been driven in part by our commitment to the fan experience, which we will continue to build on through our relationship with MSG Entertainment, owner and operator of The Garden. Working with MSG Entertainment, we offer first-class operations, innovative event presentation, premium food and beverage offerings, and unique and exclusive merchandise, as well as venue and team apps designed to create a seamless experience for our fans. Our goal is to deliver the best in-venue experience in the industry — whether our guests are first-time visitors, repeat customers, season ticket holders, suite holders or club members.
Our Business
Our Sports Franchises
New York Knicks
As an original franchise of the NBA, the Knicks have a rich history that includes eight trips to the NBA Finals and two NBA Championships, as well as some of the greatest athletes to ever play the game. Under the leadership of head coach, David Fizdale,The team also has a large and passionate fan base that spans a wide demographic mix. As the Knicks head into the 2019-202022-23 season, fieldingthe team has a young core with 11 players under the age of 25 and exciting team that includes Mitchell Robinson, an NBA All-Rookie Second Team selection; RJ Barrett, the number three overall pick in the 2019 NBA Draft; andhas amassed a substantial number of skilled players who were added todraft picks over the team during the offseason. The Knicks ranked in the top three in the NBA for ticket sales receipts for the 2018-19 regular season.next seven years.
New York Rangers
The Rangers hockey club is one of the NHL’s “Original Six” franchises. Heading into its 92nd96th season, the Rangers are a storied franchise and one of the league’s marquee teams, with four Stanley Cup Championships over its history. Under the leadership of new President, John Davidson, the Rangers are seeking to build the foundation for its next championship-caliber team, which for the 2019-20 season includes the addition of elite forward, Artemi Panarin, as well as Kaapo Kakko, the second overall pick in the 2019 NHL Entry Draft. The Rangers are known to haveand one of the most passionate, loyal and enthusiastic fan bases in all of sports, and rankedbases. For the 2021-22 season, the Rangers won 52 games in the top three in the NHL for ticket sales receiptsregular season, tied for the 2018-19 regular season.second most in franchise history, and earned a trip to the Eastern Conference Finals for the first time since 2015.
Westchester Knicks
The Westchester Knicks,In March 2014, the Company acquired the right to own and operate an NBAGL team, play their home games at the Westchester County Center in White Plains, NY and serveKnicks. The team serves as the exclusive NBAGLNBA G League affiliate of the Knicks. In the 2018-19 season, theThe Westchester Knicks finished withcompete at Total Mortgage Arena in Bridgeport, CT supporting the franchise’s second-most wins in a single season, including the first postseason win in its history.development and injury rehabilitation of Knicks players through varied assignments.
Hartford Wolf Pack
The Hartford Wolf Pack, a minor-league hockey team in the AHL, is the player developmenttop affiliate team for the Rangers and is also competitive in its own right in the AHL.Rangers. The Rangers send draft picks, prospects and other players to the Hartford Wolf Pack for skill developmentto compete, gain valuable ice time and injury rehabilitation, anddevelop. The Rangers can call up players forfrom Hartford to their own roster during the Rangers roster to enhance the team’s competitiveness.regular season when needed.
EsportsCounter Logic Gaming
The Company’s portfolio of live experiences includes a presence in the esports industry through a controlling interest in CLG, a premier North American esports organization, as well as Knicks Gaming, our franchise in the NBA 2K Esports League. Founded in 2010, CLG is one of the most establisheda North American esports organization respected for its championship legacy and successful organizations in the industry, operating sixpassionate fanbase. CLG fields teams across several well-knownleading esports games:titles: “League of Legends,” “Fortnite,” “Counter-Strike: Global Offensive,” and“Apex Legends,” “Super Smash Bros.Bros,” and “Valorant.” CLG has won multiple championships throughout its history — most notably the League of Legends LCS North American Championship in Summer 2015 and Spring 2016, and has represented North America in the League of Legends World Championships four times.
Knicks Gaming
Knicks Gaming, our esports franchise that competes in the NBA 2K League, was one of the inaugural teams when the league debuted in 2018. In August 2018, Knicks Gaming made its debut as part of the league’s inaugural season and went on to winwon the first-ever NBA 2K League championship.Championship title after securing a playoff bid through its Ticket Tournament Championship victory.
Arena License Agreements
Madison Square Garden, the World’s Most Famous Arena (“The Garden”), is the home for the Knicks and the Rangers pursuant to Arena License Agreements with MSG Entertainment. The Arena License Agreements provide revenue opportunities through the sharing of certain suites and clubs, sponsorship and signage, food and beverage, merchandise and sales arrangements with MSG Entertainment. The Arena License Agreements have a term of 35 years. See Note 8 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information.
Our Professional Sports Teams Performance Centers
The Company owns the state-of-the-art Madison Square Garden Training Center in Greenburgh, NY. The approximately 114,000 square-foot facility features two basketball courts and one NHL regulation-sized hockey rink, and is equipped with well-appointed private areas and office space and exercise and training rooms with dedicated equipment for each team as well as the latest technology and other first-class amenities.
In addition, the Company operates the CLG Performance Center in Los Angeles, CA, which includes unique competition spaces tailored to the Company’s esports game franchises, as well as a studio and editing bay for video productions and outdoor areas that can be used to hold fan events.
Impact of COVID-19
During fiscal years 2020 and 2021, COVID-19 disruptions materially impacted the Company’s revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of areas. In fiscal year 2022, the Company’s operations and operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year.
Fiscal Years 2020 and 2021
In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. As a result of the suspension of the 2019-20 NBA and NHL seasons and subsequent resumption of play in July and August 2020, respectively, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.
In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed. The Knicks and the Rangers did not start their seasons until December 16, 2020 and January 14, 2021, respectively, initially with no fans and then with fan attendance limited to 10% capacity starting on February 23 and February 26, respectively, due to government-mandated assembly restrictions.
Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests. As a result, the Knicks played three home playoff games with ticket sales of approximately 15,000-16,500 per game during the fiscal year ended June 30, 2021. During the 2020-2021 season, the Knicks and the Rangers each played fewer games than their traditional 82-game regular season schedules, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule.
These disruptions materially impacted the Company’s revenues across a number of areas, including, ticket sales; the Company’s share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; local media rights fees; and food, beverage and merchandise sales.
In connection with the MSGE Distribution, we entered into the Arena License Agreements with MSG Entertainment. At the time of the MSGE Distribution, the Garden was not available for use due to the government-mandated suspension of events in response to COVID-19, and was only available at reduced capacity beginning in December 2020 through May 2021. As a result, the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, and the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts.
During fiscal year 2021, as a result of COVID-19, the Company implemented cost-reduction measures that included workforce reductions and limits on discretionary spending. In addition, as a result of the disruptions caused by COVID-19, certain operating expenses were reduced, including (i) payments to MSG Entertainment under the Arena License Agreements described above, (ii) NBA league assessments and day-of-game expenses for Knicks and Rangers games, and (iii) league revenue sharing, net of escrow and team personnel expense. These expense reductions did not fully offset revenue losses.
Fiscal Year 2022
Starting August 17, 2021, indoor entertainment venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including vaccination and/or mask requirements for guests. In March 2022, New York City lifted all COVID-19 vaccination requirements pertaining to guests and professional athletes at indoor entertainment venues such as The Garden. There are no capacity restrictions or vaccination requirements applicable to fan attendance at games at The Garden as of the date of this filing.
The Knicks and the Rangers each completed their full 82-game regular season schedules for the 2021-22 season in April 2022 and the Rangers competed in the playoffs in May and June 2022, playing ten home playoff games in total. Fan attendance during fiscal year 2022 was impacted by the COVID-19 pandemic, including the emergence of certain variants and ongoing reduced tourism levels.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact attendance of games at The Garden.
See “Item 1A. Risk Factors — Sports Business Risks— Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response” and “Item 7. Management’s Discussion and Analysis — Introduction — Factors Affecting Operating Results— Impact of COVID-19 on Our Business.”
The Role of the Leagues in Our Operations
As franchises in professional sports leagues, our teams are members of their respective leagues and, as such, are subject to certain rules, regulations and limitations under certain circumstances, on the control and management of their affairs. The respective league constitutions of our sports teams, under which each league is operated, together with the collective bargaining agreements (each a “CBA”) that each leagueof the NBA and NHL has signed with its players’ association, contain numerous provisions that, as a practical matter, in certain circumstances, could impact the manner in which we operate our businesses.business. In addition, under the respective league constitutions of our sports teams, the commissioner of each league, either acting alone or with the consent of a majority (or, in some cases, a supermajority) of the other sports teams in the league, may be empowered in certain circumstances to take certain actions feltbelieved to be in the best interests of the league, whether or not such actions would benefit our sports teams and whether or not we consent or object to those actions.
While the precise rights and obligations of member teams vary from league to league, the leagues have varying degrees of control exercisable under certain circumstances over the length and format of the playing season, including, for example, preseason and playoff schedules; the number of games in a playing season; the operating territories of the member teams; local, national and international media and other licensing rights; admission of new members and changes in ownership; franchise relocations; indebtedness affecting the franchises;franchises and their affiliates; and labor relations with the players’ associations, including collective bargaining, free agency, and rules applicable to player transactions, luxury taxes and revenue sharing. See “Part II — Item 7. 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Overview — MSG Sports — Expenses.Expenses.” Additionally, CLG operates multiple teams that participate in several different esports leagues. The rights and obligations of each CLG team (and member teams generally) vary from league to league. The leagues are generally empowered to and have implemented rules with respect to our league participation, as well as operation, and monetization of the CLG teams and brand. From time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert, although the leagues’ governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself.
Other Sporting Events
The Company’s MSG Sports segment also includes a broad arrayMedia Rights
We generally license the local media rights for our sports teams’ home and away games. Subsidiaries of live sporting events that the Company promotes, produces and/or presents, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports,have entered into media rights agreements with MSG Networks covering the local telecast and college wrestling. Many of these events are amongradio rights for the most popular in our history and are perennial highlights on our annual calendar, as well as some of The Garden’s longest-running associations.
Professional boxing, beginning with John L. Sullivan in 1882, has had a long history with The Garden. The Arena famously hosted Muhammad Ali and Joe Frazier’s 1971 “Fight of the Century,” considered among the greatest sporting events in modern history, as well as numerous bouts featuring dozens of other boxing greats. These have included: Joe Louis, Rocky Marciano, Sugar Ray Robinson, Willie Pep, Emile Griffith, George Foreman, Roberto Duran, Oscar De La Hoya, Sugar Ray Leonard, Lennox Lewis, Roy Jones, Jr., Mike Tyson, Evander Holyfield, Miguel Cotto, and Wladimir Klitschko. In June 2019, The Garden hosted the World Heavyweight Championship, in a bout that saw champion Anthony Joshua, in his U.S. debut, fall in a stunning loss to Andy Ruiz Jr. in front of a sold-out crowd. Additionally, this past year the Company hosted top fighters Vasiliy Lomachenko, Daniel Jacobs, Demetrius Andrade, Gennady Golovkin, and Terence Crawford, as well as the New York debut of international boxing superstar Canelo Alvarez.
In recent years, the Company has also expanded its presence in the popular sport of mixed martial arts. In June 2016, the Forum hosted its first-ever Ultimate Fighting Championship (“UFC”) event with UFC 199. Since the return of professional mixed martial arts in New York State in 2016, The Garden has annually hosted UFC events, including the historic UFC 205 in November 2016 during which Conor McGregor knocked out Eddie Alvarez to become the first simultaneous two-weight champion in UFC history. Bellator MMA has also hosted internationally-broadcasted events at both The GardenKnicks and the Forum, including most recently Bellator 222 at The Garden in June 2019, which featured Rory MacDonald vs. Neiman Gracie inRangers. Each agreement has a welterweight title fight. The Professional Fighters League has also held events at Hulu Theater at Madison Square Garden, including its inaugural World Championships on New Year’s Eve this past year, which featured six world title fights.remaining term of approximately 13 years.
College sports have been a mainstay at The Garden for decades, with college basketball celebrating 85 years at The World’s Most Famous Arena during the 2018-19 season. In addition to St. John’s University calling The Garden its “home away from home,” this past year the highly-anticipated Big East Tournament celebrated its 37th consecutive year at The Garden. Other college basketball highlights this past year included visits from Duke University’s Blue Devils, where phenoms Zion Williamson and RJ Barrett entertained The Garden crowd in a showcase against Texas Tech, as well as the annual Jimmy V Classic and the 2K Empire Classic.
In 2007, The Garden sold out its first college hockey game — Red Hot Hockey featuring Cornell University versus Boston University — which has become a popular biennial event that Cornell won for the first time in 2017. College hockey has continued to grow at The Garden and become a fan-favorite over the last decade, attracting top national teams such as Boston College, North Dakota, Harvard, Michigan, and Minnesota.
Other recent world-class sporting events have included the NBA All-Star Game, which The Garden last hosted in 2015, marking the fifth time the arena has hosted the illustrious professional basketball event, and the NCAA Division I Men’s Basketball East Regional Finals, which The Garden hosted in 2014 and 2017, and will again in 2020.
These live sporting events are not contemplated to be included as part of the potential Sports Distribution.
MSG Entertainment
Our Company delivers unforgettable entertainment experiences — including live events and spectacular productions — all in extraordinary settings that span some of the country’s largest entertainment markets. This creates a significant demand for an association with our brands — by artists, premier companies and the public. And with a foundation of iconic venues, our Company has a proven ability to leverage the strength of our industry relationships, marketing assets, customer database and live event expertise to create performance, promotion and distribution opportunities for artists, events and productions, and to increase utilization of our venues.
Specifically, our MSG Entertainment segment produces, presents and hosts concerts, family shows, performing arts events, special events and wholly-owned productions at our venues, which are: The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum and The Chicago Theatre. With seating capacities and configurations that range from 2,800 to 21,000, our collection of diverse venues enables us to showcase acts and events that cover a wide spectrum of genres and popular appeal.
Our MSG Entertainment segment also includes the beloved holiday show, the Christmas Spectacular — created for Radio City Music Hall and featuring the world-famous Rockettes.
Over the past several years, the Company has also been executing on its plans to build a robust, diversified portfolio of live experiences. In July 2016, the Company acquired a controlling interest in BCE, the entertainment production company that owns and operates the Boston Calling Music Festival. This was followed in January 2017 by the Company’s purchase of a controlling interest in TAO Group, a hospitality group with globally-recognized entertainment dining and nightlife brands.
Our Live Entertainment Bookings
Our Company is an established industry leader that books a wide variety of live entertainment events in our venues, which perennially include some of the biggest names in music and entertainment. Over the last several years, our venues have been a key destination for artists such as the Eagles, U2, Pearl Jam, Foo Fighters, Paul McCartney, Drake, Bruno Mars, Justin Bieber, Dead and Company, Madonna, Mumford & Sons, Phish, Fleetwood Mac, Adele, Eric Clapton, Bruce Springsteen, Rihanna, Justin Timberlake, P!nk, Kanye West, Stevie Wonder, Ariana Grande and Dave Chappelle.
Our efforts to find new ways to increase the utilization of our venues and create unique experiences for artists and fans has led to the creation of various residencies — including The Garden’s first music franchise: Billy Joel at The Garden. As part of this extraordinary residency, Billy Joel has appeared monthly at MSG since January 2014, for a total of 66 shows, bringing his overall performances at The World’s Most Famous Arena to 112 overall (through July 2019). In 2016, the Company launched its second residency, as legendary New Yorker and comedian Jerry Seinfeld began a successful two-year run at the Beacon Theatre, with all 36 performances — which concluded in December 2017 — selling out. In 2019 Seinfeld resumed his successful residency, which now includes 56 total performances (through July 2019). This past year, the Company also announced a new multi-year, dual-city residency with Tedeschi Trucks Band at both the Beacon Theatre and The Chicago Theatre — the first residency to span two cities.
Our venues also attract family shows and theatrical productions, which this past year included: PAW Patrol Live!, Sesame Street Live!, Dr. Seuss’ How the Grinch Stole Christmas!, The Lightning Thief: The Percy Jackson Musical, and Pride & Joy: The Marvin Gaye Musical. In addition, we frequently serve as the backdrop for high-profile special events such as the 60th Annual Grammy Awards, which returned to The Garden for the first time in 15 years in 2018. Other significant events that have been hosted in our venues include the Tony Awards, “America’s Got Talent,” the final season premiere of HBO’s “Game of Thrones” and the MTV Video Music Awards; appearances by luminaries such as His Holiness Pope Francis, His Holiness the Dalai Lama and the Prime Minister of India, Narendra Modi; graduations, television upfronts, product launches and film premieres.
Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows where we have economic risk relating to the event. MSG Entertainment currently does not promote or co-promote events outside of our venues.
Our Productions
One of the Company’s core properties, the Christmas Spectacular — created for Radio City Music Hall and featuring the world-famous Rockettes — has been performed at Radio City Music Hall for 86 years. The Rockettes, along with show-stopping performances, festive holiday scenes and state-of-the-art special effects, have played an important role in the critically-acclaimed show’s enduring popularity. This past year the show featured several new technology enhancements, including an all-new groundbreaking finale scene, “Christmas Lights.” Additionally, large-scale digital projections were incorporated to enhance both the finale and classic numbers throughout the show, creating an immersive environment that extended beyond the stage onto all eight of Radio City’s proscenium arches. During the 2018 holiday season, the Christmas Spectacular once again sold more than one million tickets.
We acquired the rights to theChristmas Spectacular in 1997, and those rights are separate from, and do not depend on the continuation of, our lease of Radio City Music Hall. We also hold rights to the Rockettes brand in the same manner.Community
The Company believes it has a significant and unique asset inis committed to leveraging the Rockettes and continuespower of its brands to strengthen and broadenbenefit communities across the Rockettes brand by targeting the most prominent and effective vehicles that elevate their visibility and underscore their reputation as beloved American cultural icons.tri-state area. The Rockettes have appeared or performed at high-profile events, including Presidential Inaugurations, the Macy’s Thanksgiving Day Parade, Macy’s 4th of July Fireworks event, the New Year’s Eve Times Square Ball Drop, the Tony Awards, and television shows (“America’s Got Talent,” “Project Runway,” “The Today Show,” “Live with Kelly and Ryan,” and “The Tonight Show with Jimmy Fallon”), among many others. We continue to pursue opportunities to generate greater brand awareness, including television and public appearances and dance education offerings.
Our Entertainment Dining and Nightlife Offerings
The Company owns a controlling interest in TAO Group, which strengthens the Company’s portfolio of live offerings with a complementary, hospitality group with widely-recognized brands that include: TAO, Marquee, Lavo, Avenue, Beauty & Essex, and Vandal. Since 2000, TAO Group has been creating some of the most innovative premium experiences in the entertainment dining and hospitality industry. Today, TAO Group operates 29 venues – 12 venues in New York City, six venues in Las Vegas, five venues in Los Angeles, one venue in Chicago, four venues in Singapore and one venue in Sydney, Australia — and is actively developing opportunities to expand on their success with new venues. Over the past year, TAO Group opened TAO Chicago, along with new entertainment dining and nightlife venues as part of Moxy Chelsea hotel in New York City. TAO Group also debuted three new venues in Singapore — Marquee, Avenue, and KOMA.
Essentially all of the venues have either long-term leases or long-term management agreements with options to renew for multiple years.
Our Festival Offering
The Company owns a controlling interest in BCE, the entertainment production company known for successfully creating and operating New England’s premier music festival — Boston Calling, which this year celebrated its 10th edition. The 2019 three-day festival took place over Memorial Day weekend at the Harvard Athletic Complex, and featured more than 50 performances from a diverse array of musicians, bands, and comedians, including headliners Twenty One Pilots, Tame Impala and Travis Scott.
Our Performance Venues
The Company operates a mix of iconic performance venues that continue to build on their historic prominence as destinations for unforgettable experiences and events. Individually, these venues are each premier showplaces, with a passionate and loyal following of fans, performers and events. Taken together, we believe they represent an outstanding collection of venues.
We own or operate under long-term leases a total of six venues in New York City, Chicago and Inglewood, CA. Our New York City venues are the Madison Square Garden Complex (which includes both The Garden and Hulu Theater at Madison Square Garden), Radio City Music HallKnicks and the Beacon Theatre. Our portfolio of venues also includes the ForumRangers both run grassroots programs - Junior Knicks and Junior Rangers - focused on eliminating barriers and creating more inclusive opportunities for all kids to enjoy basketball and hockey. To date, over 260,000 tri-state area youth have participated in Inglewood, CAJunior Knicks and The Chicago Theatre.Junior Rangers this fiscal year. The Company is also currently building a new venue in Las Vegas, MSG Sphere at The Venetian, and has announced plans to build an MSG Sphere venue in London, once we have received all necessary approvals and have further advanced our design for the venue.
The Garden
The Garden has been a celebrated center of New York life since it first opened its doors in 1879. Over its 140-year history, there have been four Garden buildings, each known for showcasing the best of the era’s live sports and entertainment offerings. We believe that The Garden has come to epitomize the power and passion of live sports and entertainment to people around the world, with an appearance at The Garden often representing a pinnacle of an athlete’s or performer’s career. Known as “The World’s Most Famous Arena,” The Garden has been the site of some of the most memorable events in sports and entertainment, and, together with Hulu Theater at Madison Square Garden, has hosted hundreds of events and millions of visitors this past year. In 2009, Billboard Magazine ranked The Garden the number one venue of the decade in its respective class based upon gross ticket sales. Music industry subscribers of the trade magazine Pollstar have voted The Garden “Arena of the Year” 22 times since the inception of the awards in 1989. The Garden is the highest-grossing entertainment venue of its size in the world based on Billboard Magazine’s 2019 mid-year rankings.
The Garden is home to the Knicks and Rangers and is associated with countless “big events,” inspired performances and one-of-a-kind moments. Highlights include: “The Fight of the Century” between Muhammad Ali and Joe Frazier in 1971; the 1970 Knicks’ NBA Championship; the Rangers’ 1994 Stanley Cup Championship; three Democratic National Conventions and one Republican National Convention; Marilyn Monroe’s famous birthday serenade to President John F. Kennedy; Frank Sinatra’s “Main Event” concert in 1974; the only U.S. concerts from the reunited Cream; the 25th Anniversary Rock and Roll Hall of Fame concerts; the 60th Annual Grammy Awards; and Billy Joel’s record-breaking 112 total performances at The Garden (through July 2019). In September 2015, His Holiness Pope Francis celebrated Mass at The Garden as part of his successful U.S. visit, which marked the first time a current pope has visited The Garden since Pope John Paul II in 1979. The Garden has also hosted four prominent benefit concerts, which galvanized the public to respond to national and global crises, including the first of its kind, “The Concert for Bangladesh” in 1972, as well as “The Concert for New York City,” following the events of 9/11; “From the Big Apple to the Big Easy,” held after Hurricane Katrina in 2005; and “12-12-12, The Concert for Sandy Relief” in 2012.
The current Madison Square Garden Complex, located between 31st and 33rd Streets and Seventh and Eighth Avenues on Manhattan’s West Side, opened on February 11, 1968 with a salute to the United Service Organizations hosted by Bob Hope and Bing Crosby. From a structural standpoint, the construction of the current Garden was considered an engineering wonder for its time, including its famous circular shape and unique, cable-supported ceiling, which contributes to its intimate feel. It was the first large structure built over an active railroad track. The builder, R.E. McKee, had a national reputation and was later recognized as a “Master Builder” by the construction industry. Architect Charles Luckman had one of the largest firms in the country and designed such buildings as the Prudential Tower in Boston, NASA’s flight center in Houston and the Forum in Inglewood, CA.
Following a three-year, top-to-bottom transformation, in October 2013, the Company debuted a fully-transformed Garden, featuring improved sightlines; additional entertainment and dining options; new concourses; upgraded hospitality areas; new technology; unique historic exhibits; and a completely transformed interior, where the intimacy of the arena bowl and The Garden’s world-famous ceiling were maintained. Focused on the total fan experience, the transformation was designed to benefit everyone in attendance, whether first time visitors, season ticket subscribers, athletes, artists, suite holders or marketing partners. The Garden’s transformation ensured that attending an event at “The World’s Most Famous Arena” remained unlike anywhere else.
We own the Madison Square Garden Complex, the platform on which it is built and development rights (including air rights) above our property. Madison Square Garden sits atop Pennsylvania Station (“Penn Station”), a major commuter hub in Manhattan, which is owned by the National Railroad Passenger Corporation (Amtrak). While the development rights we own would permit us to expand in the future, any such use of development rights would require various approvals from the City of New York. The Garden seats up to approximately 21,000 spectators for sporting and entertainment events and, along with Hulu Theater at Madison Square Garden, contains approximately 1,100,000 square feet of floor space over 11 levels.
Hulu Theater at Madison Square Garden
Hulu Theater at Madison Square Garden, which has approximately 5,600 seats, opened as part of the fourth Madison Square Garden Complex in 1968 with seven nights of performances by Judy Garland. Since then, some of the biggest names in live entertainment have played Hulu Theater at Madison Square Garden, including The Who, Bob Dylan, Diana Ross, Elton John, James Taylor, Mary J Blige, Pentatonix, John Legend, Ellie Goulding, Chris Rock, Neil Young, Bill Maher, Radiohead, Jerry Seinfeld and Van Morrison. Hulu Theater at Madison Square Garden has also hosted boxing events and the NBA Draft; award shows such as The Daytime Emmys; and other special events including “Wheel of Fortune” and audition shows for “America’s Got Talent,” as well as a variety of theatrical productions and family shows, includingA Christmas Story, Elf The Musical, Paw Patrol Live!, and Sesame Street Live!. In March 2018, the Company and Hulu, a leading premium streaming service, announced a multi-faceted marketing partnership that included exclusive naming rights, after which the venue was rebranded as Hulu Theater at Madison Square Garden. Hulu Theater at Madison Square Garden is the seventh highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2019 mid-year rankings.
Radio City Music Hall
Radio City Music Hall has a rich history as a national theatrical and cultural mecca since it was first built by theatrical impresario S.L. “Roxy” Rothafel in 1932. Known as “The Showplace of the Nation,” it was the first building in the Rockefeller Center complex and, at the time, the largest indoor theater in the world. Radio City Music Hall, a venue with approximately 6,000 seats, hosts concerts, family shows and special events, and is home to the Christmas Spectacular. See “— MSG Entertainment — Our Productions.” Over its history, entertainers who have graced the Great Stage include: Yes, Aretha Franklin, Lady Gaga, Brian Wilson, Harry Styles, Bastille, John Mulaney, Mariah Carey, Nine Inch Nails, Christina Aguilera, Britney Spears, Tony Bennett, Billie Eilish, Sebastian Maniscalco and Dave Chappelle. In 2009, Billboard Magazine ranked Radio City Music Hall the number one venue of the decade in its respective class based upon gross ticket sales. Radio City Music Hall is the highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2019 mid-year rankings.
In 1978, Radio City Music Hall was designated a New York City landmark by the NYC Landmarks Preservation Commission and a national landmark on the National Register of Historic Places. We acquired the lease in 1997, and in 1999, we invested in a complete restoration that returned the legendary theater to its original grandeur. Our acclaimed restoration touched all aspects of the venue and included burnishing the ceilings of Radio City Music Hall with 720,000 sheets of gold and aluminum leaf, replacing the existing stage curtain with a new 112-foot wide golden silk curtain, and cleaning the three-story tall mural “The Fountain of Youth,” by Ezra Winter, which looms above the grand staircase. State-of-the-art sound systems, lighting and HDTV capabilities were also installed.
We lease Radio City Music Hall, located at Sixth Avenue and 50th Street in Manhattan, pursuant to a long-term lease agreement. The lease on Radio City Music Hall expires in 2023. We have the option to renew the lease for an additional 10 years by providing two years’ notice prior to the initial expiration date.
Beacon Theatre
In November 2006, we entered into a long-term lease agreement to operate the legendary Beacon Theatre, a venue with approximately 2,800 seats, which sits on the corner of Broadway and 74th Street in Manhattan. The Beacon Theatre was conceived of by S. L. “Roxy” Rothafel and is considered the “older sister” to Radio City Music Hall. Designed by Chicago architect Walter Ahlschlager, the Beacon Theatre opened in 1929 as a forum for vaudeville acts, musical productions, drama, opera, and movies. The Beacon Theatre was designated a New York City landmark by the NYC Landmarks Preservation Commission in 1979 and a national landmark on the National Register of Historic Places in 1982. Over its history, the Beacon Theatre has been a venerable rock and roll room for some of the greatest names in music including Steely Dan, Coldplay, Alice Cooper, Dave Matthews Band, Crosby Stills & Nash, Elton John, John Fogerty, Hozier, Tom Petty and the Heartbreakers, Tedeschi Trucks Band, Eddie Vedder and Bob Dylan, as well as The Allman Brothers Band, which played their 238th show at the Beacon Theatre in October 2014, marking their final concert as a band. The venue has also hosted special events such as film premieres for the Tribeca Film Festival and comedy events, including our Jerry Seinfeld residency, along with numerous luminaries such as His Holiness the Dalai Lama in 2009 and 2013, and President Bill Clinton in 2006 when the Rolling Stones played a private concert in honor of his 60th birthday.
In August of 2008 we closed the Beacon Theatre for a seven-month restoration project to return the theater to its original 1929 grandeur. The restoration of the Beacon Theatre focused on all historic, interior public spaces of the building, backstage and back-of-house areas, and was based on extensive historic research, as well as detailed, onsite examination of original, decorative painting techniques that had been covered by decades-old layers of paint. The Beacon Theatre has won several architectural awards recognizing its outstanding restoration. The widely acclaimed, comprehensive restoration was similar to our restoration of Radio City Music Hall, and reflects our commitment to New York City. The Beacon Theatre is the sixth highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2019 mid-year rankings.
Our lease on the Beacon Theatre expires in 2026.
The Forum
In June 2012, we added a West Coast home with the purchase of the Forum in Inglewood, CA, which serves the Greater Los Angeles area. Following an extensive reinvention of the historic venue, on January 15, 2014, the Forum re-opened with the first of six concerts by the legendary Eagles and is once again a thriving destination for both artists and music fans. With both the Forum and The Garden, the Company has an iconic arena in each of the country’s two largest entertainment markets.
The Forum is the only arena-sized venue in the country dedicated to musicaffecting positive change through social impact and entertainment,cause-related initiatives including food donations, providing free educational resources to local schools and offers something exceptional for everyone. Architecturally,supporting non-profits and fundraising efforts across the interior of the bowl has been completely modernized and features superior acoustics, along with flexible seating that ranges from 7,000 seats to 17,600 seats. Fans seated on the floor have access to one of the largest general admission floors in the country, with approximately 8,000 square feet of event level hospitality offerings. The Forum also offers exclusive spaces for VIP customers, including the historic Forum Club, and, for artists, delivers a first-class experience that includes nine, star-caliber dressing rooms with high-end amenities. Among the key features that were resurrected in an effort to replicate the original design is the exterior color of the venue, which was returned to the 1960’s “California sunset red,” and is now known as “Forum Red.” Other outdoor features include the addition of a distinct and iconic Forum marquee and a 40,000-square foot terrace that surrounds the perimeter of the building.
The original Forum was designed by renowned architect, Charles Luckman, who also designed The Garden that opened in 1968. The historic West Coast venue, which opened in 1967, has played host to some of the greatest musical performers of all time, including The Rolling Stones, The Jackson 5, Bob Dylan, Led Zeppelin, Madonna, Van Halen, Coldplay, Prince and many others. In addition, the Forum was home to the Los Angeles Lakers and Los Angeles Kings until 1999.
Since re-opening in 2014, the Forum has received several architectural awards recognizing its outstanding restoration. The venue’s impressive lineup of entertainers since the restoration has included: the Eagles, Justin Timberlake, U2, Drake, Kanye West, Eric Clapton, Guns N’ Roses, Stevie Wonder, Aerosmith, Steely Dan, Fleetwood Mac, Jennifer Lopez, KISS, Mumford & Sons, Foo Fighters, The Weeknd, P!nk and Rihanna as well as His Holiness the Dalai Lama. The Forum has also hosted a number of special events such as the MTV Video Music Awards and Nickelodeon’s Kids’ Choice Awards, as well as select sporting events, including Championship Boxing and mixed martial arts. The Forum is the third highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2019 mid-year rankings.
The Chicago Theatre
In October 2007, to provide us with an anchor for content and distribution in a key market in the Midwest, we purchased the legendary Chicago Theatre, a venue with approximately 3,600 seats. The Chicago Theatre, which features its famous six-story-high “C-H-I-C-A-G-O” marquee, was built in 1921 and designed in the French Baroque style by architects Cornelius W. Rapp and George L. Rapp. It is the oldest surviving example of this architectural style in Chicago today, and was designated a Chicago landmark building in 1983 by the Mayor of Chicago and the Chicago City Council.
The Chicago Theatre has become a highly attractive destination for concerts, comedy shows and other live events, hosting a wide range of entertainers, including Bob Dylan, Mumford & Sons, David Byrne, Neil Young, Janelle Monae, Jerry Seinfeld, Janet Jackson, Bob Weir, Jim Gaffigan, Conan O’Brien, Amy Schumer and Steely Dan. The venue has also hosted theatrical tours such as A Christmas Story, The Wizard of Oz, Paw Patrol Live! and Dr. Seuss’ How The Grinch Stole Christmas!The Musical. The Chicago Theatre is the fifth highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2019 mid-year rankings.
MSG Sphere
The Company is progressing with its plans to create the “venue of the future” with MSG Sphere, which will utilize cutting-edge technologies to create the next-generation of immersive experiences. Key design features of MSG Sphere are expected to include:
a fully-programmable LED exterior and an interior bowl that features the world’s largest and highest resolution LED screen known today — more than 160,000 square feet of display surface;
an advanced acoustics system featuring beamforming technology that will deliver crystal clear audio;
a custom video system capable of capturing, curating and distributing both today’s and tomorrow’s content;
an infrasound haptic system that will use deep vibrations so guests can “feel” the experience; and
an advanced architecture for connectivity that will enable a broader range of content, greater interaction among guests and more immersive entertainment experiences.
These technologies will come together to create a powerful platform, which we believe will make MSG Sphere the venue of choice for a wide variety of content — including attractions, concerts, residencies, corporate events, award shows, product launches and select sporting events.
The Company will build its first MSG Sphere in Las Vegas on land leased from Las Vegas Sands Corp. (“Sands”), which is adjacent to The Venetian Resort. The Company broke ground on the approximately 17,500-seat venue in September 2018 with the start of site preparations, and construction is currently ongoing. Our goal is to open MSG Sphere in Las Vegas in calendar year 2021. Sands will provide us with $75 million to help fund the construction costs, including the cost of a pedestrian bridge that links MSG Sphere in Las Vegas to the Sands Expo Convention Center. Sands will receive priority access to purchase tickets to events at the venue for inclusion in hotel packages or other uses, as well as certain rent-free use of the venue to support its Expo Center business. The ground lease has no fixed rent; however, if certain return objectives are achieved, Sands will receive 25% of the after-tax cash flow in excess of such objectives. The lease is for a term of 50 years.
In February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to the Company’s second MSG Sphere and first large-scale international venue. The Company submitted a planning application to the local planning authority in March 2019 and expects a planning determination by the end of calendar year 2019 (which may become the subject of further discussions with the planning authority). Our plan is to begin construction on the MSG Sphere venue in London only once we have received all necessary approvals and have further advanced our design for the venue. We currently expect that MSG Sphere in London will be substantially similar to MSG Sphere in Las Vegas, including having approximately the same seating capacity.
We continue to explore additional domestic and international markets where next-generation venues can be successful. The design of MSG Sphere will be flexible to accommodate a wide range of sizes and capacities — from large-scale to smaller and more intimate — based on the needs of any individual market. As we explore selectively extending the MSG Sphere network, we will be open to multiple types of transaction structures, including owned, operated, and joint ventures.
See “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MSG Spheres.”
Our Interactive Initiatives
The Company has a digital presence that includes web sites, social networking sites and mobile applications for our sports and entertainment properties. In 2017, the Company consolidated a collection of individual web sites dedicated to our venues into a new platform, MSG.com, designed to deliver greater value to our customers by providing one place where they can explore upcoming events in all our venues, learn more about our brands, and purchase tickets. Web sites dedicated to our teams (nhl.com/rangers, nba.com/knicks, westchester.gleague.nba.com, hartfordwolfpack.com, clg.gg, knicksgaming.nba.com) remain separate from MSG.com, as do the web sites for TAO Group (taogroup.com) and Boston Calling (bostoncalling.com). Like our MSG Sports business, the online operations relating to our teams may, in certain circumstances, be subject to certain agreements, rules, policies, regulations and directives of the leagues in which the respective team operates. See “— Our Business — Regulation.” In addition to driving ticket sales to our events, this interactive business generates revenue for the Company’s segments via the sale of advertising and sponsorships on these digital properties. Additionally, it offers strategic marketing assets that create opportunities to market directly to our fans and cross-promote our businesses.
Other Investments
We continue to explore additional opportunities that strengthen our existing position within the sports and entertainment landscape and/or allow us to exploit our assets and core competencies for growth.
In July 2018, the Company acquired a 30% interest in SACO, a global provider of high-performance LED video lighting and media solutions for a total consideration of approximately $47.2 million. The Company is utilizing SACO as a preferred display technology provider for MSG Spheres and is benefiting from agreed upon commercial terms.
In addition, the Company also has other investments in various sports and entertainment companies and related technologies, accounted for either under the equity method or at fair value.
Garden of Dreams Foundationregion.
Our Company also has a close association with The Garden of Dreams Foundation (the “Foundation”), a 501(c)(3) non-profit charityorganization that is dedicatedassists young people in need. In partnership with the Company and MSG Entertainment, the Foundation
provides young people in our communities with access to making dreams come true for children facing obstacles.educational and skills opportunities; mentoring programs and memorable experiences that enhance their lives, help shape their futures and create lasting joy. The Foundation works with 30 partner organizations throughout the tristate area, including hospitals, wish organizations and community-based organizations, to reachfocuses on young people facing illness or financial challenges, as well as children of uniformed personnel who are facing challenges such as homelessness, extreme poverty, illness and foster care.have been lost or injured while serving our communities. Since it beganwas established in 2006, Garden of Dreamsthe Foundation has used the magic of The Madison Square Garden Company — including the Rangers, Knicks, Rockettes and famed showplaces — to brighten the lives ofimpacted more than 375,000400,000 children and their families. The Foundation takes pride in its commitment to truly change lives, hosting more than 500 events and programs each year. They include: events with the Knicks and Rangers; special celebrations and event attendance at The Garden, Radio City Music Hall and the Beacon Theatre; visits by Madison Square Garden celebrities; The Garden of Dreams Talent Show, where children perform on the Great Stage at Radio City Music Hall; The Garden of Dreams Prom, which brings together teens who may not otherwise have the opportunity to attend their own proms; toy drives; and the “Make A Dream Come True Program,” where children enjoy unforgettable experiences with celebrities and at events. In addition, through its Garden of Dreams Giving program, the Foundation helps its partner organizations meet the critical needs of the children they serve through direct support of scholarships and tangible, targeted community projects. To date, the Foundation has awarded scholarships to 77 children. Garden of Dreams has also served its partners by refurbishing pediatric wards at area hospitals, activity rooms and gymnasiums at community facilities and by creating brand new spaces such as music and dance studios — with plans for many more vital civic enhancements in the years to come.
Regulation
Our sports and entertainment businesses are subject to legislation governing the sale and resale of tickets and consumer protection statutes generally.
In addition, our venues,The Garden, like all public spaces, areis subject to building and health codes and fire regulations imposed by the state and local governments in the jurisdictions in which they are located. Our venues are alsogovernments. The Garden is subject to zoning and outdoor advertising regulations and with respect to Radio City Music Hall and the Beacon Theatre, landmark regulations which restrict us from making certain modifications to our facilities as of right or from operating certain types of businesses. Our venues also requirerequires a number of licenses in order for us to operate, including occupancy permits, exhibitionexhibit licenses, food and beverage permits, liquor licenses and other authorizations and with respect to The Garden, a zoning special permit granted by the New York City Planning Commission. In the jurisdictions in which our venues are located, we are subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor patron is a violation of the lawSee “Item 1A. Risk Factors — Economic and may provide for strict liability for certain damages arising out of such violations. In addition, our venues are subject to the federal Americans with Disabilities Act (and related state and local statutes), which requires us to maintain certain accessibility features at each of our facilities. We and our venues are also subject to environmental laws and regulations. See “Item 1A.Business Relationship Risks Risk Factors — General Risks— We Are Subject to Extensive Governmental RegulationDo Not Own The Garden and Our Failure to ComplyRenew the Arena License Agreements or MSG Entertainment’s Failure to Operate The Garden in Compliance with Thesethe Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of Operations.Operations.”
The professional sports leagues in which we operate, primarily the NBA and NHL, have the right under certain circumstances to regulate important aspects of our sports business, andincluding, without limitation, our team-related online and mobile businesses. See “— Our Business“Item 1A. Risk Factors — MSG Sports Business Risks — The RoleActions of the NBA, NHL and Esports Leagues inMay Have a Material Negative Effect on Our OperationsBusiness and Results of Operations..”
Our sports and entertainment businesses arebusiness is also subject to certain regulations applicable to our Internet web siteswebsites and mobile applications.applications, including data privacy laws in various jurisdictions. These include, but are not limited to, the California Consumer Privacy Act (the “CCPA”) and the recently passed California Privacy Rights Act (the “CPRA”). These laws obligate us to comply with certain consumer and employee rights concerning data we may collect about these individuals. We maintain various web siteswebsites and mobile applications that provide information and content regarding our businesses,business, offer merchandise and tickets for sale, make available sweepstakes and/or contests and offer hospitality services. The operation of these web siteswebsites and applications may be subject to a range of other federal, state and local laws such as privacy and protection of personal information, accessibility for persons with disabilities and consumer protection regulations. In addition, to the extent any of our web siteswebsites seek to collect information from children under 13 years of age or are intended primarily for children under 13 years of age, we must comply with certain limitsthey may be subject to the Children’s Online Privacy Protection Act which places restrictions on commercial matter.
personally identifiable information from children under 13 years of age without prior parental consent. Our businesses arebusiness is also subject to regulation regardinga variety of laws and regulations, including working conditions, labor, immigration and minimum wageemployment laws and health, safety and sanitation requirements. See “Item“Item 1A.Risk Factors “— Operational Risks — Risks RelatingWe Are Subject to Governmental Regulation, Which Can Change, and Any Failure to Comply With These Regulations May Have a Material Negative Effect on Our Entertainment Business — Increases in Labor Costs Could Slow the Growth and Results of or Harm TAO GroupOperations.”
Our international operations are subject to laws and regulations of the countries in which they operate, as well as international bodies, such as the European Union. We are subject to laws and regulations relating to, among other things, foreign privacy and data protection, such as the E.U. General Data Protection Regulation, currency and repatriation of funds, anti-bribery, anti-money laundering and anti-corruption, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act. These laws and regulations apply to the activities of the Company and, in some cases, to individual directors, officers, and employees of the Company and agents acting on our behalf. Certain of these laws impose stringent requirements on how we can conduct our foreign operations and could place restrictions on our business and partnering activities.
Competition
Competition in Our Sports Business
Our sports business operates in a market in which numerous sports and entertainment opportunities are available. In addition to the NBA, NHL, AHL and NBAGL teams that we own and operate, the New York City metropolitan area is home to two Major League Baseball teams (the New York Yankees (the “Yankees”) and the New York Mets (the “Mets”)), two National Football League teams (the New York Giants (the “Giants”) and the New York Jets (the “Jets”)), two additional NHL teams (the New York Islanders (the “Islanders”) and the New Jersey Devils (the “Devils”)), a second NBA team (the Brooklyn Nets (the “Nets”)) and two Major League Soccer franchises (the New York Red Bulls and the New York City Football Club). In addition, there are a number of other amateur and professional teams that compete in other sports, including at the collegiate and minor league levels. New York is also home to the U.S. Open tennis event each summer, as well as many other non-sports related entertainment options.
As a result of the large number of options available, we face strong competition for the New York area sports fan. We must compete with these other sporting events in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to provide an entertaining environment at our games and the prices we charge for our tickets. In addition, for fans who prefer the unique experience of NHL hockey, we must compete with the Islanders and Devils as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with the Nets as well as, in varying respects and degrees, with other NBA teams and the NBA itself. In addition, we also compete to varying degrees with other productions and live entertainment events for advertising and sponsorship dollars.
The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams and general economic and health and safety conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets, potentially greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs, we also
benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact that a significant portion of our revenue derives from media rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a multi-year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teamsteams. In addition, due to the NBA and NHL playing seasons, revenues from our abilitybusiness are typically concentrated in the second and third quarters of each fiscal year. The concentration of our revenues and expenses, however, was different in fiscal year 2021 due to attract other compelling sports content.the effects of the COVID-19 pandemic.
We own a controlling interest in CLG, a premier North American esports organization. Due to the nature of esports, CLG competes with other teams across North America and globally. CLG competes for sponsorship, merchandise rights, media rights, and event prize winnings. Esports teams vary in their amount of funding, size of existing business, and amount of social following, among other factors, which can impact our ability to compete effectively.
See “Item“Item 1A.Risk Factors — Sports Business Risks — Risks Relating to Our Sports Business — Our Sports Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations” and “— Our Businesses AreBusiness Is Substantially Dependent on the Continued Popularity and/or Competitive Success of the Knicks and the Rangers, Which Cannot Be Assured.”
Human Capital Resources
At MSG Sports, we believe the strength of our workforce is one of the significant contributors to our success. Our key human capital management objectives are to invest in and support our employees in order to attract, develop and retain a high performing and diverse workforce.
Diversity and Inclusion (“D&I”)
We aim to create an employee experience that fosters the Company’s culture of respect. By welcoming the diverse perspectives and experiences of our employees, we all share in the creation of a more vibrant, unified, and engaging place to work. To advance these efforts, we maintain a joint Diversity and Inclusion Council (the “D&I Council”) comprised of employees from the Company and MSG Entertainment who have demonstrated a high level of passion and commitment to diversity and inclusion.
Several D&I Council initiatives have furthered these objectives under our expanded Talent Management, Diversity and Inclusion function, including:
Workforce: Embedding Diversity and Inclusion through Talent Actions
•Introduced bi-annual workforce demographic dashboards to the management team and facilitated four diversity and inclusion content-specific working sessions to advise leaders on strategies to build and retain inclusive teams.
•Revisited our mandatory Inclusive Selection Training for managers and developed guidelines to de-bias talent review conversations with an aim to increase objectivity and consistency around leadership potential.
•Developed an Emerging Talent List to expand our talent pool to better identify and develop high performing diverse talent for expanded roles and promotable opportunities.
Workplace: Building an Inclusive and Accessible Community
•In fiscal year 2022, we launched the MSG Diversity & Inclusion Heritage Month enterprise calendar to acknowledge and celebrate culturally relevant days and months of recognition, anchored by our six employee resource groups: Asian Americans and Pacific Islanders (AAPI), Black, LatinX, PRIDE, Veterans, and Women. Viewership of D&I related content on internal employee communications portal more than doubled year-over-year (combined with MSG Entertainment).
•Introduced a Paid Military Leave benefit to support our employees who are called to military service, demonstrating our commitment to be a military-friendly employer.
•Launched our first employer-branded campaign, “We Are MSG”, reflecting the values of the Company and MSG Entertainment and the diversity that unites our community. The first video, Faces of MSG, was publicly released on internal and external platforms, anchoring our careers website and LinkedIn page.
Community: Bridging the Divide through Expansion to Diverse Stakeholders
•Focused on connecting with minority-owned businesses to increase the diversity of our vendors and suppliers by leveraging employee resource groups and our community, which creates revenue generating opportunities for diverse suppliers to promote their businesses and products. In fiscal year 2022, we hosted the Black Fashion Pop-Up Shop and Pride Fest for Black and LGBTQ+ entrepreneurs, respectively.
Competition•Invested in Our Entertainment Business
Our entertainment business competes, in certain respects and to varying degrees, with other live performances, sporting events, movies, home entertainment (including the Internet and online services, social media and social networking platforms, television, video and gaming devices), restaurants and nightlife venues, and the large number of other entertainment and public attraction options available to members of the public. Our businesses typically represent alternative uses for the public’s entertainment dollars. The primary geographic area inan external facing supplier diversity portal on our website, which we operate, New York City,expect to launch in fiscal year 2023. The portal is among the most competitive entertainment markets in the world,for all diverse suppliers across all spectrums of identity that are interested is doing business with us.
•Strengthened our commitment to higher education institutions to increase campus recruitment pipelines. In partnership with the world’s largest live theater industryKnicks and extensive performing arts venues, 12 major professional sports teams, thousandsour social impact team, we hosted the 1st Annual Historically Black Colleges and Universities (“HBCU”) Night highlighting the important contributions of restaurantsthese institutions. In partnership with Chase, we awarded a twenty-five-thousand-dollar scholarship to a Spelman College student. Additionally, we hosted HBCU SpringComing Innovation Lab for select HBCU alumni and nightlife venues, numerous museums, galleries and other attractions, and numerous movie theaters availablestudents, leveraging their insights to the public.strengthen our recruitment outreach strategy. We also have significant operations in Los Angeles and Las Vegas. Our venues and live offerings outsidepartnered with select City University of New York City similarly compete with other entertainment, diningstudents to host resume workshops curated and nightlife options in their respective markets and elsewhere. We compete with these other entertainment options onsponsored by the basis of the quality of our productions, the public’s interest in our content, the price of our tickets, the quality, location and atmosphere, including the nature and condition of the setting, of our venues, our service, the price, quality and presentation of our food and the overall experience we provide.
We compete for bookings with a large number of other venues both in the cities in which our venues are located and in alternative locations capable of booking the same productions and events. Generally, we compete for bookings on the basis of the size, quality, expense and nature of the venue required for the booking. Some of our competitors may have a larger network of venues and/or greater financial resources.
In addition to competition for ticket sales and bookings, we also compete to varying degrees with other productions and sporting events for advertising and sponsorship dollars.
See “Item 1A.Risk Factors — Risks Relating to Our Entertainment Business — Our Entertainment Business Faces Intense and Wide-Ranging Competition Which May Have a Material Negative Effect on Our Business and Results of Operations,” “— The Success of Our Entertainment Business Depends on the Continued Popularity of Our Live Productions, Particularly theChristmas Spectacular, the Decline of Which Could Have a Material Negative Effect on Our Business and Results of Operations,” “— The Geographic Concentration of Our Businesses Could Subject Us to Greater Risk Than Our Competitors and Have a Material Negative Effect on Our Business and Results of Operations” and “ — Negative Publicity with Respect to Any of the Existing or Future TAO Group Brands Could Reduce Sales at One or More of the Existing or Future TAO Group Venues and Make the TAO Group Brands Less Valuable, Which Could Have a Material Negative Effect on Our Business and Results of Operations.”PRIDE employee resource group.
EmployeesTalent
As of June 30, 2019,2022, we had approximately 2,900467 full-time union and non-union employees and 10,100425 part-time union and non-union employees. Approximately 52%
We aim to attract top talent through our brands, as well as through the many benefits we offer. We aim to retain our talent by emphasizing our competitive rewards; offering opportunities that support employees both personally and professionally; and our commitment to fostering career development in a positive corporate culture.
Our performance management practice includes ongoing feedback and conversations between managers and team members, and talent reviews designed to identify potential future leaders and inform succession plans. We value continuous learning and development opportunities for our employees, which include: a career development tool; leadership development programs; a learning platform; and tuition assistance.
Our benefit offerings are designed to meet the range of needs of our diverse workforce and include: domestic partner coverage; medical, dental and vision plan options; life insurance benefits for the employee and their dependents; a 401k plan with 100% employer match; an employee assistance program which also provides assistance with child and elder care resources; legal support; wellness programs and financial planning seminars. These resources are intended to support the physical, emotional and financial well-being of our employees.
In addition, approximately 12% of our employees were represented by unions as of June 30, 2019. Approximately 13%2022, most of suchwhom are our players. There are no union employees are subject to CBAs that were expired as of June 30, 20192022 and approximately 36% areno union employees subject to CBAs that will expire by June 30, 2020 if they are not extended prior thereto. 2023.
Labor relations in general and in the sports and entertainment industry in particular can be volatile, though our current relationships with our unions taken as a whole are positive. We have from time to time faced labor action or had to make contingency plans because of threatened or potential labor actions.
The NHLNBA players and the NBANHL players are covered by CBAs between the NHL Players’ Association (“NHLPA”) and the NHL and between the National Basketball Players Association (“NBPA”) and the NBA and between the NHL Players’ Association (“NHLPA”) and the NHL, respectively. Both the NHLNBA and the NBANHL have experienced labor difficulties in the past and may have labor issues in the future. On June 30, 2011 the prior CBA between the NBA and NBPA expired and there was a work stoppage for approximately five months until a new CBA was entered into in December 2011. The NBA CBA expires after the 2023-24 season (although each of the NBA and the NBPA has the right to terminate the CBA effective following the 2022-23 season). On September 15, 2012 the prior CBA between the NHL and NHLPA expired and there was a work stoppage for approximately four months until a new CBA was entered into in January 2013. The current NHL CBA expires after 2025-26 season (with the possibility of a one year extension in certain circumstances). The NBA and NHL playoff games for the 2019-20 seasons experienced postponements due to player, team and/or league protests and decisions.
See “Item“Item 1A. Risk Factors — Economic and Business Relationship Risks Risk Factors— — General Risks — Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”
Financial Information about Segments and Geographic Areas
Substantially all of the Company’s revenues and a significant majority of assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area. Financial information by business segments for each of the years ended June 30, 2019, 2018, and 2017 is set forth in “Part II — Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II — Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 19. Segment Information.”
Item 1A. Risk Factors
Risks Relating to Our Sports Business Risks
Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response.
In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19, and as a result, virtually all of our business operations were suspended. In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed, and the Knicks and the Rangers each played fewer games than their traditional 82-game regular season schedules, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule.
Even once Knicks and Rangers games resumed at The Garden, there were varying levels of restrictions on fan attendance and professional athletes due to New York City and New York State regulations. For example, fans were initially prohibited from attending games due to government-mandated assembly restrictions through February 2021, and home games at The Garden were then limited to 10% capacity through May 2021. Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests. New York City did not lift vaccination requirements applicable to fan attendance and professional athletes competing at The Garden until March 2022.
As a result of the foregoing, COVID-19 disruptions materially impacted our operations and operating results for fiscal years 2020 and 2021, with us recognizing materially less revenues, or over certain periods of time no revenues, across a number of areas, including, ticket sales; our share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; local media rights fees; and food, beverage and merchandise sales. For example, a significant portion of our revenue is earned from media rights fees from the local broadcast of Knicks and Rangers games and our share of fees paid for league-wide media rights, which are not recognized if those games are not played. As a result of the shortened 2020-21 NBA and NHL seasons, the Company’s revenues earned from local media rights fees were reduced by approximately $16 million and revenues earned by the Company for league-wide media rights were reduced by approximately $1 million.
Our operations and operating results continued to be impacted by COVID-19 during fiscal year 2022, but to a lesser extent. Even though full attendance at Knicks and Rangers games was permitted during fiscal year 2022, results were impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact attendance of games at The Garden, demand for our sponsorship, tickets and other premium inventory. Accordingly, no assurances can be made as to whether and when the 2022-23 seasons will occur, the number of games played for the 2022-23 seasons, that the games will be played at The Garden or will be played with any in-arena audiences or without capacity limitations. If, due to a resurgence in COVID-19 or otherwise, the NBA and the NHL do not play a minimum number of games required under the league-wide media rights agreements or the Knicks or the Rangers do not make available to MSG Networks the number of games during the season required under the local media rights agreements, the amounts of revenues we earn could be substantially reduced depending upon the number of games not played or not made available to MSG Networks and an event of default may occur under the Knicks and the Rangers credit agreements. See “— Economic and Business Relationship Risks — Certain of Our Subsidiaries Have Incurred Substantial Indebtedness, and the Occurrence of an Event of Default Under Our Subsidiaries’ Credit Facilities or Our Inability to Repay Such Indebtedness When Due Could Substantially Impair the Assets of Those Subsidiaries and Have a Negative Effect on Our Business” and “— Economic and Business Relationship Risks — We Do Not Own The Garden and Our Failure to Renew the Arena License Agreements or MSG Entertainment’s Failure to Operate The Garden in Compliance with the Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of Operations.”
Our business is also particularly sensitive to discretionary business and consumer spending. A pandemic such as COVID-19 could also impede economic activity in impacted regions or globally over the long-term, causing a global recession and leading to a further decline in discretionary spending on sporting events and other leisure activities, including declines in domestic and international tourism, which could result in long-term effects on our business. In addition, remote and/or hybrid in-office work arrangements in the New York City metropolitan area could result in reduced attendance at Knicks and Rangers games. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our liquidity, indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Our Sports Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations.Operations.
The success of a sports business, like ours, is dependent upon the performance and/or popularity of its franchises. Our Knicks and Rangers and other sports franchises compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our sports teams compete for attendance, viewership and advertising with a wide range of alternatives available in the New York City metropolitan area. During some or all of the basketball and hockey seasons, our sports teams face competition, in varying respects and degrees, from professional baseball (including the Yankees and the Mets), professional football (including the Giants and the Jets), professional soccer (including the New York Red Bulls and the New York City Football Club), collegiate sporting events, such as the National Collegiate Athletic Association basketball tournament, other sporting events, including those held by MSG Entertainment, and each other. For fans who prefer the unique experience of NHL hockey, we must compete with two other NHL hockey teams located in the New York City metropolitan area (the Islanders and the Devils) as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with another NBA team located in the New York City metropolitan area (the Nets) as well as, in varying respects and degrees, with other NBA teams and the NBA itself.
As a result of the large number of options available, we face strong competition for the New York City metropolitan area sports fan. We must compete with these other sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to provide an entertaining environment at our games, prices we charge for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of sports, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have,us, and as a consequence, our business and results of operations may be materially negatively affected.
The success of our sports business is largely dependent on our ability to attract strong attendance to our professional sports franchises’ home games at The Garden. Our sports business also competes, in certain respects and to varying degrees, with other leisure-time activities and entertainment options in the New York CItyCity metropolitan area, such as television, motion pictures, concerts and other live performances, restaurants and nightlife venues, the Internet, social media and social networking platforms and online and mobile services, including sites for online content distribution, video on demand and other alternative sources of entertainment.
Our sports teams also compete with other teams in their leagues to attract free agents. Playersplayers. For example, players who are free agents are generally permitted to sign with the team of their choice. These players may make their decision based upon anya number of factors, including the compensation they are offered, the makeup and competitiveness of the team bidding for their services, geographic preferences and other non-economic factors. There can be no assurance that we will be able to retain players upon expiration of their contracts or sign and develop talented players to replace those who leave for other teams, retire or are injured, traded or released.
Our Businesses AreBusiness Is Substantially Dependent on the Continued Popularity and/or Competitive Success of the Knicks and the Rangers, Which Cannot Be Assured.Assured.
Our financial results have historically been dependent on, and are expected to continue to depend in large part on, the Knicks and the Rangers remaining popular with our fan bases and, in varying degrees, on the teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in sustained ticket, premium seating, suite, sponsorship, food and beverage and merchandise sales during the season. In addition, the popularity of our sports teams can impact television ratings, which could affect the long-term value of the media rights for the Knicks and/or the Rangers. Furthermore, success in the regular season may qualify one or both of our sports teams for participation in post-season playoffs, which provides us with additional revenue by increasing the number of games played by our sports teams and, more importantly, by generating increased excitement and interest in our sports teams, which can help drive a number of our revenue streams, including by improving attendance and television ratings,sponsorships, in subsequent seasons. The Knicks last qualified for the post-season during the 2020-21 NBA season and the Rangers last qualified for the post-season during the 2021-22 NHL season. In addition, league, team and/or player actions or inactions, including protests, may impact the popularity of the Knicks, the Rangers or the leagues in which they play. There can be no assurance that any of our sports teams, including the Knicks and the Rangers, will maintain continued popularity or compete in post-season play in the future.
Our Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations.
Creating and maintaining our sports teams’ popularity and/or on-court and on-ice competitiveness is key to the success of our sports business. Accordingly, efforts to improve our revenues and earnings from operations from period to periodperiod-to-period may be secondary to actions that management believes will generate long-term growth and asset value creation. As with other sports teams, theThe competitive positions of our sports teams depend primarily on our ability to develop, obtain and/orand retain talented players, coaches and team executives, for whichwhom we compete with other professional sports teams. Our efforts in this regard may include, among other things, trading for highly compensated players, signing draft picks, free agents or current players to new contracts, engaging in salary arbitration or contract renegotiation with existing players, terminating and waiving players and replacing coaches and team executives. Any of these actions could increase expenses for a particular period, subject to any salary cap restrictions contained in the respective leagues’ CBAs. There can be no assurance that any actions taken by management to generate and increase our long-term growth and asset value creation will be successful.
A significant factor in our ability to attract and retain talented players is player compensation. NBA and NHL player salaries have generally increased significantly and may continue to increase. Although CBAs between the NBA and the NBPA and the NHL and the NHLPA generally cap league-wide player salaries at a prescribed percentage of league-wide revenues, we may pay our players different aggregate salaries and a different proportion of our revenues than other NBA or NHL franchises. In addition, both of the NBA and NHL CBAs include salary floors, which limit our ability to decrease costs below a certain amount. Future CBAs may increase the percentage of league-wide revenues to which NBA or NHL players are entitled or impose other conditions, which may further increase our costs. In addition, we have paid the NBA a luxury tax in the past and we may also be obligated to pay the NBA a luxury tax in future years, the calculation of which is determined by a formula based on the aggregate salaries paid to our NBA players. See “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG SportsExpenses — Expenses — Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax.Tax.”
We have incurred, and may in the future incur, significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. See “— Injuries to, and Illness of, Players on Our Sports Teams Could Hinder Our Success.” These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals may be paid over their remaining contract terms. These expenses add to the volatility of the results of our MSG Sports segment.results.
The Actions of the BasketballNBA, NHL and HockeyEsports Leagues May Have a Material Negative Effect on Our Business and Results of Operations.
The governing bodies of the NBA (including the NBAGL) and the NHL (including the AHL) have certain rights under certain circumstances to take actions that they deem to be in the best interests of their respective leagues, which may not necessarily be consistent with maximizing our results of operations and which could affect our sports teams in ways that are different than the impact on other sports teams. Certain of these decisionsDecisions by the NBA or the NHL could have a material negative effect on our business and results of operations. For example, failure to follow rules and regulations of the NBA or NHL could result in fines, loss of draft picks or other actions by the leagues.
From time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert. The following discussion highlights certainexamples of areas in which decisions of the NBA and the NHL could materially affect our businesses.business.
•The NBA and the NHL may assert control over certain matters, under certain circumstances, that may affect our revenues such as the local, national and international rights to telecast the games of league members, including the Knicks and the Rangers, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our sports teams and the leagues, and the Internet and mobile-based activities of our sports teams. The NBA and NHL have each entered into agreements regarding the national and international telecasts of NBA and NHL games. We receive a share of the income the NBA and the NHL generate from these contracts, which expire from time to time. There can be no assurance that the NBA or the NHL will be able to renew or replace these contracts following their expiration on terms as favorable to us as those in the current agreements or that we will continue to receive the same level of revenues in the future. We receive significant revenues from MSG Networks for the right to telecast games of the Knicks and the Rangers. Changes to league rules, regulations and/or agreements, including changes to league schedules and national and international media rights, could impact the availability of games covered by our local media rights and could negatively affect the rights fees we receive from MSG Networks and our business and results of operations.
•The NBA and NHL impose certain rules that define, under certain circumstances, the territories in which our sports teams operate, including the markets in which our games may be telecast. The sports leagues have also asserted control over certain other important decisions, under certain circumstances, such as the length and format of, and the number of games in, the playing season, preseason and playoff schedules, the operating territories of the member teams, admission of new members, franchise relocations, labor relations with the players associations, collective bargaining, free agency, luxury taxes and revenue sharing. The esports leaguesChanges to these rules could have adopted a number of rules and regulations governing the length and format of the playing season, how teams may generate revenue, and player rosters.
Decisionsmaterial negative effect on these matters, some of which are also subject to the terms of a CBA, may materially negatively affect our business and results of operations. In addition,For example, we were subject to the leagues’ decisions with respect to the 2019-20, 2020-21 and 2021-22 seasons as a result of the COVID-19 pandemic and player, team and/or league protests and actions. See “— Economic and Business Relationship Risks— Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”
•The NBA imposes a luxury tax and escrow system with respect to player salaries and a revenue sharing plan, and the NHL imposes an escrow system with respect to player salaries and a revenue sharing plan. For fiscal year 2019,2022, the Knicks and the Rangers recorded approximately $59.3$82.4 million in estimated revenue sharing expenses, net of escrow receipts. The actual amounts for the 2018-192021-22 season may vary significantly from the estimate based on actual operating results for the respective leagues and all teams for the season and other factors. For a discussion of the NBA luxury tax impacts, see “— Our Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations.”
•The NBA and the NHL have imposedimpose certain restrictions on the ability of owners to undertake somecertain types of transactions in respect of teams, including a change in ownership and a relocation of a team.team relocation. The NBA and NHL have also imposed significant restrictions on certain types and/or amounts of financing transactions.and/or certain types of financings and the rights of those financing providers. See “Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources — Financing Agreements and Stock Repurchases” and Note 13 to the consolidated financial statements. In certain instances, these restrictions could impair our ability to proceed with a transaction that is in the best interest of the Company and its stockholders if we were unable to obtain any required league approvals in a timely manner or at all.
•The leagues impose certain rules that define, under certain circumstances,possibility of further NBA and/or NHL expansion could create increased competition for the territoriesKnicks and the Rangers, respectively. The most recent NHL expansion occurred in which we operate, including2021 with the marketsaddition of the Seattle Kraken (following the addition of the Vegas Golden Knights in which our games can be telecast. Changes to these rules2017) and the most recent NBA expansion occurred in 2004 with the addition of the Charlotte Bobcats (now Charlotte Hornets). Because revenue from national media rights agreements is divided equally among all NBA and NHL teams, any further expansion would dilute the revenue realized by the Knicks and/or the Rangers from such agreements. Expansion also increases competition for talented players among NBA and/or NHL teams. Any expansion in the New York City metropolitan area, in particular, could have a material negative effect on our businessalso draw fan, consumer and results of operations.viewership interest away from the Knicks and/or the Rangers.
•Each league’s governing body has imposed a number of rules, regulations, guidelines, bulletins, directives, policies and agreements upon its teams. Changes to these provisions may apply to our teams and their personnel, andand/or the Company as a whole, regardless of whether we agree or disagree with such changes, have voted against such changes or have challenged them through other means, and itmeans. It is possible that any such changes could materially negatively affect our business and results of operations to the extent they are ultimately determined to bind our teams. The commissioners of each of the NBA and NHL assert significant authority to take certain actions on behalf of their respective leagues under certain circumstances. Decisions by the commissioners of the NBA and the NHL, including on the matters described above, may materially negatively affect our businessesbusiness and results of operations. The leagues’ governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself. See “— Economic and Business Relationship Risks — Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”
The esports leagues may also assert control over certain matters, that may affect our revenues. For example, they have adopted a number of rules and regulations governing the length and format of the playing season, how teams may generate revenue and player rosters.
Injuries to, and Illness of, Players on Our Sports Teams Could Hinder Our Success.
To the degree that our financial results are dependent on our sports teams’ popularity and/or on-court and on-ice success, the likelihood of achieving such popularity or competitive success may given the nature of sports, be substantially impacted by serious and/or untimely injuries to or illness of key players. In addition, even with team and league-wide health and safety precautions in place and compliance with governmental and other COVID-19 protocols we may adopt, our players may nevertheless contract COVID-19 and, as a result, our ability to participate in games may be substantially impacted. Nearly all of our Knicks and Rangers players, including those with multi-year contracts, have partially or fully guaranteed contracts, meaning that in some cases (subject to the terms of the applicable player contract and CBA), a player or his estate may be entitled to receive his salary even if the player dies or is unable to play as a result of injury. These salaries represent significant financial commitments for our sports
teams. We maintain insurance against having to paymitigate some of the risk of paying certain player salaries in the event of a player’s death or disability. In the event of injuries sustained resulting in lost services (as defined in the applicable insurance policies), generally the insurance policies provide for payment to us of a portion of the player’s salary for the remaining term of the contract or until the player can resume play, in each case following a deductible number of missed games. Such insurance may not be available in every circumstance or on terms that are commercially feasible orand such insurance may contain significant dollar limits and/or exclusions from coverage for preexistingpre-existing medical conditions. We may choose not to obtain (or may not be able to obtain) such insurance in some cases and we may change coverage levels (or be unable to change coverage levels) in the future.
In the absence of disability insurance, we may be obligated to pay all of an injured player’s salary. In addition, player disability insurance policies do not cover any NBA luxury tax that we may be required to pay under the NBA CBA. For purposes of determining NBA luxury tax under the NBA CBA, salary payable to an injured player is included in team salary unless and until that player’s salary is removed from the team salary for purposes of calculating NBA luxury tax which, pursuant to the terms of the NBA CBA, requires a waiting period ofat least one year and satisfaction ofuntil other conditions.conditions are satisfied. Replacement of an injured player may result in an increase in our salary and NBA luxury tax expense for us.expenses.
Economic and Business Relationship Risks
Risks Relating to Our Entertainment Business
Our Entertainment Business Faces Intense and Wide-Ranging Competition Which MaySubsidiaries Have a Material Negative Effect on Our Business and Results of Operations.
Our entertainment business competes, in certain respects and to varying degrees, with other leisure-time activities such as television, radio, motion pictures, sporting events, other live performances, restaurants and nightlife venues, the Internet, social media and social networking platforms, and online and mobile services, including sites for online content distribution, video on demand and other alternative sources of entertainment and information, in addition to competing for concerts with other event venues, and other restaurants and nightlife venues, for total entertainment dollars in our marketplace. The success of our entertainment business is largely dependent on the continued success of our Christmas Spectacular Incurred Substantial Indebtedness, and the TAO Group business,Occurrence of an Event of Default Under Our Subsidiaries’ Credit Facilities or Our Inability to Repay Such Indebtedness When Due Could Substantially Impair the Assets of Those Subsidiaries and the availability of, and our venues’ ability to attract, concerts, family shows and other events, competition for which is intense, and the ability of acts to attract strong attendance at our venues. For example, The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre all compete with other entertainment options in the New York City metropolitan area. The Forum and The Chicago Theatre face similar competition from other entertainment options in their respective markets and elsewhere. A new entertainment complex, which will include both a football stadium and a 6,000 seat performing arts venue, is under construction in Inglewood, CA adjacent to the Forum, and is reportedly scheduled to open during the summer of 2020. In addition, the Los Angeles Clippers NBA team has announced plans to open a new multi-purpose, 18,000 to 20,000-seat arena, by 2024, featuring NBA basketball, concerts and other events to be located in Inglewood, CA, approximately one mile from the Forum. The Company has filed a lawsuit against the City of Inglewood and other defendants contending that, among other claims, the City of Inglewood’s entry into exclusive negotiations with the Los Angeles Clippers, and other actions in support of the proposed arena, breach the Development Agreement between the City of Inglewood and the Company, and that the Company’s decision to enter into a termination agreement with respect to its lease and option to buy a portion of the property where the proposed arena would be built was procured by fraud and should be rescinded. Such an entertainment complex could, and the Los Angeles Clippers arena would, materially adversely affect the performance and operations of the Forum. The restaurant, nightlife and hospitality industries are intensely competitive with respect to, among other things, service, price, food quality and presentation, location, atmosphere, overall experience, and the nature and condition of the setting. Competitors of TAO Group business include a large and diverse group of well-recognized upscale restaurants and nightlife venues and brands. Some of our competitors may have a larger network of venues and/or greater financial resources.
Further, in order to maintain the competitive positions of The Garden and our other venues, we must invest on a continuous basis in state-of-the-art technology. In addition, we must maintain a competitive pricing structure for events that may be held in our venues, many of which have alternative venue options available to them in New York and other cities. In addition, we invest a substantial amount in our Christmas Spectacular and in new productions to continue to attract audiences. We cannot be assured that such investments will generate revenues that are sufficient to justify our investment or even that exceed our expenses. For a discussion of substantial investments in state-of-the-art technology by the Company in connection with the MSG Sphere, see “— We Are Building and Plan to Build and Operate Entertainment Venues in Las Vegas and London and are Exploring Other Potential Sites. These State-of-the-Art Venues Will Use Cutting-Edge Technologies and Will Require Significant Capital Investment by the Company. There Can Be No Assurance That the MSG Spheres Will Be Successful.”
The Success of Our Entertainment Business Depends on the Continued Popularity of Our Live Productions, Particularly theChristmas Spectacular, the Decline of Which Could Have a Material Negative Effect on Our Business and Results of Operations.
The financial results of our entertainment business are dependent on the popularity of our live productions, particularly theChristmas Spectacular, which represented 16% of our MSG Entertainment segment’s revenues in fiscal year 2019. Should the popularity of theChristmas Spectacular decline, our revenues from ticket sales, and concession and merchandise sales would likely also decline, and we might not be able to replace the lost revenue with revenues from other sources.
We Are Building and Plan to Build and Operate Entertainment Venues in Las Vegas and London and are Exploring Other Potential Sites. These State-of-the-Art Venues Will Use Cutting-Edge Technologies and Will Require Significant Capital Investment by the Company. There Can Be No Assurance That the MSG Spheres Will Be Successful.
The Company is progressing with its venue strategy to create, build and operate new music and entertainment-focused venues — called MSG Sphere — that will use cutting-edge technologies to create the next generation of immersive experiences. There is no assurance that the MSG Sphere in Las Vegas or London will be successful. We have begun building the first MSG Sphere in Las Vegas with the goal of opening in calendar year 2021. The Company submitted a planning application for the MSG Sphere in London to the local planning authority in March 2019 and expects a planning determination by the end of calendar year 2019 (which may become the subject of further discussions with the planning authority). Our plan is to begin construction on the MSG Sphere venue in London only once we have received all necessary approvals and have further advanced our design for the venue. Our primary focus now is to build the Las Vegas and London MSG Spheres, but we also continue to explore additional domestic and international markets where these next-generation venues can be successful. While both the Las Vegas and London venues would have a scalable capacity of approximately 17,500 seats, moving forward, our goal is to develop a venue model that will accommodate a wide range of sizes and seating capacities — from large-scale to more intimate — based on the needs of any individual market.
We expect the costs of the MSG Spheres in Las Vegas and London to be substantial. While it is always difficult to provide a definitive construction cost estimate for large-scale construction projects, it is particularly challenging for one as unique as MSG Sphere. For more information regarding the costs of MSG Spheres, see “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MSG Spheres.”
As the Company moves forward with the planning and construction of these and other major new venues, the Company may face unexpected project delays, costs and other complications. Our agreement with Sands to lease the land where the MSG Sphere in Las Vegas is being constructed requires that we start, and complete, construction within specified time periods. The failure to meet these specified deadlines could result in a termination of the lease. In light of the ambitious and unique design of MSG Sphere, including the use of technologies that have not previously been employed in major entertainment venues, the risk of delays and higher than anticipated costs are elevated. In connection with the construction of the MSG Sphere venues, the Company will need to obtain additional capital beyond what is available from cash on hand, cash flows from operations and borrowings under our revolving credit facilities. There is no assurance that we will be able to obtain such capital. The NBA and NHL have imposed restrictions on certain types and/or amounts of financing transactions. See also “— The Actions of the Basketball and Hockey Leagues May Have a Material Negative Effect on Our Business and Results of Operations.”
The MSG Sphere will employ novel and transformative technologies and new applications of existing technologies. As a result, there can be no assurance that the MSG Sphere will achieve the technical, operational and artistic goals the Company is seeking. Any failure to do so could have a material negative effect on our business and results of operations.
While the Company believes that these next-generation venues will enable new experiences and innovative opportunities to engage with audiences, there can be no assurance that customers, artists, promoters, advertisers and marketing partners will embrace this new platform. The cost of building the MSG Sphere in Las Vegas will be substantial and may constrain the Company’s ability to undertake other initiatives during the multi-year construction period.
Our Entertainment Business is Highly Sensitive to Customer Tastes and Depends on Our Ability to Attract Artists and Events.
The success of our entertainment business depends in part upon our ability to offer live entertainment that is popular with customers. We contract with promoters and others to provide performers and events at our venues. There may be a limited number of popular artists, groups or events that can attract audiences to our venues, and our entertainment segment would suffer to the extent that we are unable to continue to attract such artists, groups and events to perform at our venues.
We Depend on Licenses from Third Parties for the Performance of Musical Works at Our Venues, the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Negative Effect on Our BusinessBusiness.
Our subsidiaries have incurred substantial indebtedness. New York Knicks, LLC and ResultsNew York Rangers, LLC, which own the assets of Operations.the Knicks and the Rangers franchises, respectively, have entered into revolving credit facilities. As of June 30, 2022, the outstanding balance under the Knicks Revolving Credit Facility was $220 million, while there was no outstanding balance under the Rangers Revolving Credit Facility. Both credit facilities expire in December 2026. New York Rangers, LLC also received a $30 million advance from the NHL, which is payable upon demand by the NHL. As of June 30, 2022, the outstanding balance of the advance was $30 million.
Our ability to make payments on, or repay or refinance, such indebtedness, and to fund our operations, depends largely upon our future operating performance. Our future operating performance is subject to the impacts of the COVID-19 pandemic, including any resurgence in cases, and general economic, financial, competitive, regulatory and other factors that are beyond our control. See “— We are requiredMay Require Financing to obtain public performance licenses from music performing rights organizations, commonly known as “PROs”Fund Our Ongoing Operations, the Availability of Which is Highly Uncertain.”
Furthermore, a resurgence in the COVID-19 pandemic may cause our interest expense to be substantial relative to our revenues and cash outflows. Our interest expense could also increase if interest rates increase (including in connection with the performance of musical worksrising inflation) as our indebtedness bears interest at concerts and certain other live events held at our venues. In exchange for public performance licenses, PROs are paid a per-event royalty, calculated either as a percentage of ticket revenue or a per-ticket amount. The PRO royalty obligation is generally paid by, or chargedfloating rates (or to the promoterextent we have to refinance existing debt with higher cost debt).
The Knicks Revolving Credit Facility includes covenants and events of default that may be implicated by a shortfall in the amount of national media rights revenue received by the Knicks. The Rangers Revolving Credit Facility includes covenants and events of default that may be implicated by a shortfall in the amount of national and local media rights revenue received by the Rangers. If, due to the impact of the event concerned.
COVID-19 pandemic, protests or otherwise, the NBA and/or NHL 2022-23 seasons are delayed, shortened, suspended or cancelled, the Knicks or the Rangers may be required, absent a cure or waiver, to repay certain amounts borrowed under the revolving credit facilities. If we are unable to obtain these licenses, or are unablerepay such amounts due to obtain them on terms consistent with past practice, itliquidity constraints, we may have a negative effect on our business and resultsneed to pursue other sources of operations. An increase in the royalty ratefinancing, including through issuances of equity and/or asset sales.
The United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the revenue base onLondon Interbank Offered Rate (“LIBOR”), has announced that it will not compel panel banks to contribute to LIBOR after 2021. In November 2020, the ICE Benchmark Administration Limited announced a plan to extend the date as of which most U.S. LIBOR values would cease being computed from December 31, 2021 to June 30, 2023. On July 29, 2021, the royalty rate is applied could substantially increaseAlternative Reference Rates Committee announced that it was recommending the cost of presenting concerts and certain other live events at our venues. If we are no longer able to pass all or a portion of these royalties on to promoters, it may have a negative effect on our business and results of operations.
Our Strategy for Our Entertainment Business Includesforward-looking Secured Overnight Financing Rate (“SOFR”) term rate. In connection with the Development of New Live Productions and the Possible Addition of New Venues, Each of Which Could Require Us to Make Considerable Investments for Which There Can Be No Guarantee of Success.
As partrefinancing of our business strategy,revolving credit facilities in December 2021, we intendamended our revolving credit facilities to develop new productions, attractions and live entertainment events, whichadjust to SOFR-based rates. However, the consequences of using the SOFR term rate cannot be entirely predicted but may include expansions or enhancements of our existing productions or relationships or the creation of entirely new live productions. Expansion or enhancement of productions and/or the development of new productions, attractions and live entertainment events could require significant upfront investment in sets, staging, creative processes, commissioning and/or licensing of intellectual property, casting and advertising and dislocation of other alternative sources of entertainment that may have played in our venues absent these productions. To the extent that any efforts at expanding or enhancing productions or creating new productions do not result in a viable live show, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may be subject to a write-down of all or a portion of such investments. In addition, any delay in launching such productions or enhancements could result in the incurrencelevel of operating costsinterest payments on the portion of our indebtedness that bears interest at variable rates to be affected, which may not be recouped. For example, in fiscal 2016 we wrote off approximately $41.8 million of deferred production costs of the New York Spectacular Starring the Radio City Rockettes (“New York Spectacular”) and in fiscal 2017 we wrote off the remaining balance of $33.6 million of deferred production costs related to the New York Spectacular.
The Geographic Concentration of Our Businesses Could Subject Us to Greater Risk Than Our Competitors and Have a Material Negative Effect on Our Business and Results of Operations.
The Company primarily operates in three markets — New York City, Las Vegas and Los Angeles — and, as a result, is subject to greater degrees of risk than competitors with more operating properties or that operate in more markets. The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre are all located in New York City, our sports teams are all based in the New York City metropolitan area, and TAO Group currently operates 12 venues in New York City, including the food and beverage operations at the Dream Downtown and Dream Midtown hotels. In addition, TAO Group currently operates six venues in Las Vegas, where the Company is constructing its first MSG Sphere. The Forum is located in Inglewood, California, which is adjacent to Los Angeles, where TAO Group currently operates five venues. Therefore, the Company is particularly vulnerable to adverse events (including acts of terrorism, natural disasters, weather conditions, labor market disruptions and government actions) and economic conditions in New York City, Las Vegas, Los Angeles and surrounding areas. Any adverse event or conditions in those markets could have a material negative effect on our business and results of operations.
TAO Group’s Revenue Growth Depends Upon its Strategy of Adding New Venues and TAO Group Plans to Add a Significant Number of New Venues. This Will Require Additional Capital and There Can Be No Guarantee of Success.
TAO Group’s ability to increase its revenues depends upon opening new venues. TAO Group has plans to open new venues both domestically and internationally. In pursuing its expansion strategy, TAO Group faces risks associated with cost overruns and construction delays, obtaining financing and operating in new or existing markets. In addition, TAO Group faces the risk that new venues may not be successful and that TAO Group may lose all or a part of its investment in such new venues, which could have a material negative effect on our business and results of operations.
A Lack of Availability of Suitable Locations for New TAO Group Venues or a Decline in the Quality of the Locations of Current TAO Group Venues May Have a Material Negative Effect on Our Business and Results of Operations.
The success of the existing TAO Group venues depends in large part on their locations. Possible declines in neighborhoods where TAO Group venues are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those venues. Further, TAO Group’s growth strategy is based, in part, on the expansion of TAO Group venues into new geographic markets where its business has not previously operated. Desirable locations for new openings or for the relocation of existing venues may not be available at an acceptable cost when TAO Group identifies a particular opportunity for a new venue or relocation. In addition, the success of new TAO Group venues tends to expand or revive interest in TAO Group venues that have been in operation for an extended period of time. Thus, the inability to successfully open new TAO Group venues could also negativelyadversely impact the existing TAO Group business. The occurrenceamount of one or more of these events could have a material negative effect on our business and results of operations.
The Success of TAO Group Depends in Part Upon the Continued Retention of Certain Key Personnel.
The success of TAO Group depends, in part, on certain key members of its management, including its four original founders. The expertise of TAO Group’s senior management team in developing, acquiring, reinventing, integrating and growing businesses, particularly those focused on entertainment and hospitality, has been and will continue to be a significant factor in the growth of TAO Group’s business and the ability of TAO Group to execute its business strategy. The loss ofinterest payments under such key personnel could have a material negative effect on our business and results of operations.
Negative Publicity with Respect to Any of the Existing or Future TAO Group Brands Could Reduce Sales at One or More of the Existing or Future TAO Group Venues and Make the TAO Group Brands Less Valuable, Which Could Have a Material Negative Effect on Our Business and Results of Operations.
The success of TAO Group depends upon the reputation and popularity of the TAO Group venues and brands. If customers have a poor experience at a restaurant or nightlife venue owned, operated or managed by TAO Group, the TAO Group venues may experience a decrease in customer traffic. Negative publicity with respect to any of the TAO Group brands could adversely affect TAO Group. Such publicity could relate to food quality, illness, injury or other health concerns, poor service, negative experiences or other problems and reduce demand in the TAO Group business. The risk of negative publicity is exacerbated by the growing influence of social media, which can result in immediate and widespread dissemination of information (which may be false) with limited ability on our part to respond or correct such reports.
Increases in Labor Costs Could Slow the Growth of or Harm TAO Group.
TAO Group has a substantial number of hourly employees whose compensation may be impacted by increases in government-imposed minimum wage rates. In addition, TAO Group employs a substantial number of employees whose income is supplemented through the receipt of gratuities. In certain jurisdictions in which TAO Group operates, the minimum hourly wage to which gratuity eligible employees are entitled under law is lower than the minimum wage required to be paid to other employees, subject to the former’s receipt of sufficient gratuities. The difference between the two minimum rates is referred to as a “tip credit”. Governmental entities, including in New York, Las Vegas and Chicago, have acted to increase minimum wage rates in jurisdictions where TAO Group operates or may operate in the future. In addition, governmental entities have acted to eliminate, or considered the elimination of, tip credits in the application of minimum wage laws. As minimum wage rates increase, or if tip credits are reduced or eliminated, TAO Group may need to increase wages paid to a substantial number of employees, which will increase the labor costs of TAO Group. In addition, TAO Group’s labor costs may increase if certain employees elect to be union represented and to collectively bargain their compensation. TAO Group may be unable offset these increased labor cost either through increased prices or changes to its operations, which could have a material negative effect on our business and results of operations.
General Risksdebt.
Our Business Has Been Adversely Impacted and May, in the Future, Be Materially Adversely Impacted by an Economic Downturn, andRecession, Financial Instability or Changes in Consumer Tastes and Preferences.Inflation.
Our businesses dependbusiness depends upon the ability and willingness of consumers and businesses to purchase tickets (including season tickets) atto our venues,games, license suites at The Garden, spend on food and beverages and merchandise and drive continued advertising and sponsorship revenues. Further, the restaurant, nightliferevenues, and hospitality industriesthese revenues are often affected by changes in consumer tastes, national, regional and localsensitive to general economic conditions discretionaryand consumer buying patterns.
Consumer and corporate spending priorities, demographic trends, traffic patternsmay decline at any time for reasons beyond our control, and the type, numberrisks associated with our businesses may become more acute in periods of a slowing economy or recession, which may lead to reductions in, among other things, corporate sponsorship and locationadvertising and decreases in attendance at live sports events, demand for suite licenses and food and beverage and merchandise sales, some of competing businesses.
which we have experienced in the past. In addition, inflation, which has significantly risen, has and may continue to increase operational costs, and continued increases in interest rates in response to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks. As a result, instability and weakness of the U.S. and global economies, including any prolonged effects caused by the COVID-19 pandemic, disruptions to financial markets, inflation, recession, high unemployment, reduced tourism and other geopolitical events and the resulting negative effects on consumers’ and businesses’ discretionary spending may materially negatively affect our business and results of operations.
We Have Incurred Substantial Operating Losses, Negative Adjusted Operating IncomeLosses and Negative Cash Flow and There is No Assurance We Will Have Operating Income, Positive Adjusted Operating Income or Positive Cash Flow in the Future.
We incurred operating losses of $13.9approximately $78 million and $56.3$94 million in fiscal years 20192021 and 2017,2020, respectively. In addition, we have, in prior periods, incurred adjusted operating losses and negative cash flow and there is no assurance that we will have operating income, adjusted operating income or positive cash flow in the future. Our MSG Entertainment segment recognized an operating lossIf we are unable to play games at The Garden at or near full capacity due to a resurgence in COVID-19 cases or otherwise, our fiscal year 2017.2023 operating results will also be materially impacted. Significant operating losses may limit our ability to raise necessary financing, or to do so on favorable terms, as such losses couldwill likely be taken into accountconsidered by potential investors, lenders and the organizations that issue investment ratings on indebtedness. See “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Sports — Factors Affecting Operating ResultsResults.”
We Do Not Own The Garden and “Part II — Item 7. Management’s Discussion and Analysis of Financial ConditionOur Failure to Renew the Arena License Agreements or MSG Entertainment’s Failure to Operate The Garden in Compliance with the Arena License Agreements or Extensive Governmental Regulations May Have a Material Negative Effect on Our Business and Results of OperationsOperations.
— The Knicks and the Rangers play their home games at The Garden pursuant to the Arena License Agreements with MSG Entertainment, which owns and operates The Garden. Our Arena License Agreements for The Garden expire in 2055. If we are unable to renew the Arena License Agreements on economically attractive terms, our business could be materially negatively affected. The Arena License Agreements require that MSG Entertainment must operate The Garden in a first-class manner. If MSG Entertainment were to breach or become unable to satisfy this obligation under the Arena License Agreements, we could suffer operational difficulties and/or significant losses. See “— — Factors Affecting Operating ResultsWe Rely on MSG Entertainment’s Performance Under Various Agreements.”
In addition, MSG Entertainment is subject to federal, state and local regulation relating to the operation of The Garden. For example, The Garden holds a liquor license to sell alcoholic beverages at concession stands in The Garden. Failure by MSG Entertainment to retain, or the suspension of, the liquor license could interrupt or terminate the ability to serve alcoholic beverages at The Garden and may have a negative effect on our business and our results of operations.
The Garden is subject to zoning and building regulations, including a special zoning permit. The original permit was granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years. In connection with the renewal, certain government officials and special interest groups sought to use the renewal process to pressure MSG Entertainment to improve Penn Station or to relocate The Garden. There can be no assurance regarding the future renewal of the permit or the terms thereof.
In addition, The Garden is, and may in the future be, subject to a variety of other laws and regulations, including environmental, working conditions, labor, immigration and employment laws, and health, safety and sanitation requirements. For example, governmental regulations adopted in the wake of the COVID-19 pandemic impacted the permitted occupancy of The Garden for games of the Knicks and the Rangers and the manner in which we use or maintain The Garden on game days, which impacted the revenue we derive from games and the expenses that we incur on game days.
MSG Entertainment’s failure to comply with governmental laws and regulations applicable to the operation of The Garden, or to maintain necessary permits or licenses, could have a material negative effect on our business and results of operations.
A Change to or Withdrawal of a New York City Real Estate Tax Exemption May Have a Material Negative Effect on Our Business and Results of Operations.
Many arenas, ballparks and stadiums nationally and in New York City have received significant public support, such as tax exempt financing, other tax benefits, direct subsidies and other contributions, including for public infrastructure critical to the facilities such as parking lots and transit improvements. The Madison Square Garden Complex benefits from a more limited real estate tax exemption pursuant to an agreement with the City of New York, subject to certain conditions, and legislation enacted by the State of New York in 1982. For fiscal year 2022, the tax exemption was $41.9 million. From time to time there
have been calls to repeal or amend the tax exemption. Repeal or amendment would require legislative action by New York State.
We have entered into Arena License Agreements with subsidiaries of MSG Entertainment, pursuant to which the Knicks and the Rangers play their home games at The Garden. Under the Arena License Agreements, the teams are responsible for 100% of any real estate or similar taxes applicable to The Garden.
If the tax exemption is repealed or a team is otherwise subject to the property tax due to no fault of that team, certain revenue allocations that we receive under the applicable Arena License Agreement would be increased as set forth in the applicable Arena License Agreement. Although the value of any such revenue increase could be material, it is not expected to offset the property tax that would be payable by the applicable team.
There can be no assurance that the tax exemption will not be amended in a manner adverse to us or repealed in its entirety, either of which could have a material negative effect on our business and results of operations.
We May Require Financing to Fund Our Ongoing Operations, the Availability of Which is Highly Uncertain.
The public and private capital and credit markets can experience volatility and disruption. Such markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers. For example, the global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.
We may require financing to fund our ongoing operations, including as a result of any impact of the COVID-19 pandemic on our business. In the future we may also engage in transactions that depend on our ability to obtain financing.
Depending upon conditions in the financial markets and/or the Company’s financial performance, we may not be able to raise additional capital on favorable terms, or at all. In addition, as described above, the leagues in which our sports teams compete may have, under certain circumstances, approval rights over certain financing transactions, and in connection with those rights, could affect our ability to obtain such financing.
Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.
NBA players are covered by a CBA between the NBPA and the NBA. NHL players are covered by a CBA between the NHLPA and the NHL. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future. Labor difficulties may include players’ strikes or protests or management lockouts. For example, the NHL has experienced labor difficulties, including (i) a lockout during the 1994-95 NHL season, which resulted in a regular season that was shortened from 84 to 48 games, (ii) a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season, and (iii) a lockout during the 2012-13 NHL season, which resulted in a regular season that was shortened from 82 to 48 games. The current NHL CBA expires on September 15, 2026 (with the possibility of a one year extension in certain circumstances). The NBA has also experienced labor difficulties, including (i) a lockout during the 1998-99 season, which resulted in a regular season that was shortened from 82 to 50 games, and (ii) a lockout during the 2011-12 season, which resulted in a regular season that was shortened from 82 games to 66 games. The current NBA CBA expires after the 2023-24 season, but each of the NBA and NBPA has the right (which must be exercised by December 15, 2022) to terminate the CBA effective following the 2022-23 season. Any labor disputes, such as players’ strikes, protests or lockouts, with the unions with which we have CBAs could have a material negative effect on our business and results of operations.
In addition, as a result of ongoing labor market disruptions due to the COVID-19 pandemic and otherwise, we and MSG Entertainment (which provides services to us through various commercial agreements as discussed under “—We Rely on MSG Entertainment’s Performance Under Various Agreements”) have faced difficulty in maintaining staffing on Knicks and Rangers game days and have been operating in an increasingly competitive labor market. If we and/or MSG Entertainment are unable to attract and retain qualified people or to do so on reasonable terms, we could suffer operational difficulties and the fan experience at Knicks and Rangers games may be adversely impacted. Competition for qualified employees could require higher wages, which could result in higher labor costs and could have an adverse effect on our business and results of operations.
We Rely on MSG Entertainment’s Performance Under Various Agreements.
We have various agreements with MSG Entertainment, including a distribution agreement, a tax disaffiliation agreement, a services agreement, an employee matters agreement, arena license agreements, media rights agreements, sponsorship sales and service representation agreements, a team sponsorship allocation agreement, a group ticket sales agreement, a single night rental commission agreement and service representation agreement, as well as certain other arrangements with MSG Entertainment and its subsidiary MSG Networks. These agreements include the allocation of employee benefits, taxes and certain other
liabilities and obligations attributable to periods prior to the MSGE Distribution. In connection with the MSGE Distribution, we agreed to provide MSG Entertainment with indemnities with respect to liabilities arising out of our businesses and MSG Entertainment agreed to provide us with indemnities with respect to liabilities arising out of the businesses we transferred to MSG Entertainment. These agreements also include arrangements with respect to support services and a number of ongoing commercial relationships, including our use of The Garden and the allocation of certain revenues and expenses from games played by our sports teams at The Garden.
MSG Entertainment provides certain business services that were performed by internal resources prior to the MSGE Distribution, such as information technology, accounts payable, payroll, tax, certain legal functions, human resources, insurance and risk management, investor relations, corporate communications, benefit plan administration and reporting and internal audit functions. These services include the collection and storage of certain personal information regarding employees and/or customers as well as information regarding the Company, advertisers and others. The services agreement and certain of the commercial arrangements are subject to potential termination by MSG Entertainment in the event MSG Entertainment and the Company are no longer affiliates.
The Company relies on MSG Entertainment to perform its obligations under these agreements. If MSG Entertainment were to breach, become unable to satisfy its material obligations under these agreements as a result of ongoing labor market disruptions or otherwise, fail to satisfy its indemnification or other financial obligations, or these agreements otherwise terminate or expire and we do not enter into replacement agreements, we could suffer operational difficulties and/or significant losses.
Our Business is Subject to Seasonal Fluctuations and our Operating Results and Cash Flow Can Vary Substantially from Period to Period.
Our revenues and expenses have been seasonal and we expect they will continue to be seasonal. Due to the NBA and NHL playing seasons, revenues from our business are typically concentrated in the second and third quarters of each fiscal year. Disruptions due to COVID-19 have also impacted the seasonality of our business. For example, as a result of the delayed start of the 2020-21 NBA and NHL regular seasons due to COVID-19, certain of our revenues and expenses were recognized during the third and fourth quarters of fiscal year 2021 that otherwise typically would have been recognized during the second and third quarters.
As a result, our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Therefore, period-to-period comparisons of our operating results may not necessarily be meaningful and the operating results of one period are not indicative of our financial performance during a full fiscal year. This variability may adversely affect our business, results of operations and financial condition.
Weather or Other Conditions May Impact Events at Our Venues, Which May Have a Material Negative Effect on Our Business and Results of Operations.
Weather or other conditions, including natural disasters, acts of terrorism and similar events, in the New York metropolitan area and other locations in which we own or operate venues may affect patron attendance as well as sales of food and beverages and merchandise, among other things. Weather conditions may also require us to cancel or postpone events. Any of these events may have a material negative effect on our business and results of operations.
Our Business Could Be Adversely Affected by Terrorist Activity or the Threat of Terrorist Activity and Other Developments that Discourage Congregation at Prominent Places of Public Assembly.
The success of our businesses is dependent upon the willingness and ability of patrons to attend events at our venues. The venues we operate, like all prominent places of public assembly, could be the target of terrorist activities, including acts of domestic terrorism, or other actions that discourage attendance. Any such activity at or near one of our venues or other similar venues could result in a material negative effect on our business and results of operations. In addition, terrorist activity, including acts of domestic terrorism, or other actions that discourage attendance at other locations, or even the threat of such activity, could result in reduced attendance at our venues. Similarly, a major epidemic or pandemic, or the threat of such an event, could adversely affect attendance at our events.
We May Pursue Acquisitions and Other Strategic Transactions to Complement or Expand Our Business that May Not Be Successful; Successful.
We Have Significant Investments in Businesses We Do Not Control.
From timemay continue to time, we explore opportunities to purchase or invest in other businesses venues or assets that we believe will complement, enhance or expand our current business or that might otherwise offer us growth opportunities, including opportunities that may differ from the Company’s current business.opportunities. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the payment of advances, the diversion of management’s attention and resources, litigation or other claims in connection with acquisitions or against companies we invest in or acquire, our lack of control over certain joint venture companies and other minority investments, the inability to successfully integrate such business into our operations or even if successfully integrated, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful. We have significant investments
Operational Risks
Our Business Could Be Adversely Affected by Terrorist Activity or the Threat of Terrorist Activity and Other Developments That Discourage Congregation at Prominent Places of Public Assembly.
The success of our business is dependent upon the willingness and ability of patrons to attend our games. The Garden, like all prominent places of public assembly, could be the target of terrorist activities, including acts of domestic terrorism or other actions that discourage attendance. Any such activity or threatened activity at or near The Garden or other similar venues in businesses that we account for under the equity method of accounting. These investments have generated operating losses each year and certain have required additional investments from us in the form of equity or loans. We incurred losses in our equity method investments of approximately $7.8 million and $30.0 million in fiscal years 2018 and 2017, respectively. There can be no assurance that these investments will become profitable individually or in the aggregate or that they will not require material additional funding from us in the future.
We do not control the day-to-day operations of these investments. We have in the past written down and, to the extent that these investments are not successful in the future, we may write down all or a portion of such investments. Additionally, these businesses are subject to laws, rules and other circumstances, and have risks in their operations, which may be similar to, or different from, those to which we are subject. Any of the foregoing riskslocations could result in a material negative effect onreduced attendance at our businessgames and, results of operations or adversely impact the value of our investments.
We Do Not Own All of Our Venues and Our Failure to Renew Our Leases or Venue Management Agreements on Economically Attractive Terms May Have a Material Negative Effect on Our Business and Results of Operations; Our Lease on Radio City Music Hall Requires Us to Maintain a Certain Net Worth or Meet Certain Other Requirements.
The lease on Radio City Music Hall expires in 2023. We have the option to renew the lease at fair market value for an additional ten years by providing two years’ notice prior to the initial expiration date. Similarly, we lease the Beacon Theatre pursuant to a lease that expires in 2026. If we are unable to renew these leases on economically attractive terms, our business could be materially negatively affected. MSG Sports & Entertainment, LLC, the entity that guarantees the Radio City Music Hall lease, is required to maintain a certain net worth or, if such net worth is not maintained, the entity must either post a letter of credit or provide cash collateral. The MSG Sphere in Las Vegas is being constructed on property we lease from Sands under a 50 year lease.
TAO Group operates venues under various agreements that include leases with third parties and management agreements. The long-term success of TAO Group will depend in part on the availability of real estate, the ability to lease this real estate and the ability to enter into management agreements. As many of these agreements are with third parties over whom TAO Group has little or no control, they may be unable to renew these agreements or enter into new agreements on acceptable terms or at all, and may be unable to obtain favorable agreements with venues. In addition, some of these agreements include conditions that, if not met, would permit the counterparty to terminate the management agreement under certain circumstances. The ability to renew these agreements and obtain new agreements on favorable terms depends on a number of other factors, many of which are beyond the control of us or TAO Group, such as national and local business conditions and competition from other businesses. There can be no assurance that TAO Group will be able to renew these agreements on acceptable terms or at all, or that they will be able to obtain attractive agreements with appropriate venues or real estate owners, which couldmore generally, have a material negative effect on our business and results of operations. Similarly, a major epidemic or pandemic, or the threat of such an event, could adversely affect attendance at our games or, depending on its severity, halt our operations entirely. See “— Sports Business Risks — Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response.” Moreover, the costs of protecting against such incidents, including any costs of protecting against the spread of COVID-19, reduce the profitability of our operations. In addition, such events or the threat of such events may harm our ability to obtain or renew insurance coverage on favorable terms or at all.
We Are Subject to Extensive Governmental Regulation, Which Can Change, and OurAny Failure to Comply withWith These Regulations May Have a Material Negative Effect on Our Business and Results of Operations.
Our operations are subject to federal, state and local laws and regulations.
We hold liquor licenses at each of our venues and are subject to licensing requirements with respect to the sale of alcoholic beverages in the jurisdictions in which we serve those beverages. Failure to receive or retain, or the suspension of, liquor licenses or permits could interrupt or terminate our ability to serve alcoholic beverages at the applicable venue and could have a material negative effect on our business and our results of operations. Additional regulation relating to liquor licenses may limit our activities in the future or significantly increase the cost of compliance, or both. In the jurisdictions in which our venues are located, we are subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor patron is a violation of the law and may provide for strict liability for certain damages arising out of such violations. Our liability insurance coverage may not be adequate or available to cover any potential liability.
We and our venues are subject to environmental laws and regulations relating to the use, disposal, storage, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the operations of our venues. Additionally, certain laws and regulations could hold us strictly, jointly and severally responsible for the remediation of hazardous substance contamination at our facilities or at third-party waste disposal sites, and could hold us responsible for any personal or property damage related to any contamination. Any requirements to dispose of, or remediate, such hazardous or non-hazardous materials and any associated costs and impact on operations of such efforts may be heightened as a result of the purchase, construction or renovation of a venue.
Our venues are subject to zoning and building regulations including permits relating to the operation of The Garden. In addition, The Garden requires a zoning special permit. The original permit was granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years. In connection with the renewal, certain government officials and special interest groups sought to use the renewal process to pressure us to improve Penn Station or to relocate The Garden. There can be no assurance regarding the future renewal of the permit or the terms thereof.
We are subject to various data privacy laws in the jurisdictions we operate.substantial governmental regulations affecting our business. These include, but are not limited to, data privacy and protection laws, regulations, policies and contractual obligations that apply to the E.U. General Data Protection Regulationcollection, transmission, storage, processing and use of personal information or personal data, which among other things, impose certain requirements relating to the privacy and security of personal information. The variety of laws and regulations governing data privacy and protection, and the California Consumer Privacy Act. These laws obligate us to complyuse of the internet as a commercial medium are rapidly evolving, extensive, and complex, and may include provisions and obligations that are inconsistent with certain consumerone another or uncertain in their scope or application.
The data protection landscape is rapidly evolving in the United States. As our operations and employee rights concerning databusiness grow, we may collect aboutbecome subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, California has passed a comprehensive data privacy law, the CCPA, and other states including Virginia and Colorado have also passed similar laws. Additionally, the CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights procedures and obligations, limitations on data uses, new audit requirements for higher risk data, and constraints on certain uses of sensitive data. The majority of the CPRA provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, there are several legislative proposals in the United States, at both the federal and state level, that could impose new privacy and security obligations. We cannot yet determine the impact that these individuals. future laws and regulations may have on our business.
In addition, some of these laws have only recently become effectivegovernmental authorities and new laws may create additional obligations in the future. Actions requiredprivate litigants continue to comply with these rightsbring actions against companies for online collection, use, dissemination and security practices that are complex and violations could expose us to fines and other penalties that may be significant.unfair or deceptive.
Our businesses are,business is, and may in the future be, subject to a variety of other laws and regulations, including licensing, permitting, and historic designation and similar requirements; working conditions, labor, immigration and employment laws; and health, safety and sanitation requirements;requirements. We are unable to predict the outcome or effects of any potential legislative or regulatory proposals on our businesses. Any changes to the legal and compliance with the Americans with Disabilities Act (and related stateregulatory framework applicable to our businesses could have an adverse impact on our business and local statutes).results of operations.
Our failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could result in liability that could have a material negative effect on our business and results of operations.
Our business has also been materially impacted by government actions taken in response to the COVID-19 pandemic. See “— Sports Business Risks — Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response.”
Weather or Other Conditions May Impact Our Games, Which May Have a Material Negative Effect on Our Business and Results of Operations.
Weather or other conditions, including natural disasters and similar events, in the New York metropolitan area may affect patron attendance at Knicks or Rangers games as well as sales of food and beverages and merchandise, among other things. Weather conditions may also require us to cancel or postpone games. Any of these events may have a material negative effect on our business and results of operations.
We Face Continually Evolving Cybersecurity and Similar Risks, Which Could Result in Loss, Disclosure, Theft, Destruction or Misappropriation of, or Access to, Our Confidential Information and Cause Disruption ofto Our Business, Damage to Our Brands and Reputation, Legal Exposure and Financial Losses.
Through our operations, weWe may collect and store, including by electronic means, certain personal, proprietary and other sensitive information, including payment card information, that is provided to us through purchases, registration on our websites or mobile applications, or otherwise in communication or interaction with us. These activities require the use of centralized data storage, including through third partythird-party service providers. Data maintained in electronic form is subject to the risk of security incidents, including breach, compromise, intrusion, tampering, theft, misappropriation or other malicious activity. Further, hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of such systems. Our ability to safeguard such personal information and other confidentialsensitive information, including information regarding the Company and our distributors, advertiserscustomers, sponsors, partners and employees, independent contractors and vendors, is important to our business. We take these matters seriously and take significant steps to protect our stored information, including the implementation of systems and processes to thwart malicious activity. These protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. In addition, in the event of a security incident, changes in legislation may increase the risk of potential litigation. For example, the California Consumer Privacy Act (“CCPA”), which provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information was breached as a result of a business’ violation of its duty to reasonably secure such information, takes effect on January 1, 2020.
Despite our efforts, the risks of a security incident cannot be entirely eliminated and our information technology and other systems that maintain and transmit consumer, distributor, advertiser,customer, sponsor, partner, Company, employee and other confidential and proprietary information may be compromised.compromised due to employee error or other action, computer malware or ransomware, viruses, hacking and phishing attacks, denial-of-service attacks, business email compromises, or otherwise. Such compromise could affect the security of information on our network, or that of a third partythird-party service provider, including MSG Entertainment to which we
outsource information technology services, including technology relating to season ticket holders and could result in personal information and/or confidential information being lost, disclosed, accessed or taken without consent.purchases of individual game tickets, and certain payment processing. For example, onin November 22, 2016, the Company announced it had identified and addressed a payment card issue that affected cards used at merchandise and food and beverage locations at several of the Company’s pre-MSGE Distribution venues, including its New York venues and The Chicago Theatre.Theatre, was identified and addressed with the assistance of security firms. The Company, working with security firms,issue was promptly fixed the issue and implemented enhanced security measures.measures were implemented. Additionally, outside parties may attempt to fraudulently induce employees, vendors or users to disclose sensitive, proprietary or confidential information in order to gain access to data and systems. As a result of any of these actions, such sensitive, proprietary and/or confidential information may be lost, disclosed, accessed or taken without authorization. See “— Economic and Business Relationship Risks— We Rely on MSG Entertainment’s Performance Under Various Agreements” for a discussion of services MSG Entertainment performs on our behalf. The Company also continues to review and enhance our security measures in light of the constantly evolving techniques used to gain unauthorized access to networks, data, software and systems. The Company has incurred expenses associated with the payment card incident and may be required to incur significant expenses in order to address any additional actual or potential security incidents that arise.
If we experience aan actual or perceived security incident, our ability to conduct business may be interrupted or impaired, we may incur damage to our systems, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property. Further,Unauthorized access to or security breaches of our systems could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, diversion of management’s attention, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation that may include liability for stolen or lost assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities. In addition, in the event of a security incident, such as a penetrationchanges in legislation may increase the risk of our network, affecting personal or confidential information could subject us to business and litigation risk and damage our reputation, including with customers and advertisers, which could have a material negative effect on our business and results of operations.
Our Properties Are Subject to, and Benefit from, Certain Easements, the Availability of Which May Not Continue on Terms Favorable to Us or at All.
Our properties are subject to, and benefit from, certain easements.potential litigation. For example, the “breezeway” into the Madison Square Garden Complex from Seventh Avenue in New York CityCCPA, which provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information is a significant easement that we share with other property owners. Additionally, our planned MSG Sphere in Las Vegas will have the benefit of easements with respect to the planned pedestrian bridge to the Sands Expo Convention Center. Our ability to continue to utilize these and other easements, including for advertising purposes, requires us to comply with a number of conditions. Moreover, certain adjoining property owners have easements over our property, which we are required to maintain so long as those property owners meet certain conditions. It is possible that we will be unable to continue to access or maintain any easements on terms favorable to us, or at all, which could have a material negative effect on our business and results of operations.
A Change to or Withdrawal of a New York City Real Estate Tax Exemption May Have a Material Negative Effect on Our Business and Results of Operations.
Many arenas, ballparks and stadiums nationally and in New York City have received significant public support, such as tax exempt financing, other tax benefits, direct subsidies and other contributions, including for public infrastructure critical to the facilities such as parking lots and transit improvements. Our Madison Square Garden Complex benefits from a more limited real estate tax exemption pursuant to an agreement with the City of New York, subject to certain conditions, and legislation enacted by the State of New York in 1982. For fiscal year 2019, the tax exemption was $42.4 million. From time to time there have been calls to repeal or amend the tax exemption. Repeal or amendment would require legislative action by New York State. There can be no assurance that the tax exemption will not be amended in a manner adverse to us or repealed in its entirety, either of which could have a material negative effect on our business and results of operations.
Certain of Our Subsidiaries Have Incurred Indebtedness, and the Occurrence of an Event of Default Under Our Subsidiaries’ Credit Facilities Could Substantially Impair the Assets of Those Subsidiaries; Failure of Our Joint Ventures or Other Parties to Perform as Expected, Including the Repayment of Outstanding Loans, Could Have a Negative Effect on Our Business.
Certain of our subsidiaries have incurred indebtedness, which indebtedness in the case of the TAO Group is significant relative to the assets of the TAO Group business. New York Knicks, LLC and New York Rangers, LLC, which own the assets of the Knicks and Rangers franchises, respectively, have also entered into credit facilities, both of which were undrawn as of June 30, 2019. The occurrence of an event of default under our subsidiaries’ credit facilities could substantially impair the assets of those subsidiaries and,breached as a result haveof a negativebusiness’ violation of its duty to reasonably secure such information, took effect on our businessJanuary 1, 2020 and resultswill be expanded by the CPRA once it takes effect in January 2023. Our insurance coverage may not be adequate to cover the costs of operations. In addition, in May 2019 we extended a $49 million subordinated loandata breach, indemnification obligations, or other liabilities.
We have obligations to the TAO Group. The occurrencenotify relevant stakeholders of an event of default under TAO Group’s senior credit agreementsecurity breaches. Such mandatory disclosures are costly, could lead to an event of default undernegative publicity, may cause our subordinated loancustomers to TAO Group and could impair our ability to havelose confidence in the Company’s subordinated loan repaid.
In addition, we have made investments in, or otherwise extended loans to, one or moreeffectiveness of our joint ventures or other partiessecurity measures and may make additional investments in, or otherwise extend loansrequire us to one or more of such parties in the future. To the extent that such parties do not perform as expected, including with respect to repayment of such loans, it could impair such assets or create losses related to such loans, and, as a result, have a negative effect on our business and results of operations.
We Will Require Financing to Fund Our Ongoing Operations and Capital Expenditures, the Availability of Which is Highly Uncertain.
Theexpend significant capital and credit markets can experience volatility and disruption. Such markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers.
Our business has been characterizedother resources to respond to or alleviate problems caused by significant expenditures for properties, businesses, renovations and productions. In the future we may engage in transactions that depend on our ability to obtain financing. We may also seek financing to fund our ongoing operations.
Depending upon conditions in the financial markets and/an actual or the Company’s financial performance, we may not be able to raise additional capital on favorable terms, or at all. In addition, as described above, the leagues in which our sports teams compete may have, under certain circumstances, approval rights over certain financing transactions, and in connection with those rights, could affect our ability to obtain such financing. If we are unable to pursue our current and future spending programs, we may be forced to cancel or scale back those programs. Failure to successfully pursue our capital expenditure and other spending plans could negatively affect our ability to compete effectively and have a material negative effect on our business and results of operations.
Our financing plan for MSG Sphere contemplates completion of the Sports Distribution followed by sales by the Company of all or a portion of the interests Sports Spinco that the Company will retain following the Sports Distribution. Successful completion of those sales will depend upon conditions in the capital markets. Failure to successfully complete those sales could adversely affect our ability to fund the construction of the MSG Spheres.
Our Business is Subject to Seasonal Fluctuations.
Our revenues have been seasonal and we expect they will continue to be seasonal. For example, 16% of our MSG Entertainment segment’s revenues and 8% of our consolidated revenues in fiscal year 2019 were derived from theChristmas Spectacular. Revenues of the MSG Entertainment segment are highest in the second quarter of our fiscal year when these performances primarily occur. As a result, MSG Entertainment earns a disproportionate amount of its revenue and operating income in the second quarter of each fiscal year. Similarly, because of the nature of the NBA and NHL playing seasons, revenues from our sports teams are concentrated in the second and third quarters of each fiscal year. Revenues from our business on a consolidated basis tend to be at their lowest in the first and fourth quarters of the fiscal year.
Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.
Our business is dependent upon the efforts of unionized workers. Approximately 52% of our employees are represented by unions. Any labor disputes, such as strikes or lockouts, with the unions with which we have CBAs could have a material negative effect on our business and results of operations (including our ability to produce or present concerts, theatrical productions, sporting events and other events).
NBA players are covered by a CBA between the NBPA and the NBA. NHL players are covered by a CBA between the NHLPA and the NHL. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future. Labor difficulties may include players’ strikes or management lockouts. For example, the NHL has experienced labor difficulties, including a lockout during the 1994-95 NHL season, which resulted in the regular season being shortened from 84 to 48 games, a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season, and a lockout during the 2012-13 NHL season, which resulted in the regular season being shortened from 82 to 48 games. The current NHL CBA expires on September 15, 2022 (although the NHL and NHLPA each have the right to terminate the CBA effective following the 2019-20 season). The NBA has also experienced labor difficulties, including a lockout during the 1998-99 season, which resulted in the regular season being shortened from 82 to 50 games, and a lockout during the 2011-12 season, which resulted in the regular season being shortened from 82 games to 66 games. The current NBA CBA expires after the 2023-24 season (although the NBA and NBPA each has the right to terminate the CBA effective following the 2022-23 season).perceived security breach.
The Unavailability of Systems Upon Which We Rely May Have a Material Negative Effect on Our Business and Results of Operations.
We rely upon various internal and third-party software or systems in the operation of our business, including, with respect to ticket sales, credit card processing, email marketing, point of sale transactions, database, inventory, human resourcecapital management and financial systems. From time to time, certain of the arrangements for these arrangementssystems may not be covered by long-term agreements. The failure or unavailability of these internal or third-party services or systems, depending upon its severity and duration, could have a material negative effect on our business and results of operations. See also “— Economic and Business Relationship Risks — We Rely on MSG Entertainment’s Performance Under Various Agreements” for a discussion of services MSG Entertainment performs on our behalf.
We May Become Subject to Infringement or Other Claims Relating to Our Content or Technology.
From time to time, third parties may assert against us alleged intellectual property (e.g., copyright, trademark and patent) or other claims relating to our productions, technologies or other content or material, some of which may be importantmaterial to our business. In addition, our productions could potentially subject us to claims of defamation or similar types of allegations. Any such claims, regardless of their merit, could cause us to incur significant costs.costs that could harm our results of operations. These claims may not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance policy. In addition, if we are unable to continue use of certain intellectual property rights, our business and results of operations could be materially negatively impacted.
There Is thea Risk of Personal Injuries and Accidents in Connection with Our Venues,at The Garden, Which Could Subject Us to Personal Injury or Other Claims; We are Subject to the Risk of Adverse Outcomes in Other Types of Litigation.
There are inherent risks associated with producing and hosting events and operating, maintaining or renovatinghaving customers attend our venues and in operating the restaurant and nightlife venues.teams’ games. As a result, personal injuries, accidents and other incidents have occurred and may occur from time to time, which could subject us to claims and liabilities.
These risks mightmay not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance.insurance policy. Incidents in connection with events at anyone of our venuesgames or an event hosted by MSG Entertainment at The Garden could also reduce attendance at our events,other games, and causemay have a decrease innegative impact on our revenue and operating income. While we seekresults of operations. Under the Arena License Agreements, MSG Entertainment and the Company have reciprocal indemnity obligations to obtain contractual indemnities for events at our venues that we do not promoteeach other in
connection with their respective acts or omissions in or about The Garden during the home games of the Knicks and wethe Rangers. We, the NBA and the NHL maintain insurance policies that provide coverage for incidents in the ordinary course of business, but there can be no assurance that such indemnities or insurance will be adequate at all times and in all circumstances.
From time to time, we become subject tothe Company and its subsidiaries are involved in various legal proceedings, including proceedings or lawsuits brought by governmental agencies, stockholders, customers, employees, other kinds of litigation.private parties and other stakeholders. The outcome of litigation is inherently unpredictable.unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming, disruptive to our operations, harmful to our reputation and distracting to management. As a result, we couldmay incur liability from litigation (including in connection with settling such litigation) which could be material and for which we may not have inadequateavailable or noadequate insurance coverage or be subject to other forms of non-monetary relief which mightmay adversely affect the Company.
We face risks from doing business internationally.
We have operations The liabilities and own property outside of the United States. As a result, our business is subject to certain risks inherentany defense costs we incur in international business, many of which are beyond our control. These risks include:
laws and policies affecting trade and taxes, including laws and policies relating to currency, the repatriation of funds and withholding taxes, and changes in these laws;
changes in local regulatory requirements, including restrictions on foreign ownership;
exchange rate fluctuation;
exchange controls, tariffs and other trade barriers;
differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;
foreign privacy and data protection laws and regulations,connection with any such as the E.U. General Data Protection Regulation, and changes in these laws;
the impact of Brexit, particularly in the event of the U.K.’s departure from the E.U. without an agreement on terms;
the instability of foreign economies and governments;
war and acts of terrorism;
anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K. Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations; and
shifting consumer preferences regarding entertainment.
Events or developments related to these and other risks associated with international operationslitigation could have a material negativean adverse effect on our business and results of operations.
Corporate Governance Risks
We Could Have Significant Tax Liability as a Result of the MSGE Distribution.
We have obtained an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the MSGE Distribution qualifies as a tax-free distribution under the Internal Revenue Code (the “Code”). The opinion is not binding on the Internal Revenue Service (the “IRS”) or the courts. The opinion relies on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion.
If the MSGE Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we would be subject to tax as if we had sold the MSG Entertainment common stock in a taxable sale for its fair value. MSG Entertainment stockholders would be subject to tax as if they had received a distribution equal to the fair value of MSG Entertainment common stock that was distributed to them, which generally would be treated first as a taxable dividend to the extent of our earnings and profits, then as a non-taxable return of capital to the extent of each holder’s tax basis in its MSG Entertainment common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to MSG Entertainment stockholders and us would be substantial.
We May Have a Significant Indemnity Obligation to MSG Entertainmentif the MSGEDistribution Is Treated as a Taxable Transaction.
We have entered into a Tax Disaffiliation Agreement with MSG Entertainment, which sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the MSGE Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify MSG Entertainment for losses and taxes of MSG Entertainment resulting from our breach of certain covenants and for certain taxable gain recognized by MSG Entertainment, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify MSG Entertainment under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could adversely affect our financial position.
The 2015MSGS Distribution Could Result in Significant Tax Liability.
We have received an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the 2015MSGS Distribution qualified as a tax-free distribution under the Internal Revenue Code (the “Code”).Code. The opinion is not binding on the IRS or the courts. Additionally, MSG Networks received a private letter ruling from the IRS concluding that certain limited aspects of the 2015MSGS Distribution do not prevent the 2015MSGS Distribution from satisfying certain requirements for tax-free treatment under the Code. The opinion and the private letter ruling relied on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.
If the 2015MSGS Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, MSG Networks (which is a wholly-owned subsidiary of MSG Entertainment following the completion of the MSGE-MSGN Merger in July 2021) would recognize taxable gain in an amount equal to the excess of the fair market value of the common stock of our Company over MSG Networks’ tax basis therein (i.e., as if it had sold the common stock of our Company in a taxable sale for its fair market value). In addition, the receipt by MSG Networks’ former stockholders of common stock of our Company would be a taxable distribution, and each U.S. holder that participated in the 2015MSGS Distribution would recognize a taxable distribution as if the U.S. holder had received a distribution equal to the fair market value of our common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of MSG Networks’ earnings and profits, then as a non-taxable return of capital to the extent of each U.S. holder’s tax basis in its MSG Networks common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to MSG Networks’
former stockholders and MSG Networks would be substantial. See “— We May Have a Significant Indemnity Obligation to MSG Networks Entertainmentif the 2015 MSGEDistribution Is Treated as a Taxable Transaction.Transaction.”
We May Have a Significant Indemnity Obligation to MSG Networks if the 2015MSGS Distribution Is Treated as a Taxable Transaction.
We have entered into a Tax Disaffiliation Agreement with MSG Networks in connection with the MSGS Distribution, which sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the 2015MSGS Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify MSG Networks for losses and taxes of MSG Networks resulting from the breach of certain covenants and for certain taxable gain recognized by MSG Networks, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify MSG Networks under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could materially adversely affect our financial position.
We are Controlled by the Dolan Family. As a Result of Their Control, the Dolan Family Has the Ability to Prevent or Cause a Change in Control or Approve, Prevent or Influence Certain Actions by the Company.
We have two classes of common stock:
•Class A Common Stock, par value $0.01 per share (“Class A Common Stock”), which is entitled to one vote per share and is entitled collectively to elect 25% of our Board of Directors; and
•Class B Common Stock, par value $0.01 per share (“Class B Common Stock”), which is entitled to ten votes per share and is entitled collectively to elect the remaining 75% of our Board of Directors.
As of July 31, 2019,29, 2022, the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the “Dolan Family Group”), collectively own all of our Class B Common Stock, approximately 2.9%3.2% of our outstanding Class A Common Stock (inclusive of options exercisable and RSUs vesting within 60 days of July 29, 2022) and approximately 71.1%70.7% of the total voting power of all our outstanding common stock. The members of the Dolan Family Group holding Class B Common Stock have executed a stockholders agreement (the “Stockholders Agreement”) that has the effect of causing the voting power of the holders of our Class B Common Stock to be cast as a block with respect to all matters to be voted on by holders of Class B Common Stock. Under the Stockholders Agreement, the shares of Class B Common Stock owned by members of the Dolan Family Group (representing all of the outstanding Class B Common Stock) are to be voted on all matters in accordance with the determination of the Dolan Family Committee, except that the decisions of the Dolan Family Committee are non-binding with respect to the Class B Common Stock owned by certain Dolan family trusts that collectively own 40.5% of the outstanding Class B Common Stock (“Excluded Trust”). The “Dolan Family Committee” consists of Charles F. Dolan and his six children, James L. Dolan, Thomas C. Dolan, Patrick F. Dolan, Kathleen M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney. The Dolan Family Committee generally acts by majority vote, except that approval of a going-private transaction must be approved by a two-thirds vote and approval of a change-in-control transaction must be approved by not less than all but one vote. The voting members of the Dolan Family Committee are James L. Dolan, Thomas C. Dolan, Kathleen M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney, and Marianne Dolan Weber, with each member having one vote other than James L. Dolan, who has two votes. Because James L. Dolan has two votes, he has the ability to block Dolan Family Committee approval of any Company change in control transaction. Shares of Class B Common Stock owned by Excluded Trusts are to be voted on all matters in accordance with the determination of the Excluded Trusts holding a majority of the Class B Common Stock held by all Excluded Trusts, except in the case of a vote on a going-private transaction or a change in control transaction, in which case a vote of trusts holding two-thirds of the Class B Common Stock owned by Excluded Trusts is required.
The Dolan Family Group is able to prevent a change in control of our Company and no person interested in acquiring us willwould be able to do so without obtaining the consent of the Dolan Family Group. The Dolan Family Group, by virtue of their stock ownership, have the power to elect all of our directors subject to election by holders of Class B Common Stock and are able collectively to control stockholder decisions on matters on which holders of all classes of our common stock vote together as a single class. These matters could include the amendment of some provisions of our certificate of incorporation and the approval of fundamental corporate transactions.
In addition, the affirmative vote or consent of the holders of at least 66 2⁄3% of the outstanding shares of the Class B Common Stock, voting separately as a class, is required to approve:
•the authorization or issuance of any additional shares of Class B Common Stock; and
•any amendment, alteration or repeal of any of the provisions of our certificate of incorporation that adversely affects the powers, preferences or rights of the Class B Common Stock.
As a result, the Dolan Family Group also has the power to prevent such issuance or amendment.
The Dolan Family Group also controls MSG NetworksEntertainment (including its subsidiary MSG Networks) and AMC Networks Inc. (“AMC Networks”).
Following the potential Sports Distribution, it is expected that the Dolan Family Group will continue to own a sufficient number
We Have Elected to Be a “Controlled Company” for NYSE Purposes Which Allows Us Not to Comply with Certain of the Corporate Governance Rules of NYSE.
Members of the Dolan Family Group have entered into a Stockholders Agreement relating, among other things, to the voting of their shares of our Class B Common Stock. As a result, we are a “controlled company” under the corporate governance rules of NYSE. As a controlled company, we have the right to elect not to comply with the corporate governance rules of NYSE requiring: (i) a majority of independent directors on our Board, (ii) an independent corporate governance and nominating committee and (iii) an independent compensation committee. Our Board of Directors has elected for the Company to be treated as a “controlled company” under NYSE corporate governance rules and not to comply with the NYSE requirement for a majority independent board of directors and for an independent corporate governance and nominating committee because of our status as a controlled company. Nevertheless, our Board of Directors has elected to comply with the NYSE requirement for an independent compensation committee.
Future Stock Sales, Including as a Result of the Exercise of Registration Rights by Certain of Our Stockholders, Could Adversely Affect the Trading Price of Our Class A Common Stock.
Certain parties have registration rights covering a portion of our shares. We have entered into registration rights agreements with Charles F. Dolan, members of his family, certain Dolan family interests, and the Dolan Family Foundation that provide them with “demand” and “piggyback” registration rights with respect to approximately 5.1 million shares of Class A Common Stock, including shares issuable upon conversion of shares of Class B Common Stock. Sales of a substantial number of shares of Class A Common Stock, including sales pursuant to these registration rights, could adversely affect the market price of the Class A Common Stock and could impair our future ability to raise capital through an offering of our equity securities. It is possible that the potential Sports Distribution could lead to increased sales of our Class A Common Stock.
Transfers and Ownership of Our Common Stock Are Subject to Restrictions Under Rules of the NBA and NHL and Our Certificate of Incorporation Provides Us with Remedies Against Holders Who Do Not Comply with Those Restrictions.
The Company is the owner of professional sports franchises in the NBA and NHL. As a result, transfers and ownership of our common stock are subject to certain restrictions under the governing documents of the NBA and NHL as well as the Company’s consent and other agreements with the NBA and NHL in connection with their approval of the MSGS Distribution and the MSGE Distribution. These restrictions are described under “Description of Capital Stock — Class A Common Stock and Class B Common Stock — Transfer Restrictions” in our Information Statement filed as Exhibit 99.14.5 to Amendment No. 6 to the registration statementthis annual report on Form 10 filed with the SEC on September 11, 2015.10-K. In order to protect the Company and its NBA and NHL franchises from sanctions that might be imposed by the NBA or NHL as a result of violations of these restrictions, our amended and restated certificate of incorporation provides that, if a transfer of shares of our common stock to a person or the ownership of shares of our common stock by a person requires approval or other action by a league and such approval or other action was not obtained or taken as required, the Company shall have the right by written notice to the holder to require the holder to dispose of the shares of common stock which triggered the need for such approval. If a holder fails to comply with such a notice, in addition to any other remedies that may be available, the Company may redeem the shares at 85% of the fair market value of those shares.
We Share Certain Key ExecutivesDirectors, Officers and DirectorsEmployees with MSG NetworksEntertainment and/or AMC Networks, Which Means Those ExecutivesOfficers and Directors Do Not Devote Their Full Time and Attention to Our Affairs and the Overlap May Give Rise to Conflicts; Certain Directors Are Also Directors and/or Executives of AMC Networks.Conflicts.
Our Executive Chairman, and Chief Executive Officer, James L. Dolan, also serves as the Executive Chairman and Chief Executive Officer of MSG Entertainment and Non-Executive Chairman of AMC Networks. In addition, one of our directors, Charles F. Dolan, is the Chairman Emeritus of AMC Networks and our Executive Vice President and General Counsel, Lawrence J. Burian, also serves as the Executive Vice President and General Counsela director of MSG Networks. As a result, not allEntertainment. Furthermore, ten members of our executive officers devote their full timeBoard of Directors (including James L. Dolan and attention to the Company’s affairs.Charles F. Dolan) are also directors of MSG Entertainment and seven members of our Board of Directors are also directors of AMC Networks (including James L. Dolan and Charles F. Dolan). Our Vice Chairman, Gregg G. Seibert, also serves as the Vice Chairman of both MSG NetworksEntertainment and AMC Networks and our Senior Vice President, Associate General Counsel and Secretary, Mark C. Cresitello, also serves as Secretary of MSG Networks. In addition, one of our directors, Charles F. Dolan, isEntertainment. As a result, these individuals do not devote their full time and attention to the Executive Chairman of AMC Networks. Furthermore, six members of our Board of Directors (including James L. Dolan) are also directors of MSG Networks, and eight members of our Board of Directors (including James L. Dolan) are also directors of AMC Networks.Company’s affairs. The overlapping directors, officers and directorsemployees may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, the potential for a conflict of interest exists when we on the one hand, and MSG NetworksEntertainment and/or
AMC Networks on the other hand, look at certain acquisitions and other corporate opportunities that may be suitable for more than one of the companies. Also, conflicts may arise if there are issues or disputes under the commercial arrangements that exist between MSG NetworksEntertainment or AMC Networks and us. In addition, certain of our directors, officers and officersemployees hold MSG NetworksEntertainment and/or AMC Networks stock, stock options and/or restricted stock units and/or cash performance awards.units. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our Company and MSG NetworksEntertainment or AMC Networks. See “Certain Relationships and Potential Conflicts of Interest” in our Proxy Statement filed with the SEC on October 25, 2018 and “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” in our Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the registration statement on Form 10 filed with the SEC on September 11, 201522, 2021 for a discussion of certain procedures we instituted to help ameliorate such potential conflicts with MSG NetworksEntertainment and/or AMC Networks that may arise.
While decisions on the identities
Our Overlapping Directors and Executive Officers with MSG NetworksEntertainment and/or AMC Networks May Result in the Diversion of Corporate Opportunities to MSG NetworksEntertainment and/or AMC Networks and Other Conflicts and Provisions in Our Amended and Restated Certificate of Incorporation May Provide Us No Remedy in That Circumstance.
The Company’s amended and restated certificate of incorporationCompany acknowledges that directors and officers of the Company (the “Overlap Persons”) may also be serving as directors, officers, employees, consultants or agents of MSG NetworksEntertainment and/or AMC Networks (each an “Other Entity”),and their respective subsidiaries and that the Company may engage in material business transactions with such Other Entities.entities. The Company’s Board of Directors has adopted resolutions putting in place policies and arrangements whereby the Company has renounced its rights to certain business opportunities and the Company’s amended and restated certificate of incorporation provides that no director or officer of the Company who is also serving as a director, officer, employee, consultant or agent of one MSG Entertainment and/or more of the Other EntitiesAMC Networks and their subsidiaries will be liable to the Company or its stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in our amended and restated certificatesuch policies) to MSG Entertainment and/or AMC Networks or any of incorporation) to one or more of the Other Entitiestheir subsidiaries instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. These provisions in our amended and restated certificate of incorporation also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between the Company and the Other Entities and, to the fullest extent permitted by law, provide that the actions of the overlapping directors or officers in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders. See “Certain Relationships and Potential Conflicts of Interest” in our Proxy Statement filed with the SEC on October 25, 2018 and “Description of Capital Stock — Certain Corporate Opportunities and Conflicts” in our Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the registration statement on Form 10 filed with the SEC on September 11, 2015. While decisions on the identities of executives and directors of Sports Spinco have not been finalized, it is likely that, if the potential Sports Distribution occurs, conflicts related to overlapping executives and directors of the Company and Sports Spinco, similar to those described above, will exist.
Risks Relating to the Impact of the Potential Spin-off Transaction
The Sports Distribution, if Consummated, Could Result in Significant Tax Liability.
We expect to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the Sports Distribution will qualify as a tax-free distribution under the Code. The opinion will not be binding on the IRS or the courts. Additionally, we will request a private letter ruling from the IRS concluding that certain limited aspects of the Sports Distribution will not prevent the Sports Distribution from satisfying certain requirements for tax-free treatment under the Code, and the opinion from Sullivan & Cromwell LLP will rely on such private letter ruling. Certain transactions related to the Sports Distribution are not expected to be addressed by either the opinion or the private letter ruling and could result in the recognition of income or gain by us. The opinion and the private letter ruling will rely on factual representations and reasonable assumptions, which, if incorrect or inaccurate, may jeopardize the ability to rely on such opinion and letter ruling.
If the Sports Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we would be subject to tax as if we had sold Sports Spinco common stock in a taxable sale for its fair value. Sports Spinco stockholders would be subject to tax as if they had received a distribution equal to the fair value of Sports Spinco common stock that was distributed to them, which generally would be treated first as a taxable dividend to the extent of such holder’s pro rata share of our earnings and profits, then as a non-taxable return of capital to the extent of each holder’s tax basis in its Sports Spinco common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to Sports Spinco stockholders and us would be substantial.
The Tax Rules Applicable to the Sports Distribution, if Consummated, May Restrict us From Engaging in Certain Corporate Transactions or From Raising Equity Capital Beyond Certain Thresholds for a Period of Time After the Sports Distribution.
To preserve the tax-free treatment of the Sports Distribution to our and Sports Spinco’s stockholders, under a tax disaffiliation agreement that would be entered into between the Company and Sports Spinco, for the two-year period following the Sports Distribution, we will be subject to restrictions with respect to our activities, including restrictions relating to certain issuances or repurchases of our common stock, asset sales, mergers and liquidations.
These restrictions may limit our ability during that two-year period to pursue strategic transactions of a certain magnitude that involve the issuance or acquisition of our stock or engage in new businesses or other transactions that might increase the value of our business. These restrictions may also limit our ability to raise significant amounts of cash through the issuance of stock, especially if our stock price were to suffer substantial declines, or through the sale of certain of our assets.
We May Not Enjoy All the Benefits of Scale that We Achieved Prior to the Sports Distribution, if Consummated.
If the Sports Distribution is consummated, following the Sports Distribution we will no longer share with Sports Spinco the benefits of scope and scale in administrative and other overhead costs and expenses resulting from various factors, including financial reporting, costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax administration, legal and human resources related functions. While we expect to enter into agreements with Sports Spinco that govern a number of our commercial and other relationships after the Sports Distribution, those arrangements will not fully capture the benefits we currently enjoy as a result of the common ownership of the MSG Sports and MSG Entertainment businesses.
If the Sports Distribution Occurs, We Will Rely on Sports Spinco’s Performance Under Various Agreements.
If the Sports Distribution occurs, we expect to enter into various agreements with Sports Spinco, including a distribution agreement, a tax disaffiliation agreement, a transition services agreement, an employee matters agreement, an advertising sales representation agreement and team arena license agreements, as well as certain other arrangements. These agreements will govern our relationship with Sports Spinco subsequent to the Sports Distribution and will provide for the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to the Sports Distribution. These agreements will also include arrangements with respect to transition services and a number of on-going commercial relationships. Under the distribution agreement we will provide Sports Spinco with indemnities with respect to liabilities arising out of our businesses and Sports Spinco will provide us with indemnities with respect to liabilities arising out of the businesses we will transfer to Sports Spinco. We and Sports Spinco will each rely on the other to perform its obligations under all of these agreements. If Sports Spinco were to breach or to be unable to satisfy its material obligations under these agreements, including a failure to satisfy its indemnification or other financial obligations, we could suffer operational difficulties and/or significant losses.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We license The Garden, which has a maximum capacity of approximately 19,800 seats for New York Knicks games and approximately 18,000 seats for New York Rangers games, from MSG Entertainment in New York City pursuant to the Arena License Agreements.
We own the Madison Square Garden Complex, which includes The Garden (with a maximum capacity of approximately 21,000 seats) and Hulu Theater at Madison Square Garden (approximately 5,600 seats) in New York City, comprising approximately 1,100,000 square feet; a training centerTraining Center in Greenburgh, NY with approximately 105,000114,000 square feet of space; The Chicago Theatre (approximately 3,600 seats)space. In addition, we lease the CLG Performance Center in Chicago comprisingLos Angeles, CA with approximately 72,600 square feet; and the Forum (approximately 17,600 seats) in Inglewood, CA comprising approximately 307,0008,000 square feet.
Significant properties that are leased in New York City includeIn connection with the MSGE Distribution, the Company entered into a Sublease Agreement with MSG Entertainment for office space of approximately 328,50047,000 square feet housing Madison Square Garden’sthe Company’s administrative and executive offices approximately 577,000 square feet comprising Radio City Music Hall (approximately 6,000 seats) and approximately 57,000 square feet comprising the Beacon Theatre (approximately 2,800 seats). We also lease storage space in various other locations. For more information on our venues, see “Item 1. Business — Our Business — Our Performance Venues.”
We also lease property in Las Vegas, Nevada and own property in Stratford, London on which we intend to construct new venues — known as “MSG Sphere.” See “Item 1. Business — Our Business — Our Performance Venues — MSG Sphere.”
Our Madison Square Garden Complex is subject to and benefits from various easements, including over the “breezeway” into Madison Square Garden from Seventh Avenueat Two Pennsylvania Plaza in New York City (which we share with other property owners). Additionally, our planned MSG Sphere in Las Vegas will have the benefit of easements with respect to the planned pedestrian bridge to the Sands Expo Convention Center. Our ability to continue to utilize these and other easements requires us to comply with certain conditions. Moreover, certain adjoining property owners have easements over our property, which we are required to maintain so long as those property owners meet certain conditions.City.
In addition, TAO Group is engaged in the management and operation of restaurants, nightlife and hospitality venues in New York City, Las Vegas, Los Angeles, Chicago, Singapore and Australia, of which 14 venues are leased properties. The size of the TAO Group’s leased venues ranges from approximately 5,400 to 34,000 square feet and total approximately 206,000 square feet. TAO Group also manages 15 venues (including one venue located in Australia and four venues located in Singapore) that are not owned or leased properties.
Item 3. Legal Proceedings
On March 29, 2019, a purported stockholder of the Company filed a complaint in the Court of Chancery of the State of Delaware, derivatively on behalf of the Company, against certain directors of the Company who are members of the Dolan family group and against the directors of the Company who are members of the Compensation Committee (collectively, the “Director Defendants”). The Company is also named as a nominal defendant in the complaint. The complaint alleges that the Director Defendants breached their fiduciary duties to the Company’s stockholders in approving the compensation packages for James L. Dolan in his capacity as the Executive Chairman and Chief Executive Officer of the Company. The complaint seeks monetary damages in an unspecified amount from the Director Defendants in favor of the Company; rescission of Mr. Dolan’s employment agreements; restitution and disgorgement by Mr. Dolan in respect of his compensation; and costs and disbursements for the plaintiff. On June 5, 2019, the Board formed a Special Litigation Committee to investigate the claims made by the plaintiff and to determine the Company’s response thereto. The parties agreed to stay the litigation until December 19, 2019.
The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty (including the extent of available insurance, if any), management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A Common Stock, par value $0.01 per share (“Class A Common Stock”), is listed on the New York Stock Exchange (“NYSE”) under the symbol “MSG.“MSGS.” The Company’s Class A Common Stock began “regular way” trading on the NYSE on October 1, 2015.
Performance Graph
The following graph compares the relative performance of our Class A Common Stock, the Russell 3000 Index and the Bloomberg Americas Entertainment Index. This graph covers the period from October 1, 2015June 30, 2017 through June 30, 2019.2022. The comparison assumes an investment of $100 on October 1, 2015June 30, 2017 and reinvestment of dividends. The MSGE Distribution is treated as a reinvestment of a special dividend pursuant to SEC rules. The stock price performance included in this graph is not necessarily indicative of future stock performance.
| | | | | | | | | | | | | | 6/30/17 | | 6/30/18 | | 6/30/19 | | 6/30/20 | | 6/30/21 | | 6/30/22 |
| | Base Period 10/1/15 | | 6/30/16 | | 6/30/17 | | 6/30/18 | | 6/30/19 | |
The Madison Square Garden Company | | $ | 100.00 |
| | $ | 108.16 |
| | $ | 123.46 |
| | $ | 194.49 |
| | $ | 175.52 |
| |
Madison Square Garden Company Sports Corp. | | Madison Square Garden Company Sports Corp. | | $ | 100.00 | | | $ | 157.54 | | | $ | 142.17 | | | $ | 104.62 | | | $ | 122.91 | | | $ | 107.54 | |
Russell 3000 Index | | 100.00 |
| | 109.96 |
| | 130.31 |
| | 149.56 |
| | 163.00 |
| Russell 3000 Index | | 100.00 | | | 114.78 | | | 125.09 | | | 133.26 | | | 192.11 | | | 165.47 | |
Bloomberg Americas Entertainment Index | | 100.00 |
| | 106.98 |
| | 118.88 |
| | 156.68 |
| | 172.89 |
| Bloomberg Americas Entertainment Index | | 100.00 | | | 131.79 | | | 145.43 | | | 118.19 | | | 272.01 | | | 143.77 | |
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
As of June 30, 2019,2022, there were 663594 holders of record of our Class A Common Stock. There is no public trading market for our Class B Common Stock, par value $.01 per share (“Class B Common Stock”). As of June 30, 2019,2022, there were 1516 holders of record of our Class B Common Stock.
We did not pay any cash dividend on our common stock during fiscal year 20192022 and do not have any current plans to pay a cash dividend on our common stock for the foreseeable future.
Issuer Purchases of Equity Securities
As of June 30, 2019,2022, the Company had approximately $260 million remaining under the $525 million Class A Common Stock share repurchase program authorized by the Company’s boardBoard of directors (“Board”)Directors on September 11, 2015. Under the authorization, shares of Class A Common Stock may be purchased from time to time in accordance with applicable insider trading and other securities laws and regulations, with the timing and amount of purchases depending on market conditions and other factors. The Company has been funding and expects to continue to fund stock repurchases through a combination of cash on hand and cash generated by operations. During the fiscal year ended June 30, 2019,2022, the Company did not engage in any share repurchase activity under its share repurchase program.
Securities Authorized for Issuance Under Equity Compensation Plans The information required by this Item is incorporated by reference to the definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days of our fiscal year end.
Item 6. Selected Financial Data(Reserved)
The operating and balance sheet data included in the following selected financial data table have been derived from the consolidated and combined financial statements
Table of The Madison Square Garden Company and its subsidiaries. The balance sheet data as of June 30, 2019, 2018, 2017 and 2016 and the operating data for the years ended June 30, 2019, 2018 and 2017 and the nine months ended June 30, 2016 are presented on a consolidated basis, as the Company became a standalone public company (the “2015 Distribution”) on the September 30, 2015 (the “2015 Distribution Date”). Operating data prior to the 2015 Distribution Date, which included operating data for the year ended June 30, 2015, as well as operating data for the three months ended September 30, 2015 that is included in results of operations for the year ended June 30, 2016, were prepared on a standalone basis derived from the consolidated financial statements and accounting records of MSG Networks Inc. (“MSG Networks”) and are presented as carve-out financial statements as the Company was not a standalone public company prior to the 2015 Distribution Date (“carve-out and combined basis”). Balance sheet data as of June 30, 2015 were also presented on a carve-out and combined basis.Contents For periods prior to the 2015 Distribution Date, the financial information presented below does not necessarily reflect what our results of operations and financial position would have been if we had operated as a separate publicly-traded entity. The selected financial data presented below should be read in conjunction with the consolidated financial statements included in
Item 8 of this Annual Report on Form 10-K and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As discussed in note (a) below, our operating results for the year ended June 30, 2018 are not directly comparable with the year ended June 30, 2017 primarily due to the timing of our acquisition of a controlling interest in TAO Group Holdings LLC ( “TAO Group”).
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| | | | | | | | | | | | | | | | | | | |
| Years Ended June 30, |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| (d) | | (in thousands, except per share data) | | |
Operating Data (a): | | | | | | | | | |
Revenues | $ | 1,631,068 |
| | $ | 1,559,095 |
| | $ | 1,318,452 |
| | $ | 1,115,311 |
| | $ | 1,071,551 |
|
Net income (loss) | (3,117 | ) | | 134,448 |
| | (76,789 | ) | | (77,290 | ) | | (40,684 | ) |
Less: Net loss attributable to redeemable noncontrolling interests | (7,299 | ) | | (628 | ) | | (4,370 | ) | | — |
| | — |
|
Less: Net income (loss) attributable to nonredeemable noncontrolling interests | (7,245 | ) | | (6,518 | ) | | 304 |
| | — |
| | — |
|
Net Income (loss) attributable to The Madison Square Garden Company’s stockholders | $ | 11,427 |
| | $ | 141,594 |
| | $ | (72,723 | ) | | $ | (77,290 | ) | | $ | (40,684 | ) |
Basic earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders | $ | 0.48 |
| | $ | 5.99 |
| | $ | (3.05 | ) | | $ | (3.12 | ) | | $ | (1.63 | ) |
Diluted earnings (loss) per common share attributable to The Madison Square Garden Company’s stockholders | $ | 0.48 |
| | $ | 5.94 |
| | $ | (3.05 | ) | | $ | (3.12 | ) | | $ | (1.63 | ) |
Weighted-average number of common shares outstanding (b): | | | | | | | | | |
Basic | 23,767 |
| | 23,639 |
| | 23,853 |
| | 24,754 |
| | 24,928 |
|
Diluted | 23,900 |
| | 23,846 |
| | 23,853 |
| | 24,754 |
| | 24,928 |
|
Balance Sheet Data (a): | | | | | | | | | |
Total assets | $ | 3,763,551 |
| | $ | 3,736,173 |
| | $ | 3,712,753 |
| | $ | 3,543,950 |
| | $ | 2,148,942 |
|
Long-term debt (including current portion), net of deferred financing costs (c) | 54,598 |
| | 105,700 |
| | 105,433 |
| | — |
| | — |
|
Total The Madison Square Garden Company stockholders’ equity / divisional equity | 2,620,500 |
| | 2,536,483 |
| | 2,408,163 |
| | 2,586,421 |
| | 1,223,275 |
|
| |
(a)
| Operating and balance sheet data beginning in fiscal year 2017 includes results from the acquisitions of Boston Calling Events, LLC (“BCE”) operating information from July 1, 2016 to June 30, 2017 and TAO Group operating information from February 1, 2017 to March 26, 2017. Operating and balance sheet data beginning in fiscal year 2018 includes results from the acquisitions of Counter Logic Gaming (“CLG”) and Obscura Digital (“Obscura”) since their acquisition dates of July 28, 2017 and November 20, 2017, respectively. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Introduction — Factors Affecting Results of Operations. In addition, see “Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 2. Summary of Significant Accounting Policies — Business Combinations and Noncontrolling Interests” for more information on our acquisitions of BCE, TAO Group and CLG.
|
| |
(b)
| Following the 2015 Distribution Date, the Company had 24,928 common shares outstanding on September 30, 2015. This amount has been utilized to calculate earnings (loss) per share for the year ended June 30, 2015 as no Madison Square Garden common stock or equity-based awards were outstanding prior to September 30, 2015. |
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(c)
| Long-term debt presented above is net of debt issuance costs of $1,039, $3,613, and $4,567 as of June 30, 2019, 2018 and 2017, respectively. See “Part II — Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 12. Credit Facilities” for more information.
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(d)
| The Company’s operating results for the year ended June 30, 2019 were impacted by the adoption of ASC Topic 606. The Company used the modified retrospective method of adoption. Results for reporting periods beginning after July 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance under ASC Topic 605. See “Part II — Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 2. Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements” for more information.
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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A,, there are statements concerning the future operating and future financial performance of The Madison Square Garden CompanySports Corp. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “Madison Square Garden,” “MSG Sports,” or the “Company”), including possible impacts from the timing and costsimpact of new venue construction, increased investment in personnel, content and technology for the MSG Spheres, the potential spin-off of the Company’s sports businesses (the “Sports Distribution”), and the winding down of Obscura’s third-party production business.COVID-19 on our future operations. See “Part I — Item 1. Business”Business” for further discussion of the Sports Distribution.MSGE Distribution (defined below). Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
•the duration and severity of the COVID-19 pandemic and our ability to successfully design, construct, finance and operate new venues in Las Vegas, Londoneffectively manage the impacts, including the availability of the Madison Square Garden Arena (“The Garden”) with no or limited fans, league decisions regarding play and other markets, andmatters, the investments, costs and timing associated with those efforts, includingcancellation of games, the impact of any unexpected construction delays and/or cost overruns;
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• | the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level of popularity ofgovernmental restrictions, reduced tourism, and general hesitancy among the public to engage in public activities due to COVID-19;
•the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams; •Christmas Spectacular Starring the Radio City Rockettes (“Christmas Spectacular”) and other entertainment events which are presented in our venues; |
costs associated with player injuries, and waivers or contract terminations of players and other team personnel;
•changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax;
the level of our capital expenditures and other investments;
•general economic conditions, especially in the New York City Los Angeles, Las Vegas and London metropolitan areas where we have business activities;area;
•the demand for sponsorship arrangements and for advertising;
•competition, for example, from other teams, other venues and other sports and entertainment options, including the construction of new competing venues;options;
•changes in laws, National Basketball Association (the “NBA”(“NBA“) or National Hockey League (the “NHL”(“NHL“) rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues’ respective collective bargaining agreements (each a “CBA”) with their players’ associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate;
•any NBA, NHL or other work stoppage;stoppage, in addition to those related to COVID-19 impacts;
•labor market disruptions due to the COVID-19 pandemic or otherwise;
•any economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;
•seasonal fluctuations and other variation in our operating results and cash flow from period to period;
•the level of our expenses, including our corporate expenses;
the successful development of new live productions, enhancements or changes to existing productions and the investments associated with such development, enhancements, or changes, as well as investment in personnel, content and technology for the MSG Spheres;
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• | the continued popularity and success of the TAO Group restaurants and nightlife and hospitality venues, as well as its existing brands, and the ability to successfully open and operate new restaurants and nightlife and hospitality venues;
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• | the ability of BCE to attract attendees and performers to its festival;
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the evolution of the esports industry and its potential impact on our esports businesses;
the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;
our ability to successfully integrate acquisitions, new venues or new businesses into our operations;
the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire;
the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;
the impact of any government plans to redesign New York City’s Pennsylvania Station;
business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security;
•activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the New York Knickerbockers (the “Knicks”) and the New York Rangers (the “Rangers”) are played;
•a default by our subsidiaries under their respective credit facilities;
•the evolution of the esports industry and its potential impact on our esports businesses;
•the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;
•our ability to successfully integrate acquisitions or new businesses into our operations;
•the operating and financial performance of our strategic acquisitions and investments, including those we may not control;
•the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and Madison Square Garden Entertainment Corp. (“MSG Entertainment”) to maintain necessary permits or licenses;
•the impact of any government plans to redesign New York City’s Pennsylvania Station;
•business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings;
•financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
the ability of our investees and others to repay loans and advances we have extended to them;
•our ownership of professional sports franchises in the NBA and NHL and certain related transfer restrictions on our common stock;
•the tax freetax-free treatment of the 2015 Distribution;distribution of the outstanding common stock of the Company to the former shareholders of MSG Networks Inc. (“MSG Networks”) in fiscal year 2016 and the MSGE Distribution (as defined below);
whether or not we pursue•the performance by MSG Entertainment and completeits subsidiaries of its obligations under various agreements with the SportsCompany related to the MSGE Distribution and if so, its impact on our business, financial conditionongoing commercial arrangements; and results of operations; and
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• | the factors described under “Part I — Item 1A.Risk Factors”•the factors described under “Part I — Item 1A. Risk Factors” included in this Annual Report on Form 10-K. |
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
MSGE Distribution
On April 17, 2020 (the “MSGE Distribution Date”), the Company distributed all of the outstanding common stock of MSG Entertainment to its stockholders (the “MSGE Distribution”). MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. In the MSGE Distribution, (a) each holder of the Company’s Class A common stock, received one share of MSG Entertainment Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on April 13, 2020 (the “Record Date”), and (b) each holder of the Company’s Class B common stock, received one share of MSG Entertainment Class B common stock, par value $0.01 per share, for every share of the Company’s Class B common stock held of record as of the close of business, New York City time, on the Record Date. Subsequent to the MSGE Distribution, the Company no longer consolidates the financial results of MSG Entertainment for purposes of its own financial reporting and the historical financial results of MSG Entertainment have been reflected in the Company’s consolidated financial statements as discontinued operations for all periods presented through the MSGE Distribution Date.
After giving effect to the MSGE Distribution, the Company operates and reports financial information in one segment.
Introduction
MD&A is provided as a supplement to, and should be read in conjunction with, the audited consolidated financial statements and footnotes thereto included in Item 8 of this Annual Report on Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations.
Our MD&A is organized as follows:
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.
Results of Operations. This section provides an analysis of our results of operations for the years ended June 30, 2019, 20182022 and 20172021. For the comparison of our results of operations for the years ended June 30, 2021 and 2020, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2021 Annual Report on both a consolidatedForm 10-K, filed with the Securities and segment basis. Our segments are MSG Entertainment and MSG Sports.Exchange Commission on August 19, 2021.
Liquidity and Capital Resources. This section provides a discussion of our financial condition, as well as an analysis of our cash flows for the years ended June 30, 20192022 and 20182021. The discussion of our financial condition and liquidity includes summaries of (i) our primary sources of liquidity and (ii) our contractual obligations and off balance sheet arrangements that existed at June 30, 2019.2022.
Seasonality of Our Business. This section discusses the seasonal performance of our MSG Sports and MSG Entertainment segmentsCompany.
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section includes a discussion of accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Business Overview
The Company is a sports and entertainment business comprised of dynamic and powerful assets and brands. The Company is comprised of two business segments: MSG Entertainment and MSG Sports, which is built on a foundation of iconic venues and compelling content, including live sports and entertainment events that we create, produce and present. The Company conducts
a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns Madison Square Garden (“The Garden”) and Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City.
Description of Our Segments
MSG Entertainment
Our MSG Entertainment segment, which represented approximately 50% of our consolidated revenues for the year ended June 30, 2019, is one of the country’s leaders in live entertainment. MSG Entertainment produces, presents and hosts live entertainment events, including (i) concerts and (ii) other live events such as family shows, performing arts events and special events, in our diverse collection of venues. Those venues include The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, and The Chicago Theatre. The scope of our collection of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal.
Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows in which case we have economic risk relating to the event.
MSG Entertainment also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes theChristmas Spectacular, which is the top grossing live holiday family show in North America, featuring the Rockettes. The Christmas Spectacular has been performed at Radio City Music Hall for 86 years and more than one million tickets were sold for performances during the 2018 holiday season.
In July 2016, the Company acquired a controlling interest in BCE, the entertainment production company that owns and operates the Boston Calling Music Festival. This was followed in January 2017 by the Company’s purchasea portfolio of a controlling interest in TAO Group, a hospitality group with globally-recognized entertainment dining and nightlife brands. These companies are partassets featuring some of the MSG Entertainment segment. In November 2017, the Company acquired a 100% controlling interestmost recognized teams in Obscura, a creative studio, recognized for its work in designing and developing next-generation immersive experiences. Revenues generated by Obscura’s third-party production business (and related costs) are reflected in the MSG Entertainment segment. The Company has decided to wind down this third-party productions business to focus on MSG Sphere development. Any costs incurred by Obscura that are associated with MSG Sphere development that are not capitalized are reported in “Corporate and Other”.
Revenue Sources
Our primary sourcesall of revenue in our MSG Entertainment segment are ticket sales to our audiences for live events that we produce or promote/co-promote and license fees for our venues paid by third-party promoters in connection with events that we do not produce or promote/co-promote. We also generate revenue from other sources, including facility and ticketing fees, concessions, sponsorships and signage, a portion of suite license fees at The Garden, merchandising and tours at certain of our venues. The amount of revenue and expense we record in our MSG Entertainment segment for a given event depends to a significant extent on whether we are promoting or co-promoting the event or are licensing our venue to a third party. In addition, a significant component of the MSG Entertainment segment revenues are generated by the TAO Group through entertainment dining and nightlife offerings, which primarily consist of food and beverage sales and venue management fees.
Ticket Sales and Suite Licenses
For our productions and for entertainment events in our venues that we promote, we recognize revenues from the sale of tickets to our audiences. We sell tickets to the public through our box office, via our web sites and ticketing agencies and through group sales. The amount of revenue we earn from ticket sales depends on the number of shows and the mix of events that we promote, the capacity of the venue used, the extent to which we can sell to fully utilize the capacity and our ticket prices. During the fiscal year 2017, we implemented significant changes to how we sell Christmas Spectacular tickets. By eliminating block sales to third party brokers, we brought a significant number of tickets back in-house, which created the opportunity for more customers to buy tickets to the production directly from us.
The Garden has 21 Event Level suites, 58 Lexus Madison Level suites, and 18 Signature Level suites. Suite licenses at The Garden are generally sold to corporate customers pursuant to multi-year licenses. Under standard suite licenses, the licensees pay an annual license fee, which varies depending on the location of the suite. The license fee includes, for each seat in the suite, tickets for events at The Garden for which tickets are sold to the general public, subject to certain exceptions. In addition, suite holders separately pay for food and beverage service in their suites at The Garden. Revenues from the sale of suite licenses are shared between our MSG Entertainment and MSG Sports segments.
Venue License Fees
For entertainment events held at our venues that we do not produce, promote or co-promote, we typically earn revenue from venue license fees charged to the third-party promoter of the event. The amount of license fees we charge varies by venue, as well as by the size of the production and the number of days utilized, among other factors. Our fees typically include both the cost of renting space in our venues and costs for providing event staff, such as front-of-house and back-of-house staff, including stagehands, electricians, laborers, box office staff, ushers and security as well as production services such as staging, lighting and sound.
Facility and Ticketing Fees
For all public and ticketed entertainment events held in our venues, we also earn additional revenues on substantially all tickets sold, whether we promote/co-promote the event or license the venue to a third party. These revenues are earned in the form of certain fees and assessments,sports, including the facility fee we charge, and vary by venue.
Concessions
We sell food and beverages during substantially all entertainment events held at our venues. In addition to concession-style sales of food and beverages, which represent the majority of our concession revenues, we also generate revenue from catering for our suites at The Garden.
Merchandise
We earn revenues from the sale of merchandise relating to our proprietary productions and other live entertainment events that take place at our venues. The majority of our merchandise revenues are generated through on-site sales during performances of our productions and other live events. We also generate revenues from the sales of ourChristmas Spectacular merchandise, such as ornaments and apparel, through traditional retail channels. Typically, revenues from our merchandise sales at our non-proprietary events relate to sales of merchandise provided by the artist, the producer or promoter of the event and are generally subject to a revenue sharing arrangement.
Venue Signage and Sponsorship
We earn revenues through the sale of signage space and sponsorship rights in connection with our venues, productions and other live entertainment events. Signage revenues generally involve the sale of advertising space at The Garden during entertainment events and otherwise in our venues.
Sponsorship rights may require us to use the name, logos and other trademarks of sponsors in our advertising and in promotions for our venues, productions and other live entertainment events. Sponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our productions, events and venues in connection with their own advertising and in promotions in our venues or in the community.
Entertainment Dining and Nightlife Offerings
We earn revenues from entertainment dining and nightlife offerings through our operations of the TAO Group’s restaurants and nightlife and hospitality venues. These revenues primarily consist of food and beverage sales and banquet hosting services at TAO Group leased restaurants and nightclubs. In addition, we earn fees from our real estate partners for operating certain of our restaurants and nightclubs.
Expenses
Our MSG Entertainment segment’s principal expenses are payments made to performers of our productions, staging costs and day-of-event costs associated with events, and advertising costs. We charge a portion of our actual expenses associated with the ownership, lease, maintenance and operation of our venues, along with a portion of our corporate expenses, to our MSG Entertainment segment. However, the operating results of our MSG Entertainment segment benefit from the fact that no rent is charged to the segment for use of the Company’s owned venues. We do not allocate to our segments depreciation expense on property and equipment related to The Garden, Hulu Theater at Madison Square Garden or the Forum.
Performer Payments
Our productions are performed by talented actors, dancers, singers, musicians and entertainers. In order to attract and retain this talent, we are required to pay our performers an amount that is commensurate with both their abilities and the demand for their services from other entertainment companies. Our productions typically feature ensemble casts (such as the Rockettes), where most of our performers are paid based on a standard “scale,” pursuant to CBAs we negotiate with the performers’ unions. Certain performers, however, have individually negotiated contracts.
Staging Costs
Staging costs for our proprietary events as well as other events that we promote include the costs of sets, lighting, display technologies, special effects, sound and all of the other technical aspects involved in presenting a live entertainment event. These costs vary substantially depending on the nature of the particular show, but tend to be highest for large-scale theatrical productions, such as the Christmas Spectacular. For concerts we promote, the performer usually provides a fully-produced show. Along with performer salaries, the staging costs associated with a given production are an important factor in the determination of ticket prices.
Day-of-Event Costs
For days on which MSG Entertainment stages its productions, promotes an event or provides one of our venues to a third-party promoter under a license fee arrangement, the event is charged the variable costs associated with such event, including box office staff, stagehands, ticket takers, ushers, security, and other similar expenses. In situations where we provide our venues to a third-party promoter under a license fee arrangement, day-of-event costs are typically included in the license fees charged to the promoter.
Marketing and Advertising Costs
We incur significant costs promoting our productions and other events through various advertising campaigns, including advertising on outdoor platforms and in newspapers, on television and radio, and on social and digital platforms. In light of the intense competition for entertainment events, such expenditures are a necessity to drive interest in our productions and encourage members of the public to purchase tickets to our shows.
Entertainment Dining and Nightlife Offerings Costs
Through our ownership in the operations of the TAO Group restaurants and nightlife and hospitality venues, we incur costs for providing food and beverage as well as banquet hosting services to our customers. Our dining and nightlife offering costs primarily include the following:
labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items, including taxes and fringe benefits;
food and beverage costs;
operating costs, consisting of maintenance, utilities, bank and credit card charges, and any other restaurant-level expenses; and
occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, insurance premiums and taxes.
Factors Affecting Operating Results
The operating results of our MSG Entertainment segment are largely dependent on our ability to attract concerts and other live events to our venues, as well as the continuing popularity of theChristmas Spectacular at Radio City Music Hall. Our MSG Entertainment segment recognized an operating loss during the year ended June 30, 2017, which includes a $33,629 write-off of deferred production costs related to the New York Spectacular Starring the Radio City Rockettes (“New York Spectacular”).
Our MSG Entertainment segment’s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for our entertainment and nightlife offerings, suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, as well as lower levels of sponsorship and venue signage. These conditions may also affect the number of concerts, family shows and other events that take place in the future. An economic downturn could adversely affect our business and results of operations.
The Company continues to explore additional opportunities to expand our presence in the entertainment industry. Any new investment may not initially contribute to operating income, but is intended to become operationally profitable over time. Our results will also be affected by investments in, and the success of, new productions.
MSG Sports
Our MSG Sports segment, which represented approximately 50% of our consolidated revenues for the year ended June 30, 2019, owns and operates professional sports franchises, including the New York Knicks (the “Knicks”), a founding member of the NBA and the New York Rangers (the “Rangers”), one of the “original six” franchises of the NHL. MSG Sports also ownsBoth the Knicks and operatesthe Rangers play their home games at The Garden. The Company’s other professional sports franchises include two development league teams - the Hartford Wolf Pack of the American Hockey League (the “AHL”), which is the primary player development team for the Rangers and is also competitive in its own right in the AHL. The Company owns and operates an NBA G League
team, named the Westchester Knicks which plays its home games at the Westchester County Center in White Plains, NY. The Knicks and Rangers play their home games at The Garden. In January 2019, the Company sold the New York Liberty (the “Liberty”) of the Women’s National Basketball Association (the “WNBA”). For all periods through the sale date, MSG Sports includes the Liberty.NBA G League. Our professional sports franchises are collectively referred to herein as “our sports teams.” The MSG Sports segment also includes CLG, a premier North American esports organization, andIn addition, the Company owns Knicks Gaming, MSG’san esports franchise that competes in the NBA 2K League.League, as well as a controlling interest in Counter Logic Gaming (“CLG”), a North American esports organization. The Company also operates two professional sports team performance centers - the Madison Square Garden Training Center in Greenburgh, NY and the CLG Performance Center in Los Angeles, CA. CLG and Knicks Gaming are collectively referred to herein as “our esports teams,” and together with ourthe sports teams, “our teams.the “teams.” In addition, our sports business also promotes, produces and/or presents a broad array of live sporting events including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, and college wrestling.
Revenue Sources
We earn revenue in our MSG Sports segment from several primary sources: ticket sales and a portion of suite rental fees at The Garden, our share of distributions from NHL and NBA league-wide national and international television contracts and other league-wide revenue sources, venue signage and other sponsorships, concessionsfood and beverage sales at The Garden and merchandising. Our MSG Sports segmentWe also earnsearn substantial fees from MSG Networks for the local media rights to telecast the games of our professional sports teams. We also earn venue license fees, primarily from the rental of The Garden to third-party promoters or conferences holding sporting events at our arena. The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams and general economic and health and safety conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets, potentially greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs, we also benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact that a significant portion of our revenue derives from media rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a multi-year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teamsteams. In addition, due to the NBA and NHL playing seasons, revenues from our abilitybusiness are typically concentrated in the second and third quarters of each fiscal year. The concentration of our revenues and expenses, however, was different in fiscal year 2021 due to attract other compelling sports content.the effects of the COVID-19 pandemic.
Ticket Sales Suite Licenses, Venue Licenses,and Facility and Ticketing Fees
Ticket sales have historically constituted theour largest single source of revenue for our MSG Sports segment. We sell ticketsTickets to our sports teams’ home games are sold through season tickets (full and partial plans), which are typically held by long-term season subscribers, through group sales, and through single-game tickets, which are purchased by fans either individually or in multi-game packages. The prices of our tickets vary, depending on the sports team and the location of the seats. We generally review and set the price of our tickets before the start of each team’s season. DuringHowever, we dynamically price our individual tickets based on opponent, seat location, day of the fiscal year 2017 we made changes to our ticketing polices, resulting in fewer full season tickets soldweek and more sales of individual and group tickets, as well as partial season plans.
Revenues from the sale of suite licenses are shared between the MSG Entertainment and MSG Sports segments. See “— MSG Entertainment — Revenue Sources” for further discussion.
In addition to our sports teams’ home games, we also present or host other live sporting events at our venues. When the Company acts as the promoter or co-promoter of such events, the Company typically earns revenuesfactors. We do not earn revenue from ticket sales and incurs expenses associated with the event. When these events are promotedfor games played by third-party promoters, the Company typically earns venue license fees from the promoter for use of our venues. When licensing our venues, the amount recorded as revenue also includes the event’s variable costs such as the costs of front-of-house and back-of-house staffs, including electricians, laborers, box office staff, ushers, security and building services, which we pass along to the promoter. The number and mix of live sporting events, including whether we are the promoter or co-promoter of an event or license our venues to a third-party promoter, could have a significant impact on the level of revenues and expenses that we record in our MSG Sports segment.teams at their opponents’ arenas.
Our MSG Sports segmentWe also earnsearn revenues in the form of certain fees added to ticket prices, for events held at our venues, regardless of whether we act as promoter or co-promoter for such events. Thiswhich currently includesinclude a facility fee the Company charges on tickets it sells to all events at our venues, except for our sports teams’ games, except for season tickets and certain other limited exceptions.tickets.
Media Rights
We earn revenue from the licensing of media rights for our sports teams’ home and away games and also through the receipt of our share of fees paid for league-wide media rights, which are awarded under contracts negotiated and administered by each league.
The Company and MSG Networks are parties to media rights agreements covering the local telecast rights for the Knicks and the Rangers. The financial success of our MSG Sports segmentthe Company is significantly dependent on the rights fees we receive from MSG Networks in connection with the telecast of our Knicks and Rangers games.
National and international telecast arrangements differ by league. Fees paid by telecasters under these arrangements are pooled by each league and then generally shared equally among all teams.
Venue Signage
Suites and Clubs
We earn revenue through the sale of suite and premium club licenses at The Garden, which are generally sold by MSG Entertainment to corporate customers pursuant to multi-year licenses. Under standard licenses, the licensees pay an annual license fee, which varies depending on the location and type of the suite or club. The license fee includes, for each seat in the suite or club, tickets for our home games and other events at The Garden that are presented by MSG Entertainment for which tickets are sold to the general public, subject to certain exceptions. In addition, suite holders separately pay for food and beverage service in their suites at The Garden. Food and non-alcoholic beverage service is included in the annual license fee paid by club members.
Because suite and club licenses cover both our games and events that MSG Entertainment presents at The Garden, suite and club rental revenue is shared between us and MSG Entertainment under the arena license agreements (the “Arena License Agreements”) we entered into in connection with the MSGE Distribution. Pursuant to the Arena Licenses Agreements, the Knicks and the Rangers are entitled to 35% and 32.5%, respectively, of the revenues received by MSG Entertainment in connection with suite and club licenses.
Sponsorships and Ad Sales CommissionSignage
We earn revenues through the sale of sponsorships and signage space at The Garden and sponsorship rights in connection with ourspecific to the teams and certain other sporting events. Our strategy is to develop marketing partnerships with world-class brands by creating customized platforms that achieve our partners’ business objectives. Signage salesSales of team specific signage generally involve the sale of advertising space within The Garden during our sports teams’ home games and include the sale of signage on the ice and on the boards of the hockey rink during Rangers games, courtside during Knicks games, and/or on the various scoreboards and display panels at The Garden, as well as virtual signage during Knicks and Rangers broadcasts. We offer both television camera-visible and non-camera-visible signage space. We also earn a portion of revenues through MSG Entertainment’s sale of venue indoor signage space and sponsorship rights at The Garden that are not specific to our teams pursuant to the Arena License Agreements.
Sponsorship rights generally require us tothe use of the name, logos and other trademarks of a sponsor in ourthe advertising and in promotions for The Garden in general or our teams andspecifically during our sports events. Sponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our teams and, in the case of sponsorship arrangements shared with MSG Entertainment, MSG Entertainment’s venues and brands in connection with their own advertising and in promotions in The Garden or in the community.
The CompanyFood, Beverage and MSG Networks are parties to an advertising sales representation agreement. Pursuant to the agreement, we have the exclusive right and obligation to sell advertising availabilities of MSG Networks. We are entitled to and earn commission revenue on such sales. The expense associated with advertising personnel, which was transferred from MSG Networks in connection with this advertising sales representation agreement, is recognized in selling, general and administrative expenses.
ConcessionsMerchandise Sales
We sellearn revenues from the sale of food and beverages during all sporting events heldour sports teams’ games at our venuesThe Garden. In addition to concession-style sales of food and beverages, which represent the majority of our concessionfood and beverage revenues, weThe Garden also provideprovides higher-end dining at our full service restaurant andpremium clubs as well as catering for suitessuites. Pursuant to the Arena License Agreements, the Knicks and the Rangers receive 50% of net profits from the sales of food and beverages during their games at The Garden.
Merchandise
We also earn revenues from the sale of our sports teams’ merchandise both through the in-venue (and in some cases, online)and online sale of items bearing the logos or other marks of our teams and through our share of sports league distributions of royalties and other revenues from the sports leagues’ licensing of team and sports league trademarks, which revenues are generally shared equally among the teams in the sports leagues. By agreement amongPursuant to the teams, each ofArena License Agreements, the sports leagues in which we operate acts as an agent for the sports teams to license their logos and other marks, as well as the marks of the leagues, subject to certain rights retained by the teams to license these marks within their arenasKnicks and the geographic areasRangers pay MSG Entertainment a commission equal to 30% of revenues from the sales of their merchandise at The Garden.
Other
Amounts collected for ticket sales, suite licenses and clubs, sponsorships and venue signage in which they operate.advance of an event are recorded as deferred revenue and are recognized as revenues when earned.
Expenses
The most significant expenses in our MSG Sports segment are player and other team personnel salaries and charges for transactions relating to players for career-ending and season-ending injuries, trades, and waivers and contract termination costs of players and other team personnel, including team executives. We also incur costs for travel, player insurance, league operating assessments (including a 6% NBA assessment on regular season ticket sales), NHLNBA and NBANHL revenue sharing and, when applicable, NBA luxury tax. We charge a portion of our actual expenses associated
In addition, in connection with the ownership, lease, maintenanceMSGE Distribution we entered into long term leases with MSG Entertainment that end June 30, 2055 and operationallow the Knicks and the Rangers to play their home games at The Garden (the “Arena License Agreements”). The Arena License Agreements provide for fixed payments to be made from inception through June 30, 2055 in 12 equal installments during each year of our venues, along with a portionthe contractual term. The contracted license fee for the first full contract year ending June 30, 2021 was approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees are 103% of our corporate expenses, to our MSG Sports segment. However, the operating resultslicense fees for the immediately preceding contract year.
At the fact that no rent is chargedtime of the MSGE Distribution, the Garden was not available for use due to the segment for usegovernment-mandated suspension of events in response to COVID-19, and was only available at reduced capacity beginning in December 2020 through May 2021. As a result, the Company’s owned venues. We doCompany was not allocaterequired to our segments depreciation expense on property and equipment relatedpay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, Hulu Theater at Madison Square Garden orand the Forum.Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts.
Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax
The amount we pay an individual player is typically determined by negotiation between the player (typically represented by an agent) and us, and is generally influenced by the player’s past performance, the amounts paid to players with comparable past performance by other sports teams, the NBA luxury tax and restrictions in the CBAs, including the salary floors and caps and NBA luxury tax.caps. The leagues’ CBAs typically contain restrictions on when players may move between league clubs following expiration of their contracts and what rights their current and former clubs have.
NBA CBA. The NBA CBA expires after the 2023-24 season (although each of the NBA and the National Basketball Players Association (“NBPA”) each havehas the right (which must be exercised by December 15, 2022) to terminate the CBA effective following the 2022-23 season). The NBA CBA contains a salary floor (i.e., a floor on each team’s aggregate player salaries with a requirement that the team pay any deficiency to the players on its roster) and a “soft” salary cap (i.e., a cap on each team’s aggregate player salaries but with certain exceptions that enable teams to pay players more, sometimes substantially more, than the cap).
NBA Luxury Tax. Amounts in this paragraph are in thousands, except for luxury tax rates. The NBA CBA generally provides for a luxury tax that is applicable to all teams with aggregate player salaries exceeding a threshold that is set prior to each season based upon projected league-wide revenues (as defined under the NBA CBA). The luxury tax rates for teams with aggregate player salaries above such threshold start at $1.50 for each $1.00 of team salary above the threshold up to $5,000 and scale up to $3.25 for each $1.00 of team salary that is from $15,000 to $20,000 over the threshold, and an additional tax rate increment of $0.50 applies for each additional $5,000 (or part thereof) of team salary in excess of $20,000 over the threshold. In addition, for teams that are taxpayers in at least three of four previous seasons, the above tax rates are increased by $1.00 for each increment. Fifty percent of the aggregate luxury tax payments is a funding source for the revenue sharing plan (described below) and the remaining 50% of such payments is distributed in equal shares to non-taxpaying teams. For the 2018-19, 2017-18,2021-22 and 2016-172020-21 seasons, the Knicks were not a luxury tax payer and we recorded approximately $3,100, $2,200,$10,457 and $500,$3,442, respectively, of luxury tax proceeds from tax-paying teams. Tax obligations for years beyond the 2018-192021-22 season will be subject to contractual player payroll obligations and corresponding NBA luxury tax thresholds. The Company recognizes the estimated amount associated with luxury tax expense or the amount it expects to receive as a non-tax paying team, if applicable, on a straight-line basis over the NBA regular season as a component of direct operating expenses.
NBA Escrow System/Revenue Sharing. The NBA CBA also provides that players collectively receive a designated percentage of league-wide revenues (net of certain direct expenses) as compensation (approximately 49% to 51%), and the teams retain the remainder. The percentage of league-wide revenues paid as compensation and retained by the teams does not apply evenly across all teams and, accordingly, the Company may pay its players a higher or lower percentage of the Knicks’ revenues than other NBA teams. Throughout each
For the 2020-21 season NBA teams withholdand the remainder of the CBA, a new “Ten-and-Spread” system was put in place. Under the Ten-and-Spread system, based upon league-wide revenues, aggregate player compensation will be reduced by up to 10% of each player’s salary. If, for a particular season, compensation reductions in excess of 10% are needed, the excess will be divided by three and recouped via reductions to players’ compensation over the same season, and the subsequent two seasons. The reduction of players’ salary for any one season is capped at 20% and contribute the withheld amounts to an escrow account. If the league’s aggregate player compensation exceeds the designated percentage of league-wide revenues, some or all of such escrowed amounts are distributed equally to all NBA teams. In the event that the league’s aggregate player compensation is below the designated percentage of league-wide revenues, the teams will remit the shortfallcarried over to the NBPA for distributionsubsequent season as additional compensation reductions. Each team is entitled to receive an equal one-thirtieth share of the players.compensation reductions up to 10% and the excess above 10% is allocated in proportion to each team’s player payroll.
The NBA also has a revenue sharing plan that generally requires the distribution of a pool of funds to teams with below-average net revenues (as defined in the plan), subject to reduction or elimination based on individual team market size and profitability. The plan is funded by a combination of disproportionate contributions from teams with above-average net revenues, subject to certain profit-based limits (each as defined in the plan); 50% of aggregate league-wide luxury tax proceeds (see above); and collective league sources, if necessary. Additional amounts may also be distributed on a discretionary basis, funded by assessments on playoff ticket revenues and through collective league sources.sources and are recorded as revenues from league distributions.
We record our revenue sharing expense net of the amount we expect to receive from the escrow. Our net provisionprovisions for these items for the year ended June 30, 20192022 was approximately $36,000.$34,186. The actual amounts for the 2018-192021-22 season may vary significantly from the recorded provision based on actual operating results for the league and all NBA teams for the season and other factors.
NHL CBA. The current NHL CBA expires September 15, 2022 (althoughafter the NHL and NHL Players’ Association each have2025-26 season (with the right to terminate the CBA effective following the 2019-20 season)possibility of a one year extension in certain circumstances). The NHL CBA provides for a salary floor (i.e., a floor on each team’s aggregate player salaries) and a “hard” salary cap (i.e., teams may not exceed a stated maximum, that was negotiated for the 2013-14 season and has beenwhich is adjusted each season thereafter based upon league-wide revenues).
NHL Escrow System/Revenue Sharing. The NHL CBA provides that each season the players receive as player compensation 50% of that season’s league-wide revenues. Because the aggregate amount to be paid to the players is based upon league-wide revenues and not on a team-by-team basis, the Company may pay its players a higher or lower percentage of the Rangers’ revenues than other NHL teams pay of their own revenues. In order to implement the salary capescrow system, NHL teams withhold a portion of each player’s salary and contribute the withheld amounts to an escrow account. If the league’s aggregate player compensation for a season exceeds the designated percentage (50%) of that season’s league-wide revenues, the excess is retained by the league. Any such excess funds are distributed to all teams in equal shares. In addition, the NHL CBA limits the amount of deductions to be withheld from player salaries each year. If annual escrow deductions from player salaries are insufficient to limit league-wide player salaries to 50% of that season’s league-wide revenues, any shortfall will be carried forward to future seasons and remain due from the players to the league.
The NHL CBA also provides for a revenue sharing plan. The plan generally requires the distribution of a pool of funds approximating 6.055% of league-wide revenues to certain qualifying lower-revenue teams and is funded as follows: (a) 50% from contributions by the top ten revenue earning teams (based on pre-seasonpreseason and regular season revenues)revenues, net of arena costs) in accordance with a formula; (b) then from payments by teams participating in the playoffs, with each team contributing 35% of its gate receipts for each home playoff game;game (although this provision was waived for the 2020-21 season); and (c) the remainder from centrally-generated NHL sources. We record our revenue sharing expense net of the amount we expect to receive from the escrow.escrow recoveries. Our net provisions for these items for the yearsyear ended June 30, 2019 and 2018 were2022 was approximately $23,300 and $21,100, respectively.$48,209. The actual amounts for the 2018-19 and 2017-18 seasons2021-22 season may vary significantly from the recorded provision based on actual operating results for the league and all NHL teams for the season and other factors.
Other Team Operating Expenses
Our teams also pay expenses associated with day-to-day operations, including for travel, equipment maintenance and player insurance. Direct variable day-of-event costs incurred at The Garden, such as the costs of front-of-house and back-of-house staff, including electricians, laborers, box office staff, ushers, security, and event production are charged to the Company.
In addition, our MSG Sports segment.
Operatingteam operating expenses include operating costs of the Company’s training center in Greenburgh, NY are also charged to our MSG Sports segment.NY. The operation of the Hartford Wolf Pack is alsoreported as a net Rangers player development expense for our MSG Sports segment.expense.
As members of the NBA and NHL, the Knicks and the Rangers, respectively, are also subject to league assessments. The governing bodies of each league determine the amount of each season’s league assessments that are required from each member team. The NBA imposedimposes on each team a 6% assessment on regular season ticket revenue.
Our MSG Sports segmentWe also incursincur costs associated with VIP amenities provided to certain ticket holders.
Other Expenses
MSG Sports also incurs selling,Other expenses primarily include Selling, general and administrative (“SG&A”) expenses that consist of administrative costs, including compensation, professional fees, and costs related to the Company’s services agreement with MSGE Entertainment, as well as sales and marketing costs, including fees related to the Company’s sponsorship sales and service representation agreements with MSG Entertainment and non-event related advertising expenses.
Factors Affecting Operating Results
General
TheOur operating results of our MSG Sports segment are largely dependent on the continued popularity and/or on-iceon-court or on-courton-ice competitiveness of our RangersKnicks and KnicksRangers teams, which have a direct effect on ticket sales for the teams’ home games and are each team’s largest single source of revenue, as well as our ability to attract high-caliber sporting events.revenue. As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, for which we compete with other professional sports teams. A significant factor in our ability to attract and retain talented players is player compensation. Our MSG Sports segmentThe Company’s operating results reflect the impact of high costs for player salaries (including NBA luxury tax, if any) and salaries of non-player team personnel. In addition, we have incurred significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. Waiver and termination costs reflect our efforts to improve the competitiveness of our sports teams. These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals are generally paid over their remaining contract terms. For example, the expense for these items was $53,134, $27,514$737, and $42,337$44,242 for fiscal years 2019, 20182022 and 2017,2021, respectively. These expenses add to the volatility of theour operating results of our MSG Sports segment. We expect to continue to pursue opportunities to improve the overall quality of our
sports teams and our efforts may result in continued significant expenses and charges. Such expenses and charges may result in future operating losses for our MSG Sports segment although it is not possible to predict their timing or amount. Our MSG Sports segment’s performance has been, and may in the future be, impacted by work stoppages. See “Part I — Item 1A. Risk Factors — Item 1A.Risk Factors — General Risks — Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”
In addition to our MSG Sports segment’s future performance being dependent upon the continued popularity and/or on-iceon-court or on-courton-ice competitiveness of our RangersKnicks and KnicksRangers teams, it is also dependent on general economic conditions, in particular those in the New York City metropolitan area, and the effect of these conditions on our customers. An economic downturn could adversely affect our business and results of operations as it may lead to lower demand for suite licenses and tickets to the games of our sports teams, which would also negatively affect merchandise and concession sales, as well as decrease levels of sponsorship and venue signage revenues. These conditions may also affectIn addition, remote and/or hybrid in-office work arrangements in the New York City metropolitan area resulting from COVID-19 could result in reduced attendance at Knicks and Rangers games.
Impact of COVID-19 on Our Business
During fiscal years 2020 and 2021, COVID-19 disruptions materially impacted the Company’s revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of other live sporting events that this segment is able to present.
Factors Affecting Results of Operations
Adoption of ASC Topic 606, Revenue From Contracts With Customers
Theareas. In fiscal year 2022, the Company’s consolidatedoperations and segment operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year.
Fiscal Years 2020 and 2021
In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. As a result of the suspension of the 2019-20 NBA and NHL seasons and subsequent resumption of play in July and August 2020, respectively, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.
In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed. The Knicks and the Rangers did not start their seasons until December 16, 2020 and January 14, 2021, respectively, initially with no fans and then with fan attendance limited to 10% capacity starting on February 23 and February 26, respectively, due to government-mandated assembly restrictions.
Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests. As a result, the Knicks played three home playoff games with ticket sales of approximately 15,000-16,500 per game during the fiscal year ended June 30, 2019 were2021. During the 2020-2021 season, the Knicks and the Rangers each played fewer games than their traditional 82-game regular season schedules, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule.
These disruptions materially impacted by the adoptionCompany’s revenues across a number of Accounting Standards Codification (“ASC”) Topic 606.areas, including, ticket sales; the Company’s share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; local media rights fees; and food, beverage and merchandise sales.
In connection with the MSGE Distribution, we entered into the Arena License Agreements with MSG Entertainment. At the time of the MSGE Distribution, the Garden was not available for use due to the government-mandated suspension of events in response to COVID-19, and was only available at reduced capacity beginning in December 2020 through May 2021. As a result, the Company’s revenues were lower by $22,996 and direct operating expenses were lower by $26,239 for the year ended June 30, 2019. The impact of the adoption of ASC Topic 606 resulted in net decreases in MSG Entertainment’s revenues and direct operating expenses of $24,347 and $24,545, respectively, for the year ended June 30, 2019, primarily dueCompany was not required to the application of principal versus agent revenue recognition on event-related food, beverage and merchandise activities. For the MSG Sports’ operating results, the adoption of ASC Topic 606 resulted in a net increase in revenues of $1,351 for the year ended June 30, 2019 primarily associated with professional sports teams’ sponsorship and signage revenues. In addition, the adoption of ASC Topic 606 resulted in a decrease in direct operating expenses of $1,694 for the year ended June 30, 2019, duepay license fees to the application of principal versus agent revenue recognition on event-related food, beverage and merchandise activities.
Prior year period results have not been adjusted to reflect the adoption of ASC Topic 606 and, therefore, the Company’s consolidated and segment operating results for the year ended June 30, 2019 are not directly comparable to results for the year ended June 30, 2018.
Under ASC Topic 606, the suite license revenues for the Company’s MSG Entertainment and MSG Sports segments are now recognized proportionately as eventsunder the Arena License Agreements until games resumed at The Garden, take place, as opposedand the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to being recognized on a straight-line basis overMSG Entertainment under the Arena License Agreements in their full contractual amounts.
During fiscal year under2021, as a result of COVID-19, the prior standard.Company implemented cost-reduction measures that included workforce reductions and limits on discretionary spending. In addition, most of local media rights revenue is now recognized over the course of the regular season, as opposed to being recognized on a straight-line basis over the fiscal year under the prior standard.
See Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 2. Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements and Note 3. Revenue Recognition for further discussion of the adoption of ASC Topic 606.
Renewal of a Ticketing Agreement
The Company’s consolidated and segment operating results for the year ended June 30, 2019 were impacted by the recognition of revenue for events that took place during prior year due to the renewal of the agreement with the Company’s ticketing platform provider during fiscal year 2019. The following table presents the impact on the Company’s consolidated revenues, operating income and adjusted operating income for the year ended June 30, 2019 from events in the prior year as a result of the ticketing agreement renewal. |
| | | | |
MSG Entertainment segment | | $ | 2,316 |
|
MSG Sports segment | | 2,930 |
|
Total MSG | | $ | 5,246 |
|
Corporate Expenses and Venue Operating Costs
The Company allocatesdisruptions caused by COVID-19, certain corporate costs and its performance venues operating expenses were reduced, including (i) payments to both reportable segments. Allocated performance venue operating expenses include the non-event related costs of operating the Company’s performance venues, and include such costs as rent for the Company’s leased venues, real estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation expense on property and equipment related to The Garden, Hulu Theater at Madison Square Garden and the Forum is not allocated to the reportable segments.
Purchase Accounting Adjustments
In connection with the BCE, TAO Group, CLG and Obscura acquisitions in the fiscal years 2017 and 2018 (“Recent Business Acquisitions”), the Company recorded certain fair value adjustments related to acquired assets and liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. For the Company’s Recent Business Acquisitions, the Company recognized fair value adjustments primarily for (i) recognition of intangible assets such as trade names, venue management contracts, favorable leases, and festival rights, (ii) step-up of property and equipment, (iii) step-up of inventory, (iv) unfavorable lease obligation, and (v) goodwill. The aforementioned fair value adjustments, except for goodwill, will be expensed as incremental non-cash expenses in the Company’s consolidated statements of operations based on their estimated useful lives (“Purchase Accounting Adjustments”). The Company does not allocate any Purchase Accounting Adjustments to the reporting segments and reports any Purchase Accounting Adjustments as reconciliation items in reporting segment operating results. See “Part II — Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 19. Segment Information” for more information on the presentation of Purchase Accounting Adjustments.
Investments in Nonconsolidated Affiliates
In July 2018, the Company acquired a 30% interest in SACO, a global provider of high-performance LED video lighting and media solutions for a total consideration of approximately $47,244. The Company is utilizing SACO as a preferred display technology provider for MSG Spheres and is benefiting from agreed upon commercial terms.
In addition, the Company also has other investments in various sports and entertainment companies and related technologies, accounted for eitherEntertainment under the equity method or at fair value. See Note 7 to the consolidated financial statements included in Item 8Arena License Agreements described above, (ii) NBA league assessments and day-of-game expenses for Knicks and Rangers games, and (iii) league revenue sharing, net of this Annual Report on Form 10-K for more information on our investments in nonconsolidated affiliates.
escrow and team personnel expense. These expense reductions did not fully offset revenue losses.
Fiscal Year 2022
Starting August 17, 2021, indoor entertainment venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including vaccination and/or mask requirements for guests. In March 2022, New York City lifted all COVID-19 vaccination requirements pertaining to guests and professional athletes at indoor entertainment venues such as The Garden. There are no capacity restrictions or vaccination requirements applicable to fan attendance at games at The Garden as of the date of this filing.
The Knicks and the Rangers each completed their full 82-game regular season schedules for the 2021-22 season in April 2022 and the Rangers competed in the playoffs in May and June 2022, playing ten home playoff games in total. Fan attendance during fiscal year 2022 was impacted by the COVID-19 pandemic, including the emergence of certain variants and ongoing reduced tourism levels.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact attendance of games at The Garden.
Results of Operations
Comparison of the Year Ended June 30, 20192022 versus the Year Ended June 30, 2018
Consolidated Results of Operations
The table below sets forth, for the periods presented, certain historical financial information.
| | | | Years Ended June 30, | | Change | | Years Ended June 30, | | Change (a) |
| | 2019 | | 2018 | | Amount | | Percentage | | 2022 | | 2021 | | Amount | | Percentage |
Revenues | | $ | 1,631,068 |
| | $ | 1,559,095 |
| | $ | 71,973 |
| | 5 | % | Revenues | | $ | 821,354 | | | $ | 415,721 | | | $ | 405,633 | | | 98 | % |
| | | | | | | | | |
Direct operating expenses | | 997,077 |
| | 944,276 |
| | 52,801 |
| | 6 | % | Direct operating expenses | | 500,564 | | | 281,890 | | | 218,674 | | | 78 | % |
Selling, general and administrative expenses | | 528,672 |
| | 469,276 |
| | 59,396 |
| | 13 | % | Selling, general and administrative expenses | | 229,668 | | | 206,700 | | | 22,968 | | | 11 | % |
Depreciation and amortization | | 119,193 |
| | 122,486 |
| | (3,293 | ) | | (3 | )% | Depreciation and amortization | | 5,042 | | | 5,574 | | | (532) | | | (10) | % |
Operating income (loss) | | (13,874 | ) | | 23,057 |
| | (36,931 | ) | | NM |
| Operating income (loss) | | 86,080 | | | (78,443) | | | 164,523 | | | NM |
Other income (expense): | | | | | | | | | |
Earnings (loss) in equity method investments | | 7,062 |
| | (7,770 | ) | | 14,832 |
| | NM |
| |
Interest income, net | | 9,795 |
| | 6,167 |
| | 3,628 |
| | 59 | % | |
Miscellaneous expenses, net | | (4,752 | ) | | (3,878 | ) | | (874 | ) | | (23 | )% | |
Other expense: | | Other expense: | |
Interest expense, net | | Interest expense, net | | (11,422) | | | (10,529) | | | (893) | | | (8) | % |
Miscellaneous expense, net | | Miscellaneous expense, net | | (726) | | | (346) | | | (380) | | | NM |
Income (loss) from operations before income taxes | | (1,769 | ) | | 17,576 |
| | (19,345 | ) | | NM |
| Income (loss) from operations before income taxes | | 73,932 | | | (89,318) | | | 163,250 | | | NM |
Income tax benefit (expense) | | (1,348 | ) | | 116,872 |
| | (118,220 | ) | | NM |
| Income tax benefit (expense) | | (25,052) | | | 73,421 | | | (98,473) | | | NM |
Net income (loss) | | (3,117 | ) | | 134,448 |
| | (137,565 | ) | | NM |
| Net income (loss) | | 48,880 | | | (15,897) | | | 64,777 | | | NM |
Less: Net loss attributable to redeemable noncontrolling interests | | (7,299 | ) | | (628 | ) | | (6,671 | ) | | NM |
| |
Less: Net loss attributable to nonredeemable noncontrolling interests | | (7,245 | ) | | (6,518 | ) | | (727 | ) | | (11 | )% | |
Net income attributable to The Madison Square Garden Company’s stockholders | | $ | 11,427 |
| | $ | 141,594 |
| | $ | (130,167 | ) | | (92 | )% | |
Less: Net loss attributable to nonredeemable noncontrolling interests from continuing operations | | Less: Net loss attributable to nonredeemable noncontrolling interests from continuing operations | | (2,251) | | | (1,943) | | | (308) | | | (16) | % |
| Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders | | Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders | | $ | 51,131 | | | $ | (13,954) | | | $ | 65,085 | | | NM |
NM — Percentage is not meaningful
The following is a summary(a) Operating results in the prior year were materially impacted by the coronavirus pandemic. Please see “— Factors Affecting Operating Results — Impact of changes in segments’ operating resultsCOVID-19 on Our Business” for more information.
Revenues
Revenues for the year ended June 30, 20192022 increased $405,633, or 98%, to $821,354 as compared to the prior year. The net increase is attributable to the following:
|
| | | | | | | | | | | | | | | | | | | | |
Changes attributable to | | Revenues | | Direct operating expenses | | Selling, general and administrative expenses | | Depreciation and amortization | | Operating income (loss) |
MSG Entertainment segment (a) | | $ | 39,204 |
| | $ | 24,218 |
| | $ | 16,576 |
| | $ | (345 | ) | | $ | (1,245 | ) |
MSG Sports segment (a) | | 34,093 |
| | 28,967 |
| | 11,409 |
| | 297 |
| | (6,580 | ) |
Corporate and Other | | — |
| | 411 |
| | 31,507 |
| | (2,642 | ) | | (29,276 | ) |
Purchase accounting adjustments | | — |
| | (395 | ) | | 502 |
| | (603 | ) | | 496 |
|
Inter-segment eliminations | | (1,324 | ) | | (400 | ) | | (598 | ) | | — |
| | (326 | ) |
| | $ | 71,973 |
| | $ | 52,801 |
| | $ | 59,396 |
| | $ | (3,293 | ) | | $ | (36,931 | ) |
| | | | | | | | |
(a)Increase in pre/regular season ticket-related revenues
| | See “Business Segment Results” for a more detailed discussion of the operating results of our segments$ | .237,265 | |
Increase in suite license fee revenues | | 86,754 | |
Increase in playoff related revenues | | 49,570 | |
Increase in sponsorship and signage revenues | | 28,337 | |
Increase in pre/regular season food, beverage and merchandise sales | | 22,029 | |
Increase in local media rights fees | | 17,942 | |
Decrease in revenues from league distributions | | (39,133) | |
Other net increases | | 2,869 | |
| | $ | 405,633 | |
TableThe increase in pre/regular season ticket-related revenues was a result of Contentsincreased attendance due to the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year. In the prior year, the Knicks and the Rangers played games at The Garden with no fans in attendance until February 23 and 26, 2021, respectively, and after that, played games with attendance restricted to 10% capacity.
The increase in suite license fee revenues was a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above. In the prior year, for Knicks and Rangers games played with a limited number of fans in attendance, access to suites was sold by way of individual tickets and, as a result, minimal suite license fee revenues were recognized.
The increase in playoff related revenues was primarily due to the Rangers playing ten home playoff games as the team advanced to the Eastern Conference Finals in the current year as compared to the Knicks playing three home playoff games in the prior year.
The increase in sponsorship and signage revenues was a result of the shortened NBA and NHL 2020-21 regular season schedules in the prior year, as well as the elimination of government mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above.
The increase in pre/regular season food, beverage and merchandise sales was a result of increased attendance due to the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above.
The increase in local media rights fees was primarily due to the impact of the shortened NBA and NHL 2020-21 regular season schedules in the prior year, as well as contractual rate increases. The increase was slightly offset by the recognition of local media rights fees in the prior year associated with the Rangers’ participation in the Stanley Cup Qualifiers.
The decrease in revenues from league distributions was primarily due to the recognition of (i) the remainder of national media rights fees related to the 2019-20 NBA and NHL seasons during the first quarter of fiscal year 2021 that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020 and (ii) a $21,043 expansion fee from the NHL in the prior year. The decrease was partially offset by increased NBA and NHL national media rights fees and other league distributions in the current year.
Direct operating expenses
Direct operating expenses primarilygenerally include:
•compensation expense for our sports teams’ players and certain other team personnel;
•arena license fees recognized as operating lease costs associated with the Knicks and the Rangers playing home games at The Garden;
•cost of team personnel transactions for waivers/contract termination costs, trades, and season-ending player injuries (net of anticipated insurance recoveries), trades, and waivers/contract termination costs of players and other team personnel;
NBA luxury tax, •NBA and NHL revenue sharing and(net of escrow), league assessments for the MSG Sports segment;and NBA luxury tax receipts; and
event costs related to the presentation, production and marketing of our live entertainment and other live sporting events;
venue lease, maintenance and other operating expenses;
•the cost of concessions, merchandise and food and beverage sold at our venues; andsales.
Direct operating expenses inclusivefor the year ended June 30, 2022 increased $218,674, or 78%, to $500,564 as compared to the prior year. The net increase is attributable to the following:
| | | | | | | | |
Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax | | $ | 95,574 | |
Increase in team personnel compensation | | 43,167 | |
Increase in other team operating expenses not discussed elsewhere in this table | | 38,739 | |
Increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden | | 32,200 | |
Increase in playoff related expenses | | 20,230 | |
Increase in pre/regular season expense associated with merchandise sales | | 9,980 | |
Decrease in net provisions for certain team personnel transactions | | (21,216) | |
| | $ | 218,674 | |
Net provisions for league revenue sharing expense (net of labor costs. escrow and excluding playoffs) and NBA luxury tax were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Increase |
| | 2022 | | 2021 | |
Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax | | $ | 57,843 | | | $ | (37,731) | | | $ | 95,574 | |
The increase in net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax was primarily due to higher provisions for league revenue sharing expense (net of escrow) of $102,589 as a result of higher escrow recoveries and lower revenue sharing expense in the prior year, which reflected the impact of the COVID-19 pandemic, partially offset by higher recoveries of NBA luxury tax in the current year.
The Knicks were not a luxury tax payer for the 2020-21 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. The Knicks’ roster as of June 30, 2022 did not result in the team being a luxury tax payer for the 2021-22 season and the Company will receive an equal share of the portion of luxury tax receipts that are distributed to non-tax paying teams.
The actual amounts for the 2021-22 seasons may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
The increase in team personnel compensation was primarily due to the impact of the shortened 2020-21 NBA and NHL regular seasons in the prior year and higher player compensation in the current year, partially offset by the recognition of player compensation expense during the prior year that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020 as a result of the NBA completing the 2019-20 season in October 2020.
The increase in other team operating expenses not discussed elsewhere in the table was a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above. Other team operating expenses primarily consists of league assessments and expenses associated with day-to-day operations, including variable day-of-event costs incurred at The Garden, team travel and player insurance.
The increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden was primarily a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above.
The increase in playoff related expenses was primarily due to the Rangers playing ten home playoff games as the team advanced to the Eastern Conference Finals in the current year as compared to the Knicks playing three home playoff games in the prior year.
The increase in pre/regular season expense associated with merchandise sales was a result of increased attendance due to the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year, as discussed above.
Net provisions for certain team personnel transactions were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Increase (Decrease) |
| | 2022 | | 2021 | |
Waivers/contract terminations | | $ | 731 | | | $ | 20,959 | | | $ | (20,228) | |
Player trades | | (1,066) | | | 2,583 | | | (3,649) | |
Season-ending player injuries | | 2,662 | | | — | | | 2,662 | |
Net provisions for certain team personnel transactions | | $ | 2,327 | | | $ | 23,542 | | | $ | (21,215) | |
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of (i) administrative costs, including compensation, professional fees, costs under the Company’s services agreement with MSG Entertainment, (ii) fees related to the Company’s sponsorship sales and service representation agreements, and (iii) sales and marketing costs, including non-event related advertising expenses, business development costs, as well as costs associated with the development of MSG Sphere, including technology and content development costs.
Selling, general and administrative expenses in Corporate and Other for the year ended June 30, 20192022 increased $31,507,$22,968, or 34%11%, to $123,347$229,668 as compared to the prior year. The increase wasyear primarily due to higher (i) an increase inmarketing costs, (ii) playoff related expenses, (iii) fees related to the Company’s sponsorship sales and service representation agreements with MSG Entertainment, (iv) costs related to the Company’s services agreement with MSG Entertainment and (v) other general and administrative expenses, partially offset by lower employee compensation and related benefits, (ii) higher professional fees, inclusiveincluding the absence of costs associated with the potential Sports Distribution, and (iii) the inclusion of Obscura’s selling, general and administrative costs notseverance related to its third-party production business.
In connection with its MSG Sphere initiative,team executives incurred in the Company expects to continue increasing its investment in personnel, content and technology. Based on the timing of these efforts, the Company expects increased expenses in Corporate and Other in fiscal year 2020.prior year.
Depreciation and amortization
Depreciation and amortization for the year ended June 30, 20192022 decreased $3,293,$532, or 3%10%, to $119,193$5,042 as compared to the prior year primarily due to certain assets being fully depreciated and amortized.year.
Operating loss - Corporate and Otherincome (loss)
Operating loss in Corporate and Other forFor the year ended June 30, 20192022, operating income of $86,080 improved $164,523 as compared to the prior year. The improvement to operating income was primarily due to higher revenues, partially offset by higher direct operating costs and, to a lesser extent, higher selling, general and administrative expenses.
Interest expense, net
Net interest expense increased $29,276, or 17%,$893 to $199,592$11,422 as compared to the prior year. The increase was primarily due to higher selling, general and administrative expenses as discussed above, partially offsetdriven by lower depreciation and amortization as a result of certain assets being fully depreciated and amortized. See Note 19 to(i) increased interest expense under the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussion of depreciation and amortization under Corporate and Other.
Earnings (loss) in equity method investments
Earnings in equity method investments for the year ended June 30, 2019 were $7,062 as compared to a loss of $7,770 in the prior year. The year-over-year improvement is primarily due to (i) the improvement in the net earnings attributable to the Company’s investees as compared to the prior year, (ii) the gain on the sale of an Azoff MSG Entertainment LLC (“AMSGE”) investment during the current year prior to the Company’s sale of its interest in AMSGE, and (iii) a gain on the sale of the Company’s interest in AMSGE during the current year. The increase was partially offset by an impairment charge recorded for the Company’s investment in Tribeca Enterprises LLC (“Tribeca Enterprises”) and the amortization of basis difference attributable to intangible assets for the new investments in the current year. The Company sold its interest in Tribeca Enterprises, including the outstanding loan and PIK, effective August 5, 2019. See Note 7 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of an impairment charge recorded for the Company’s investment in Tribeca Enterprises.
Interest income, net
Net interest income for the year ended June 30, 2019 increased $3,628, or 59%, to $9,795 as compared to the prior year primarily due to higher interest income earned by the CompanyKnicks revolving credit facility as a result of higher interest rate. The increase wasrates, (ii) interest expense related to the advances received in March 2021 under the 2021 Rangers NHL Advance Agreement, and (iii) acceleration of certain previously incurred financing costs when the Company terminated the 2020 Knicks Holdings Revolving Credit Facility in its entirety during December 2021, partially offset by higherdecreased interest expense incurred under the TAO Senior Credit Agreement and 2017 TAO Credit Agreement. See Note 12 to the consolidated financial statements included in Item 8Rangers revolving credit facility as a result of this Annual Report on Form 10-K for further discussion of the TAO Senior Credit Agreement entered in May 2019.
Miscellaneous expenses, net
Miscellaneous expenses, net inprincipal repayments made during the current year principally consist of (i) a loss on extinguishment of debt in connection with the 2017 TAO Credit Agreement in the fourth quarter of fiscal year 2019, (ii) non-service components of net period pension and post retirement benefit cost in accordance with ASU No. 2017-07, and (iii) dividend income from the Company’s investment in TSQ. Miscellaneous expenses, net in the prior year principally consist of non-service components of net period pension and postretirement benefit cost in accordance with ASU No. 2017-07. See Note 12 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of the 2017 TAO Credit Agreement and Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-Kfor further discussion of the retrospective adoption of ASU No. 2017-07.year.
Income taxes
On December 22, 2017, the enactment of the Tax Cuts and Jobs Act (“TCJA”) significantly changed U.S. tax law and included a reduction in the corporate federal income tax rate from 35% to 21% effective January 1, 2018.
Income tax expense for the year ended June 30, 2019 was $1,348 and2022 of $25,052 differs from the income tax benefit for the year ended June 30, 2018 was $116,872.
Income tax expense for the year ended June 30, 2019 of $1,348 differs from income tax benefits derived from applying the statutory federal rate of 21% to pretax lossincome primarily due to a decrease in valuation allowance of $9,421,state and local tax expense of $8,651 relating to$8,763 and nondeductible officers’ compensation of $5,156, partially offset by a change in the estimated tax rate used to determine deferred taxes of $3,191 and tax expensereturn to provision adjustments of $3,054 relating to noncontrolling interests.$2,476. See Note 18 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate.
For the year ended June 30, 2018, the Company used a blended statutory federal income rate of 28% based upon the number of days that it would be taxed at the former rate of 35% and the number of days it would be taxed at the new rate of 21%, effective January 1, 2018.
Income tax benefit for the year ended June 30, 20182021 of $116,872$73,421 differs from the income tax expensebenefit derived from applying the blended statutory federal rate of 28%21% to pretax incomeloss primarily as a result of a deferred income tax benefit of $113,494 related to the revaluation of the Company’s deferred tax assets and liabilities under provisions contained in the new tax legislation, of which (i) $51,015 was due to the reduction of net deferred tax liabilities in connection with the lower federal income tax rate of 21%, and (ii) $62,479 was due to a reduction in the valuation allowance attributable to the new rules, which provide that future federal net operating losses have an unlimited carry-forward period. These rules on future federal net operating losses allow the Company to recognize a portion of its unrecognized deferred tax assets for future deductible items. Other decreases to the statutory rate include $13,211 of income tax benefit related to a decrease in the valuation allowance which offsets the income tax expense attributable to most of the operating income,$52,108 and $1,974 of incomestate and local tax benefit related to the vesting of restricted stock units. These decreases were$7,331, partially offset by (i) $1,800nondeductible officers’ compensation of tax expense related to state and local income taxes (net of federal benefit), (ii) $1,998 of tax expense primarily related to non-deductible expenses, (iii) $2,006 of tax expense related to consolidated partnership book income attributable to non-controlling interests, (iv) $846 of tax expense related to a change in state tax rates and (v) $223 of other.$4,081.
Adjusted operating income (loss)
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) beforeexcluding (i) deferred rent expense under the Arena License Agreements with MSG Entertainment, (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (ii)(iii) share-based compensation expense or benefit, (iii)(iv) restructuring charges or credits, and (iv)(v) gains or losses on sales or dispositions of businesses, (vi) the impact of purchase accounting adjustments related to business acquisitions, and (vii) gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan (which was established in November 2021), which is referred to as adjusted operating income (loss), a non-GAAP measure.
Management believes that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance. Management believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. In addition, to excludingmanagement believes that the impactexclusion of items discussed above, the impact of purchase accounting adjustmentsgains and losses related to business acquisitions is also excluded in evaluatingthe remeasurement of liabilities under the Company’s consolidatedExecutive Deferred Compensation Plan, which are included for the first time this period, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).
The Company believes adjusted operating income (loss). is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.
Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss).
The following is a reconciliation of operating income (loss) to adjusted operating income:income (loss): |
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2019 | | 2018 | | Amount | | Percentage |
Operating income (loss) | | $ | (13,874 | ) | | $ | 23,057 |
| | $ | (36,931 | ) | | NM |
|
Share-based compensation | | 59,474 |
| | 47,563 |
| |
|
| | |
Depreciation and amortization (a) | | 119,193 |
| | 122,486 |
| |
|
| | |
Other purchase accounting adjustments (b) | | 4,965 |
| | 4,858 |
| | | | |
Adjusted operating income | | $ | 169,758 |
| | $ | 197,964 |
| | $ | (28,206 | ) | | (14 | )% |
________________ NM — Percentage is not meaningful | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended June 30, | | |
| | 2022 | | 2021 | | Change | | |
Operating income (loss) | | $ | 86,080 | | | $ | (78,443) | | | $ | 164,523 | | | |
Deferred rent | | 27,305 | | | 28,305 | | | | | |
Depreciation and amortization | | 5,042 | | | 5,574 | | | | | |
Share-based compensation | | 24,245 | | | 30,437 | | | | | |
Restructuring charges | | — | | | 1,597 | | | | | |
| | | | | | | | |
Remeasurement of deferred compensation plan liabilities | | (461) | | | — | | | | | |
Adjusted operating income (loss) | | $ | 142,211 | | | $ | (12,530) | | | $ | 154,741 | | | |
| |
(a)
| Depreciation and amortization included purchase accounting adjustments of $17,531 and $18,134 for the years ended June 30, 2019 and 2018, respectively. |
| |
(b)
| Other purchase accounting adjustments for the years ended June 30, 2019 and 2018 primarily included the amortization of favorable leases in connection with the TAO Group acquisition. |
Adjusted operating income forFor the year ended June 30, 2019 decreased $28,206, or 14%, to $169,7582022, adjusted operating income of $142,211 improved $154,741 as compared to the prior year. The net decrease is attributableimprovement to the following:
|
| | | |
Decrease in adjusted operating income of the MSG Entertainment segment | $ | (4 | ) |
Decrease in adjusted operating income of the MSG Sports segment | (5,408 | ) |
Increase in adjusted operating loss in Corporate and Other | (22,468 | ) |
Inter-segment eliminations | (326 | ) |
| $ | (28,206 | ) |
Increase in adjusted operating loss in Corporate and Otherincome was lower than the increase in operating loss in Corporate and Other primarily due to higher share-based compensation expenses,revenues, partially offset by lower depreciation and amortization.
Net loss attributable to redeemable and nonredeemable noncontrolling interests
For the year ended June 30, 2019, the Company recorded a net loss attributable to redeemable noncontrolling interests of $7,299 and a net loss attributable to nonredeemable noncontrolling interests of $7,245 as compared to $628 of net loss attributable to redeemable noncontrolling interests and $6,518 of net loss attributable to nonredeemable noncontrolling interests for the year ended June 30, 2018. These amounts represent the share of net loss of TAO Group, BCE, and CLG that are not attributable to the Company. In addition, the net loss attributable to redeemable and nonredeemable noncontrolling interests includes a proportional share of expenses related to purchase accounting adjustments.
Business Segment Results
MSG Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation ofhigher direct operating income to adjusted operating income for the Company’s MSG Entertainment segment.
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2019 | | 2018 | | Amount | | Percentage |
Revenues | | $ | 819,930 |
| | $ | 780,726 |
| | $ | 39,204 |
| | 5 | % |
Direct operating expenses | | 507,091 |
| | 482,873 |
| | 24,218 |
| | 5 | % |
Selling, general and administrative expenses | | 208,577 |
| | 192,001 |
| | 16,576 |
| | 9 | % |
Depreciation and amortization | | 18,170 |
| | 18,515 |
| | (345 | ) | | (2 | )% |
Operating income | | $ | 86,092 |
| | $ | 87,337 |
| | $ | (1,245 | ) | | (1 | )% |
Reconciliation to adjusted operating income: | | | | | | | | |
Share-based compensation | | 14,086 |
| | 12,500 |
| |
|
| | |
Depreciation and amortization | | 18,170 |
| | 18,515 |
| | | | |
Adjusted operating income | | $ | 118,348 |
| | $ | 118,352 |
| | $ | (4 | ) | | NM |
|
—————
NM — Percentage is not meaningful
The results of operations of the MSG Entertainment segment for the year ended June 30, 2018 include Obscura’s results of operations associated with its third-party production business from the date of acquisition, which was November 20, 2017. The current year results include activities from Obscura for a full fiscal year as compared to approximately seven months (from November 20, 2017 to June 30, 2018) in fiscal year 2018. The Company made a decision to wind down Obscura’s third-party production business to focus on MSG Sphere development.
Revenues
Revenues for the year ended June 30, 2019 increased $39,204, or 5%, to $819,930 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Increase in event-related revenues from concerts | $ | 19,966 |
|
Increase in revenues from the presentation of the Christmas Spectacular | 14,797 |
|
Increase in revenues associated with entertainment dining and nightlife offerings | 10,837 |
|
Increase in venue-related sponsorship and signage and suite rental fee revenues | 9,527 |
|
Increase in revenues from Obscura | 5,311 |
|
Decrease in event-related revenues from other live events | (16,899 | ) |
Decrease in BCE event-related revenues | (3,255 | ) |
Other net decreases | (1,080 | ) |
| $ | 39,204 |
|
The increase in event-related revenues from concerts was primarily due to additional events and higher per event revenue during the current year,costs and, to a lesser extent, the impact from the recognition during the current year of $1,278 of revenue associated with events that took place in prior year as a result of the ticketing agreement renewal. The increase was partially offset by the impact of the new revenue recognition standard in the current year.
The increase in revenues from the presentation of the Christmas Spectacular was primarily due to (i) higher ticket-related revenue mainly as a result of higher average ticket prices, (ii) an increase in paid attendance in the current year as compared to the prior year, and (iii) the recognition during the current year of $880 of revenue associated with performances that took place in prior year as a result of the ticketing agreement renewal. The Company had 210 performances of the production in fiscal year 2019, as compared to 200 performances in fiscal year 2018 due to an extension of the show’s run announced in December 2018. For fiscal year 2019, more than one million tickets were sold, representing a mid-single digit percentage increase as compared to the prior year.
The increase in revenues associated with entertainment dining and nightlife offerings was primarily due to the impact of the opening of a new venue, partially offset by (i) the impact of the current year containing 52 weeks of operations as compared to 53 weeks during the prior year, due to the timing of the retail calendar, (ii) closing of one venue, and other decreases. TAO Group’s operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis. As a result, TAO Group’s related revenues for fiscal year 2019 are for the period from April 2, 2018 to March 31, 2019, as compared to TAO Group’s related revenues for fiscal year 2018, which are for the period from March 27, 2017 to April 1, 2018.
The increase in venue-related sponsorship and signage and suite rental fee revenues was due to increased sales of existing sponsorship and signage inventory and rate increases in suite licenses.
Revenues from Obscura are included as a result of its acquisition by the Company on November 20, 2017. The current year results include revenues from Obscura for a full fiscal year as compared to approximately seven months (from November 20, 2017 to June 30, 2018) in fiscal year 2018. Revenues from Obscura are principally related to its third-party production business.
The decrease in event-related revenues from other live events was primarily due to (i) the impact of a large-scale special event series held at The Garden and Hulu Theater at Madison Square Garden during the prior year, (ii) lower per-event revenue during the current year as compared to the prior year and, to a lesser extent, (iii) the impact of the new revenue recognition standard in the current year. The decrease was slightly offset by additional events held at the Company’s venues during the current year as compared to the prior year.
The decrease in BCE event-related revenues was primarily due to lower ticket-related revenues from the Boston Calling Music Festival.
Direct operating expenses
Direct operating expenses for the year ended June 30, 2019 increased $24,218, or 5%, to $507,091 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Increase in direct operating expenses associated with entertainment dining and nightlife offerings | $ | 21,364 |
|
Increase in direct operating expenses associated with Obscura | 5,871 |
|
Increase in direct operating expenses associated with the presentation of the Christmas Spectacular | 5,187 |
|
Increase in direct operating expenses associated with the Company’s exploration of a new theatrical production | 1,485 |
|
Increase in direct operating expenses associated with venue-related sponsorship and signage and suite licenses | 1,389 |
|
Decrease in event-related direct operating expenses associated with other live events | (9,757 | ) |
Decrease in BCE event-related direct operating expenses | (1,914 | ) |
Decrease in event-related direct operating expenses associated with concerts | (978 | ) |
Other net increases | 1,571 |
|
| $ | 24,218 |
|
The increase in direct operating expenses associated with entertainment dining and nightlife offerings was primarily due to the costs associated with the opening of a new venue inclusive of increases in (i) employee compensation and related benefits, (ii) costs of food and beverage, and (iii) performer costs, as well as (iv) the impact of certain costs being reported as direct operating expenses during the current year as compared to being reported as selling, general and administrative expenses during the prior year.
Direct operating expenses from Obscura are included as a result of its acquisition by the Company on November 20, 2017. The current year results include direct operating expenses from Obscura for a full fiscal year as compared to approximately seven months (from November 20, 2017 to June 30, 2018) in fiscal year 2018. Direct operating expenses from Obscura are principally related to third-party production business.
The increase in direct operating expenses associated with the presentation of the Christmas Spectacular was primarily due to (i) higher labor costs, (ii) higher costs associated with more performances in the current year, (iii) costs related to show enhancements, and (iv) higher marketing expenses during the current year as compared to the prior year. The Company had 210 performances of the production in fiscal year 2019, as compared to 200 performances in fiscal year 2018 due to an extension of the show’s run announced in December 2018.
The increase in direct operating expenses associated with the venue-related sponsorship and signage and suite licenses was primarily due to increased sales of existing sponsorship inventory.
The decrease in event-related direct operating expenses from other live events was primarily due to (i) the impact of a large-scale special event series held at The Garden and Hulu Theater at Madison Square Garden during the prior year, (ii) the impact of the new revenue recognition standard in the current year, and (iii) to a lesser extent, lower per event expenses during the current year as compared to prior year. The decrease was slightly offset by additional events held at the Company's venues during the current year as compared to prior year.
The decrease in BCE event-related direct operating expenses was due to lower costs related to the Boston Calling Music Festival in the current year as compared to prior year.
The decrease in event-related direct operating expenses from concerts was primarily due to the impact of the new revenue recognition standard in the current year. The decrease was largely offset by additional events held at the Company’s venues and higher per event expenses during the current year as compared to prior year.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended June 30, 2019 increased $16,576, or 9%, to $208,577 as compared to the prior year mainly due to (i) higher employee compensation and related benefits, (ii) an increase in professional fees, (iii) venue pre-opening costs associated with entertainment dining and nightlife offerings, and (iv) the inclusion of Obscura’s selling, general and administrative costs related to its third-party production business for a full fiscal year as compared to approximately seven months (from November 20, 2017 to June 30, 2018) in fiscal year 2018. The increase was partially offset by the impact of certain costs being reported as direct operating expenses during the current year as compared to being reported as selling, general and administrative expenses during the prior year.
Operating income
Operating income for the year ended June 30, 2019 decreased $1,245, or 1%, to $86,092 as compared to the prior year due to increases in direct operating expenses and selling, general and administrative expenses largely offset by higher revenues as discussed above.
Adjusted operating income
Adjusted operating income for the year ended June 30, 2019 decreased $4 to $118,348 as compared to the prior year. The decrease was lower than a decrease in operating income primarily due to higher share-based compensation expense and, to a lesser extent, an increase in depreciation and amortization.
MSG Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Sports segment.
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2019 | | 2018 | | Amount | | Percentage |
Revenues | | $ | 812,746 |
| | $ | 778,653 |
| | $ | 34,093 |
| | 4 | % |
Direct operating expenses | | 485,899 |
| | 456,932 |
| | 28,967 |
| | 6 | % |
Selling, general and administrative expenses | | 196,548 |
| | 185,139 |
| | 11,409 |
| | 6 | % |
Depreciation and amortization | | 7,778 |
| | 7,481 |
| | 297 |
| | 4 | % |
Operating income | | $ | 122,521 |
| | $ | 129,101 |
| | $ | (6,580 | ) | | (5 | )% |
Reconciliation to adjusted operating income: | | | | | | | | |
Share-based compensation | | 16,373 |
| | 15,498 |
| | | | |
Depreciation and amortization | | 7,778 |
| | 7,481 |
| | | | |
Adjusted operating income | | $ | 146,672 |
| | $ | 152,080 |
| | $ | (5,408 | ) | | (4 | )% |
Revenues
Revenues for the year ended June 30, 2019 increased $34,093, or 4%, to $812,746 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Increase in event-related revenues from other live sporting events | $ | 16,172 |
|
Increase in revenues from league distributions | 13,883 |
|
Increase in local media rights fees from MSG Networks | 5,750 |
|
Increase in suite license fee revenues | 3,532 |
|
Increase in professional sports teams’ sponsorship and signage revenues and ad sales commission | 790 |
|
Decrease in professional sports teams’ pre/regular season ticket-related revenues | (6,174 | ) |
Decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales | (1,670 | ) |
Other net increases | 1,810 |
|
| $ | 34,093 |
|
The increase in event-related revenues from other live sporting events was due to higher per event revenue, slightly offset by fewer events during the current year as compared to the prior year.
The increase in revenues from league distributions included the impact of timing.
The increase in local media rights fees from MSG Networks was primarily due to contractual rate increases.
The increase in suite license fee revenue was primarily due to rate increases, partially offset by lower sales of suite products.
The increase in professional sports teams’ sponsorship and signage revenues and ad sales commission was primarily due to higher ad sales commission revenue and the impact of the new revenue recognition standard in the current year, partially offset by decreased sales of existing sponsorship and signage inventory.
The decrease in professional sports teams’ pre/regular season ticket-related revenues was primarily due to lower average Rangers, Knicks and Liberty per-game revenue, partially offset by the impact of the recognition of $2,753 during the current year associated with games played in the prior year as a result of the ticketing agreement renewal.
The decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales was primarily due to lower average per-game revenue during the current year as compared to the prior year and the Liberty playing fewer games at The Garden during the current year as compared to the prior year. The Liberty played ten fewer regular season games at The Garden during the current year as compared to the prior year, as the Liberty played the majority of their home games at the Westchester County Center, located in White Plains, NY, during the current year. Additionally, the Liberty was sold in January 2019.
Direct operating expenses
Direct operating expenses for the year ended June 30, 2019 increased $28,967, or 6%, to $485,899 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Increase in net provisions for certain team personnel transactions | $ | 25,620 |
|
Increase in event-related expenses associated with other live sporting events | 10,501 |
|
Increase in other team operating expenses not discussed elsewhere in this table | 3,846 |
|
Increase in net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax | 733 |
|
Decrease in team personnel compensation | (11,513 | ) |
Other net decreases | (220 | ) |
| $ | 28,967 |
|
Net provisions for certain team personnel transactions and for league revenue sharing expense (excluding playoffs) and NBA luxury tax were as follows:
|
| | | | | | | | | | | | |
| | Years Ended June 30, | | Increase |
| | 2019 | | 2018 | |
Net provisions for certain team personnel transactions | | $ | 53,134 |
| | $ | 27,514 |
| | $ | 25,620 |
|
Net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax | | 56,183 |
| | 55,450 |
| | 733 |
|
Team personnel transactions for the year ended June 30, 2019 reflect provisions, net of recoveries recorded in the current year associated with prior year team personnel provisions, recorded for (i) waivers/contract terminations of $46,950, (ii) player trades of $5,642, and (iii) season-ending player injuries of $542. Team personnel transactions for the year ended June 30, 2018 reflect provisions recorded for (i) waivers/contract terminations of $21,559, (ii) season-ending player injuries of $4,273, which is net of insurance recoveries of $468 and (iii) player trades of $1,682.
The increase in net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax reflects higher provisions for league revenue sharing expense of $1,647, partially offset by higher estimated NBA luxury tax credit of $914. Higher league revenue sharing expense primarily reflected higher estimated NHL and NBA revenue sharing expense for the 2018-19 season, partially offset by higher estimated net player escrow recoveries and, to a lesser extent, net adjustments to prior seasons’ revenue sharing expense. The actual amounts for the 2018-19 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors. The Knicks were not a luxury tax payer for the 2018-19 and 2017-18 seasons and, therefore, received equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams.
The increase in event-related expenses associated with other live sporting events was due to higher per event expenses, slightly offset by fewer events during the current year as compared to the prior year.
The increase in other team operating expenses was primarily due to an increase in league assessments and other net increases, partially offset by lower player insurance costs and lower day-of-event costs, primarily driven by the Liberty playing fewer games at The Garden during the current year as compared to the prior year. During the current year, the majority of the Liberty’s home games were played at the Westchester County Center, located in White Plains, NY. Additionally, the Liberty was sold in January 2019.
The decrease in team personnel compensation was primarily due to roster changes at the Company’s sports teams.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended June 30, 2019 increased $11,409, or 6%, to $196,548 as compared to the prior year primarily due to higher employee compensation and related benefits and an increase in marketing costs.
Operating income
Operating income for the year ended June 30, 2019 decreased $6,580, or 5%, to $122,521 as compared to the prior year primarily due to higher direct operating expenses, and to a lesser extent, an increase in selling, general and administrative expenses, partially offset by an increase in revenues, as discussed above.
Adjusted operating income
Adjusted operating income for the year ended June 30, 2019 decreased $5,408, or 4%, to $146,672, as compared to the prior year. The decrease was lower than the decrease in operating income primarily due to higher share-based compensation expense and, to a lesser extent, an increase in depreciation and amortization.
Comparison of the Year Ended June 30, 2018 versus the Year Ended June 30, 2017
Factors Affecting Operating Results from Acquisitions
TAO Group’s Operating Results
The Company completed the TAO Group acquisition on January 31, 2017. TAO Group’s financial statements are not available within the time constraints the Company requires to ensure the financial accuracy of the operating results. Therefore, the Company records TAO Group’s operating results in its consolidated statements of operations under the MSG Entertainment segment on a three-month lag basis. As a result, TAO Group’s related operating results for the year ended June 30, 2018 are for the period from March 27, 2017 to April 1, 2018. TAO Group’s related operating results for the year ended June 30, 2017 are for the period from February 1, 2017 to March 26, 2017.
CLG’s Operating Results
The results of operations of the Company and the MSG Sports segment for the year ended June 30, 2018 include CLG’s results of operations from the date of acquisition, which was July 28, 2017. The Company’s results for the year ended June 30, 2017 do not include any of CLG’s operating results.
Obscura’s Operating Results
The results of operations of the Company and the MSG Entertainment segment for the year ended June 30, 2018 include Obscura’s results of operations from the date of acquisition, which was November 20, 2017. The Company’s results for the year ended June 30, 2017 do not include any of Obscura’s operating results.
Consolidated Results of Operations
The table below sets forth, for the periods presented, certain historical financial information.
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2018 | | 2017 | | Amount | | Percentage |
Revenues | | $ | 1,559,095 |
| | $ | 1,318,452 |
| | $ | 240,643 |
| | 18 | % |
| | | | | | | | |
Direct operating expenses | | 944,276 |
| | 860,423 |
| | 83,853 |
| | 10 | % |
Selling, general and administrative expenses | | 469,276 |
| | 406,951 |
| | 62,325 |
| | 15 | % |
Depreciation and amortization | | 122,486 |
| | 107,388 |
| | 15,098 |
| | 14 | % |
Operating income (loss) | | 23,057 |
| | (56,310 | ) | | 79,367 |
| | NM |
|
Other income (expense): | | | | | | | | |
Loss in equity method investments | | (7,770 | ) | | (29,976 | ) | | 22,206 |
| | 74 | % |
Interest income, net | | 6,167 |
| | 7,647 |
| | (1,480 | ) | | (19 | )% |
Miscellaneous expense, net | | (3,878 | ) | | (2,554 | ) | | (1,324 | ) | | (52 | )% |
Income (loss) from operations before income taxes | | 17,576 |
| | (81,193 | ) | | 98,769 |
| | NM |
|
Income tax benefit | | 116,872 |
| | 4,404 |
| | 112,468 |
| | NM |
|
Net income (loss) | | 134,448 |
| | (76,789 | ) | | 211,237 |
| | NM |
|
Less: Net loss attributable to redeemable noncontrolling interests | | (628 | ) | | (4,370 | ) | | 3,742 |
| | 86 | % |
Less: Net income (loss) attributable to nonredeemable noncontrolling interests | | (6,518 | ) | | 304 |
| | (6,822 | ) | | NM |
|
Net income (loss) attributable to The Madison Square Garden Company’s stockholders | | $ | 141,594 |
| | $ | (72,723 | ) | | $ | 214,317 |
| | NM |
|
NM — Percentage is not meaningful
The following is a summary of changes in segments’ operating results for the year ended June 30, 2018 as compared to the prior year.
|
| | | | | | | | | | | | | | | | | | | | |
Changes attributable to | | Revenues | | Direct operating expenses | | Selling, general and administrative expenses | | Depreciation and amortization | | Operating income (loss) |
MSG Entertainment segment (a) | | $ | 274,258 |
| | $ | 104,911 |
| | $ | 72,449 |
| | $ | 7,176 |
| | $ | 89,722 |
|
MSG Sports segment (a) | | (33,331 | ) | | (16,063 | ) | | (22,820 | ) | | (1,838 | ) | | 7,390 |
|
Corporate and Other | | — |
| | 120 |
| | 12,400 |
| | (5,222 | ) | | (7,298 | ) |
Purchase accounting adjustments (b) | | — |
| | (4,831 | ) | | 223 |
| | 14,982 |
| | (10,374 | ) |
Inter-segment eliminations | | (284 | ) | | (284 | ) | | 73 |
| | — |
| | (73 | ) |
| | $ | 240,643 |
| | $ | 83,853 |
| | $ | 62,325 |
| | $ | 15,098 |
| | $ | 79,367 |
|
| |
(a)
| See “Business Segment Results” for a more detailed discussion of the operating results of our segments.
|
| |
(b)
| In connection with the purchase priceallocation of the TAO Group acquisition on January 31, 2017, the inventory value was increased by $8,705 and was fully expensed to direct operating expenses for the year ended June 30, 2017 as the related inventory was consumed. In addition, the direct operating expenses for the year ended June 30, 2018 principally reflect the amortization of favorable leases in connection with the TAO Group acquisition.
|
Selling, general and administrative expenses - Corporate and Other
Selling, general and administrative expenses in Corporate and Other for the year ended June 30, 2018 increased $12,400, or 16%, to $91,840 as compared to prior year. The increase was primarily due to higher employee compensation and related benefits, as well as the inclusion of Obscura’s selling, general and administrative costs not related to its third-party production business. The increase was partially offset by a management fee earned for providing management and strategic services to TAO Group (see “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion), which is eliminated in the Company’s consolidated results of operations presented above, as well as certain favorable adjustments related to contingent payments for the Company’s business acquisitions.
Depreciation and amortization
Depreciation and amortization for the year ended June 30, 2018 increased $15,098, or 14%, to $122,486 as compared to the prior year primarily due to purchase accounting adjustments and the inclusion of depreciation and amortization expense related to property and equipment associated with the business acquisitions (see “ — Factors Affecting Operating Results from Acquisitions” for further discussion), partially offset by certain assets being fully depreciated and amortized.
Operating loss - Corporate and Other
Operating loss in Corporate and Other for the year ended June 30, 2018 increased $7,298, or 4%, to $170,316 as compared to the prior year. The increase was primarily due to higher selling, general and administrative expensesexpenses.
Liquidity and Capital Resources
Overview
Our operations and operating results were materially impacted by the COVID-19 pandemic and government and league actions taken in response during fiscal years 2020 and 2021. Our operations and operating results were also impacted by temporary declines in attendance in fiscal year 2022, due to ongoing reduced tourism levels as discussed above, partially offset by lower depreciationwell as an increase in cases during certain months of the fiscal year due to COVID-19 variants. For more information about the impacts and amortizationrisks to the Company as a result of certain assets being fully depreciatedCOVID-19, see “— Factors Affecting Operating Results— Impact of COVID-19 on Our Business” and amortized.“Item 1A. Risk Factors — Sports Business Risks—Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response”. In addition, see also Note 1 to the consolidated financial statements included in “Part II — Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further information.
Our primary sources of liquidity are cash and cash equivalents and available borrowing capacity under our credit facilities as well as cash flow from our operations. On December 14, 2021, the Company amended and extended the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement. In addition, in March 2021, pursuant to the 2021 Rangers NHL Advance Agreement (the “2021 Rangers NHL Advance Agreement”), the NHL advanced the Company $30,000, which the league made available to each team. See Note 1913 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussion of depreciation and amortization under Corporate and Other.
Loss in equity method investments
Loss in equity method investments for the year ended June 30, 2018 improved $22,206, or 74%, to $7,770 as compared to the prior year. The year-over-year improvement is primarily due to a pre-tax non-cash impairment charge of $20,613 recorded during the prior year to write off the carrying value of the equity method investment in Fuse Media.
Interest income, net
Net interest income for the year ended June 30, 2018 decreased $1,480, or 19%, to $6,167 as compared to the prior year primarily due to interest expense incurred under the 2017 TAO Credit Agreement. See “— Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for discussion. The decrease was partially offset by higher interest income earned by the Company as a result of higher interest rates and a change in investment mix. In addition, during the year ended June 30, 2018, the Company recognized interest income of $938, which was received in connection with the repayment of a loan receivable from one of the Company’s nonconsolidated affiliates that was on a nonaccrual status.
Miscellaneous expense, net
Miscellaneous expense, net for the year ended June 30, 2018 principally consist of non-service components of net period pension and postretirement benefit cost in accordance with ASU No. 2017-07. Miscellaneous income in the prior year consists principally of (i) non-service components of net period pension and postretirement benefit cost in accordance with ASU No. 2017-07 and (ii) the recovery of certain claims in connection with a third-party bankruptcy proceeding. See Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-Kfor further discussion of the retrospective adoption of ASU No. 2017-07.2021 Knicks Credit Agreement, 2021 Rangers Credit Agreement, and 2021 Rangers NHL Advance Agreement.
Income taxes
On December 22, 2017, TCJA was enacted, which significantly changed the existing U.S. tax laws, including a reduction in the corporate federal income tax rate from 35% to 21% effective January 1, 2018. During the second quarter of fiscal year 2018, the Company was required to recognize the effect of tax law changes in the period of enactment even though certain key aspects of the new law became effective January 1, 2018. The Company used a blended statutory federal income tax rate of 28% based upon the number of days that it will be taxed at the former rate of 35% and the number of days it will be taxed at the new rate of 21% to calculate its most recent effective tax rate.
Income tax benefit for the year ended June 30, 2018 was $116,872 and income tax benefit for the year ended June 30, 2017 was $4,404.
Income tax benefit for the year ended June 30, 2018 of $116,872 differs from the income tax expense derived from applying the blended statutory federal rate of 28% to pretax income primarily as a result of a deferred income tax benefit of $113,494 related to the revaluation of the Company’s deferred tax assets and liabilities under provisions contained in the new tax legislation, of which (i) $51,015 was due to the reduction of net deferred tax liabilities in connection with the lower federal income tax rate of 21%, and (ii) $62,479 was due to a reduction in the valuation allowance attributable to the new rules, which provide that future federal net operating losses have an unlimited carry-forward period. These rules on future federal net operating losses allow the Company to recognize a portion of its unrecognized deferred tax assets for future deductible items. Other decreases to the statutory rate include $13,211 of income tax benefit related to a decrease in the valuation allowance, which offsets the income tax expense attributable to most of the operating income, and $1,974 of income tax benefit related to the vesting of restricted stock units. These decreases were partially offset by (i) $1,800 of tax expense related to state and local income taxes (net of federal benefit), (ii) $1,998 of tax expense primarily related to non-deductible expenses, (iii) $2,006 of tax expense related to consolidated partnership book income attributable to non-controlling interests, (iv) $846 of tax expense related to a change in state tax rates and (v) $223 of other.
Income tax benefit for the year ended June 30, 2017 of $4,404 differs from the income tax expense derived from applying the statutory federal rate of 35% to pretax income primarily as a result of (i) an increase of $30,697 in recorded federal and state valuation allowances, (ii) tax expense of $3,449 related to non-deductible expenses, (iii) the tax impact of consolidated partnership book income attributable to non-controlling interests of $1,414, (iv) deferred expense of $1,329 based on tax amortization on indefinite-lived intangibles that are not available as a source of taxable income to support the realization of deferred tax assets, and (v) expense of $672 recorded due to a state rate change computed as a result of filed state tax returns. This tax expense is offset by (i) $6,716 of state tax benefit (net of federal effect), (ii) $6,477 of tax benefit related to other comprehensive income gains recorded in continuing operations and (iii) $354 of other.
Adjusted operating income
The following is a reconciliation of operating income (loss) to adjusted operating income:
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2018 | | 2017 | | Amount | | Percentage |
Operating income (loss) | | $ | 23,057 |
| | $ | (56,310 | ) | | $ | 79,367 |
| | NM |
|
Share-based compensation | | 47,563 |
| | 41,129 |
| |
|
| | |
Depreciation and amortization (a) | | 122,486 |
| | 107,388 |
| |
|
| | |
Other purchase accounting adjustments (b) | | 4,858 |
| | 9,466 |
| | | | |
Adjusted operating income | | $ | 197,964 |
| | $ | 101,673 |
| | $ | 96,291 |
| | 95 | % |
________________NM — Percentage is not meaningful
| |
(a)
| Depreciation and amortization included purchase accounting adjustments of $18,134 and $3,152 for the years ended June 30, 2018 and 2017, respectively. |
| |
(b)
| Other purchase accounting adjustments for the year ended June 30, 2018 primarily included the amortization of favorable leases in connection with the TAO Group acquisition. Other purchase accounting adjustments for the year ended June 30, 2017 primarily included an inventory adjustment of $8,705 that was expensed to direct operating expenses and associated with the TAO Group acquisition on January 31, 2017 as the related inventory was consumed. |
Adjusted operating income for the year ended June 30, 2018 increased $96,291, or 95%, to $197,964 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Increase in adjusted operating income of the MSG Entertainment segment | $ | 95,075 |
|
Increase in adjusted operating income of the MSG Sports segment | 6,502 |
|
Increase in adjusted operating loss in Corporate and Other | (5,213 | ) |
Inter-segment eliminations | (73 | ) |
| $ | 96,291 |
|
Increase in adjusted operating loss in Corporate and Other were primarily due to higher employee compensation and related benefits, excluding share-based compensation expense, and the inclusion of Obscura expenses associated with the Company’s business development initiatives partially offset by a management fee earned for providing management and strategic services to TAO Group (see “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion), which is eliminated in the Company’s consolidated results of operations presented above. These increases were offset by certain favorable adjustments related to contingent payments for the Company’s business acquisitions.
Net income (loss) attributable to redeemable and nonredeemable noncontrolling interests
For the year ended June 30, 2018, the Company recorded net loss attributable to redeemable noncontrolling interests of $628 and a net loss attributable to nonredeemable noncontrolling interests of $6,518 as compared to $4,370 of net loss attributable to redeemable noncontrolling interests and $304 of net income attributable to nonredeemable noncontrolling interests for the year ended June 30, 2017. These amounts represent the share of net income (loss) of TAO Group, BCE, and CLG that are not attributable to the Company. In addition, the net income (loss) attributable to redeemable and nonredeemable noncontrolling interests includes a proportional share of expenses related to purchase accounting adjustments. See “— Factors Affecting Operating Results from Acquisitions” for further discussion.
Business Segment Results
MSG Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income (loss) to adjusted operating income for the Company’s MSG Entertainment segment.
|
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2018 | | 2017 | | Amount | | Percentage |
Revenues | | $ | 780,726 |
| | $ | 506,468 |
| | $ | 274,258 |
| | 54 | % |
Direct operating expenses | | 482,873 |
| | 377,962 |
| | 104,911 |
| | 28 | % |
Selling, general and administrative expenses | | 192,001 |
| | 119,552 |
| | 72,449 |
| | 61 | % |
Depreciation and amortization | | 18,515 |
| | 11,339 |
| | 7,176 |
| | 63 | % |
Operating income (loss) | | $ | 87,337 |
| | $ | (2,385 | ) | | $ | 89,722 |
| | NM |
|
Reconciliation to adjusted operating income: | | | | | | | | |
Share-based compensation | | 12,500 |
| | 14,323 |
| | | | |
Depreciation and amortization | | 18,515 |
| | 11,339 |
| | | | |
Adjusted operating income | | $ | 118,352 |
| | $ | 23,277 |
| | $ | 95,075 |
| | NM |
|
NM — Percentage is not meaningful
Revenues
Revenues for the year ended June 30, 2018 increased $274,258, or 54%, to $780,726 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Inclusion of revenues associated with entertainment dining and nightlife offerings | $ | 208,629 |
|
Increase in event-related revenues at The Garden | 28,390 |
|
Increase in event-related revenues at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular | 14,638 |
|
Increase in event-related revenues at the Forum | 11,395 |
|
Increase in event-related revenues at Hulu Theater at Madison Square Garden | 6,912 |
|
Increase in event-related revenues at The Chicago Theatre | 6,031 |
|
Increase in revenues from the presentation of the Christmas Spectacular | 5,055 |
|
Increase in venue-related sponsorship and signage and suite rental fee revenues | 1,140 |
|
Decrease in revenues from the presentation of the New York Spectacular as a result of no scheduled performances in the current year | (11,483 | ) |
Decrease in BCE event-related revenues | (2,712 | ) |
Other net increases, primarily due to the inclusion of revenue associated with the acquisition of Obscura | 6,263 |
|
| $ | 274,258 |
|
The inclusion of revenues associated with entertainment dining and nightlife offerings is the result of the acquisition of a 62.5% interest in TAO Group on January 31, 2017, and primarily reflects revenues generated from food and beverage sales. TAO Group’s operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis. As a result, TAO Group’s related revenues for fiscal year 2018 are for the period from March 27, 2017 to April 1, 2018, as compared to TAO Group’s related revenues for fiscal year 2017, which are for the period from February 1, 2017 to March 26, 2017. See “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion.
The increase in event-related revenues at The Garden was due to a change in the mix of events (including the impact of a large-scale event held during the current year) and additional events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related revenues at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular, was primarily due to additional events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related revenues at the Forum was due to a change in the mix of events and an additional event held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related revenues at Hulu Theater at Madison Square Garden was primarily due to a change in the mix of events partially offset by fewer events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related revenues at The Chicago Theatre was primarily due to additional events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in revenues from the presentation of the Christmas Spectacular was primarily due to higher ticket-related revenue, mainly as a result of higher average ticket prices and the impact of additional scheduled performances, partially offset by a decrease in average per-show paid attendance in fiscal year 2018 as compared to the prior year. The Company had 200 scheduled performances of the production during the 2018 holiday season as compared to 197 scheduled performances during the 2017 holiday season. For the 2017 holiday season, more than one million tickets were sold, representing a low single digit percentage decrease as compared to the 2016 holiday season.
The increase in venue-related sponsorship and signage and suite rental fee revenues was due to higher suite rental fee revenue mainly driven by contractual rate increases.
The decrease in revenues from the presentation of the New York Spectacular was driven by no scheduled performances in fiscal year 2018 as compared to 56 scheduled performances presented in the prior year. This was a result of the Company’s decision to suspend the planned 2017 presentation announced in February 2017.
The decrease in BCE event-related revenues was primarily due to a decrease in ticket-related revenue.
Direct operating expenses
Direct operating expenses for the year ended June 30, 2018 increased $104,911, or 28%, to $482,873 as compared to the prior year. The net increase is attributable to the following:
|
| | | |
Inclusion of direct operating expenses associated with entertainment dining and nightlife offerings | $ | 112,958 |
|
Increase in event-related direct operating expenses at The Garden | 15,273 |
|
Increase in event-related direct operating expenses at the Forum | 7,919 |
|
Increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular | 4,391 |
|
Increase in BCE event-related direct operating expenses | 3,954 |
|
Increase in event-related direct operating expenses at The Chicago Theatre | 3,842 |
|
Increase in venue operating costs | 3,086 |
|
Increase in event-related direct operating expenses at The Hulu Theater at Madison Square Garden | 2,429 |
|
Increase in direct operating expenses associated with the presentation of the Christmas Spectacular | 1,386 |
|
Decrease in direct operating expenses associated with the presentation of the New York Spectacular as a result of no scheduled performances in the current year | (56,196 | ) |
Other net increases, principally the inclusion of direct expenses related to Obscura’s third-party production business | 5,869 |
|
| $ | 104,911 |
|
The inclusion of direct operating expenses associated with entertainment dining and nightlife offerings is the result of the acquisition of a 62.5% interest in TAO Group on January 31, 2017, and primarily reflects costs associated with food and beverage sales, inclusive of labor costs, as well as venue-related operating expenses. TAO Group’s operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis. As a result, TAO Group’s related direct operating expenses for fiscal year 2018 are for the period from March 27, 2017 to April 1, 2018, as compared to TAO Group’s related direct operating expenses for fiscal year 2017, which are for the period from February 1, 2017 to March 26, 2017. See “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion.
The increase in event-related direct operating expenses at The Garden was due to a change in the mix of events (including the impact of a large-scale event held during the current year) and additional events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related direct operating expenses at the Forum was due to a change in the mix of events as well as one additional event held at the venue during fiscal year 2018 as compared to the prior year.
The increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular, was due to additional events partially offset by a change in the mix of events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in BCE event-related direct operating expenses was due to higher costs related to the Boston Calling Music Festival in fiscal year 2018.
The increase in event-related direct operating expenses at The Chicago Theatre was primarily due to additional events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in venue operating costs was primarily due to higher labor-related costs at our venues during fiscal year 2018 as compared to the prior year.
The increase in event-related direct operating expenses at Hulu Theater at Madison Square Garden was due to a change in the mix of events partially offset by fewer events held at the venue during fiscal year 2018 as compared to the prior year.
The increase in direct operating expenses associated with the presentation of the Christmas Spectacular was primarily due to higher labor costs and an increase in deferred production cost amortization, partially offset by lower marketing expenses during fiscal year 2018 as compared to the prior year. The Company had 200 scheduled performances of the production during the 2018 holiday season as compared to 197 scheduled performances during the 2017 holiday season.
The decrease in direct operating expenses associated with the presentation of the New York Spectacular was driven by no scheduled performances in fiscal year 2018 as compared to 56 scheduled performances presented in the prior year. This was a result of the Company’s decision to suspend the planned 2017 presentation announced in February 2017.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended June 30, 2018 increased $72,449, or 61%, to $192,001 as compared to the prior year mainly due to (i) inclusion of TAO Group’s selling, general and administrative costs, including a management fee incurred by TAO Group payable to the Company for providing management and strategic services and, to a lesser extent, (ii) higher professional fees and (iii) an increase in corporate general and administrative costs. See “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion.
Depreciation and amortization
Depreciation and amortization for the year ended June 30, 2018 increased $7,176, or 63%, to $18,515 as compared to the prior year primarily due to the inclusion of depreciation and amortization expenses for TAO Group’s property and equipment before the purchase accounting adjustments. See “ — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results” for further discussion.
Operating income (loss)
Operating income for the year ended June 30, 2018 improved $89,722 to $87,337 as compared to the prior year due to higher revenues, partially offset by increases in direct operating expenses, selling, general and administrative expenses and depreciation and amortization expenses, as discussed above.
Adjusted operating income
Adjusted operating income for the year ended June 30, 2018 improved by $95,075 to $118,352 as compared to the prior year due to higher revenues, partially offset by increases in direct operating expenses and selling, general and administrative expenses, as discussed above, excluding share-based compensation expense.
MSG Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Sports segment. |
| | | | | | | | | | | | | | | |
| | Years Ended June 30, | | Change |
| | 2018 | | 2017 | | Amount | | Percentage |
Revenues | | $ | 778,653 |
| | $ | 811,984 |
| | $ | (33,331 | ) | | (4 | )% |
Direct operating expenses | | 456,932 |
| | 472,995 |
| | (16,063 | ) | | (3 | )% |
Selling, general and administrative expenses | | 185,139 |
| | 207,959 |
| | (22,820 | ) | | (11 | )% |
Depreciation and amortization | | 7,481 |
| | 9,319 |
| | (1,838 | ) | | (20 | )% |
Operating income | | $ | 129,101 |
| | $ | 121,711 |
| | $ | 7,390 |
| | 6 | % |
Reconciliation to adjusted operating income: | | | | | | | | |
Share-based compensation | | 15,498 |
| | 14,548 |
| | | | |
Depreciation and amortization | | 7,481 |
| | 9,319 |
| | | | |
Adjusted operating income | | $ | 152,080 |
| | $ | 145,578 |
| | $ | 6,502 |
| | 4 | % |
Revenues
Revenues for the year ended June 30, 2018 decreased $33,331, or 4%, to $778,653 as compared to the prior year. The net decrease is attributable to the following: |
| | | |
Decrease in professional sports teams’ playoff related revenues | $ | (29,333 | ) |
Decrease in revenues from league distributions | (24,820 | ) |
Decrease in event-related revenues from other live sporting events | (10,817 | ) |
Increase in professional sports teams’ sponsorship and signage revenues and ad sales commission | 12,454 |
|
Increase in local media rights fees from MSG Networks | 6,528 |
|
Increase in professional sports teams’ pre/regular season ticket-related revenues | 5,640 |
|
Increase in suite rental fee revenues | 4,764 |
|
Other net increases, inclusive of certain revenues from CLG | 2,253 |
|
| $ | (33,331 | ) |
The decrease in professional sports team’s playoff related revenues was primarily due to the Rangers playing six home playoff games as the team advanced to the second round of the playoffs in the prior year versus not qualifying for playoffs in fiscal year 2018.
The decrease in revenues from league distributions primarily reflects an NHL expansion fee of $15,500 and approximately $15,000 of non-recurring distributions from the NHL and NBA, which were both recorded by the Company in fiscal year 2017. These decreases were partially offset by other net increases, inclusive of league distributions related to CLG, which was acquired on July 28, 2017.
The decrease in event-related revenues from other live sporting events was due to a change in the mix of events held during the fiscal year 2018 as compared to the prior year and one event that generated lower revenue during fiscal year 2018 as compared to the prior year.
The increase in professional sports teams’ sponsorship and signage revenues and ad sales commissions was primarily due to sales of new sponsorship and signage inventory, increased sales of existing sponsorship and signage inventory and the impact of a marketing partner, upon renewal of its agreement, shifting its marketing partnership spend from a combination of entertainment and sports entirely to sports.
The increase in local media rights fees from MSG Networks was primarily due to contractual rate increases.
The increase in professional sports teams’ pre/regular season ticket-related revenues was primarily due to higher average Rangers per-game revenue, partially offset by lower average Liberty and Knicks per-game revenue.
The increase in suite rental fee revenue was primarily due to contractual rate increases.
Direct operating expenses
Direct operating expenses for the year ended June 30, 2018 decreased $16,063, or 3%, to $456,932 as compared to the prior year. The net decrease is attributable to the following: |
| | | |
Decrease in professional sports teams’ playoff related expenses | $ | (14,290 | ) |
Decrease in event-related expenses associated with other live sporting events | (5,612 | ) |
Decrease in team personnel compensation | (3,726 | ) |
Decrease in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax | (3,590 | ) |
Increase in net provisions for certain team personnel transactions | 5,535 |
|
Increase in other team operating expenses | 4,209 |
|
Other net increases | 1,411 |
|
| $ | (16,063 | ) |
The decrease in professional sports teams’ playoff related expenses was primarily due to the Rangers playing six home playoff games as the team advanced to the second round of the playoffs in the prior year versus not qualifying for playoffs in fiscal year 2018.
The decrease in event-related expenses associated with other live sporting events was primarily due to a change in the mix of events during fiscal year 2018 as compared to the prior year, and to a lesser extent, one event that generated lower expense during the fiscal year 2018 as compared to the prior year.
The decrease in team personnel compensation was primarily due to lower overall player salaries during fiscal year 2018 as a result of roster changes, partially offset by higher other team personnel compensation and the inclusion of team personnel compensation for CLG, which was acquired on July 28, 2017.
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax and for certain team personnel transactions were as follows:
|
| | | | | | | | | | | | |
| | Years Ended June 30, | | Increase (Decrease) |
| | 2018 | | 2017 | |
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax | | $ | 55,450 |
| | $ | 59,040 |
| | $ | (3,590 | ) |
Net provisions for certain team personnel transactions | | 27,514 |
| | 21,979 |
| | 5,535 |
|
The decrease in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax reflects a lower provision for NBA and NHL revenue sharing expense of $1,878 and a higher estimated NBA luxury tax receipt of $1,712. Lower NBA and NHL revenue sharing expense primarily reflects an increase in estimated net player escrow recoveries, partially offset by higher estimated NBA and NHL revenue sharing expense for the 2017-18 season and, to a lesser extent, net adjustments to prior season’s revenue sharing expense. The increase in estimated NBA luxury tax receipt is based on the Knicks’ roster, which as of June 30, 2018 did not result in luxury tax for the 2017-18 season. The Knicks were not a luxury tax payer for the 2016-17 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. The actual amounts for the 2017-18 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
Team personnel transactions for the year ended June 30, 2018 reflect provisions recorded for (i) waivers/contract terminations of $21,559, (ii) season-ending player injuries of $4,273, which is net of insurance recoveries of $468 and (iii) player trades of $1,682. Team personnel transactions for the year ended June 30, 2017 reflect provisions recorded for waivers/contract terminations and player trades of $13,979 and $8,000, respectively.
The increase in other team operating expenses was primarily due to higher day-of-event costs and league expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended June 30, 2018 decreased $22,820, or 11%, to $185,139 as compared to the prior year, primarily due to lower employee compensation and related benefits, and to a lesser extent, lower marketing costs, partially offset by an increase in corporate general and administrative costs. The reduction in employee compensation and related benefits as compared to the prior year is primarily driven by severance-related costs in the prior year, which were attributable to a separation agreement with a team executive.
Depreciation and amortization
Depreciation and amortization for the year ended June 30, 2018 decreased $1,838, or 20%, to $7,481 as compared to the prior year primarily as a result of an intangible asset becoming fully amortized.
Operating income
Operating income for the year ended June 30, 2018 increased $7,390, or 6%, to $129,101 as compared to the prior year primarily due to lower selling, general and administrative expenses and direct operating expenses, partially offset by a decrease in revenues, as discussed above.
Adjusted operating income
Adjusted operating income for the year ended June 30, 2018 increased $6,502, or 4%, to $152,080, as compared to the prior year primarily due to lower selling, general and administrative expenses, excluding share-based compensation expense, and direct operating expenses, partially offset by a decrease in revenues.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our businesses and maximum borrowing capacity under our $390,000 revolving credit facilities. Our principal uses of cash include the operation of our businesses, working capital-related items, capital spending (including our planned constructionthe repayment of large-scale venues in Las Vegasoutstanding debt, and London), investments and related loans that we may fund from time to time,potential repurchases of shares of the Company’s Class A Common Stock, repaymentStock.
As of debt,June 30, 2022, we had approximately $91,000 in Cash and cash equivalents. In addition, as of June 30, 2022, the paymentCompany’s deferred revenue obligations were approximately $141,176, net of earn-outbilled, but not yet collected deferred revenue. The current portion of this balance is primarily comprised of obligations in connection with tickets and mandatory purchasessuites. In addition, the Company’s deferred revenue obligations included $30,000 from prior acquisitions.the NBA, which the league provided to each team.
We regularly monitor and assess our ability to meet our net funding and investing requirements. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, the optimalmanagement’s view of a favorable allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and challenging U.S. and global economic and market conditions could adversely impact its ability to do so at that time.
We regularly monitor and assess our ability to meet our net funding and investing requirements. Without regard to the impact of the potential Sports Distribution, which would have a positive impact on the Company’s liquidity, if and when it is completed, we believe we have sufficient liquidity, including approximately $1,086,000$91,000 in unrestricted cashCash and cash equivalents and $108,000 of short-term investments as of June 30, 2019,2022, along with $305,000 of additional available borrowing capacity under our revolvingexisting credit facilities, combined with operating cash flows, over the next 12 months, to fund our operations to pursue the development of the new venues discussed below and other new business opportunities and to repurchase shares of the Company’s Class A Common Stock (see Note 2 and Note 11satisfy any obligations, including with respect to the consolidated financial statements included in Item 8return or application of this Annual Report on Form 10-K for a discussion of the Company’s short-term investments).
TAO Group’s principal uses of cash include working capital related-items, investments in new venues, tax-related cash distributions, interest expense payments and repayment of debt. TAO Group plans to continue to grow its business through the opening of new venues. TAO Group regularly monitors and assesses its ability to meet its funding and investment requirements. Over the next 12 months, the Company believes that TAO Group has sufficient liquidity from cash on hand, cash generated from operations and its revolving credit facility to fund its operations, service debt obligations and pursue new business opportunities.
MSG Spheres
The Company has made significant progress on MSG Sphere at The Venetian, its state-of-the-art entertainment venue currently under construction in Las Vegas.
We view both innovative design and cost management as key imperatives to the construction process. While it is always difficult to provide a definitive construction cost estimate for large-scale construction projects, it is particularly challenging for one as unique as MSG Sphere. In May, our Board of Directors approved a preliminary cost estimate of $1,200,000 based upon schematic designs for purposes of developing the Company’s budget and financial projections. We expect the estimation process for MSG Sphere construction costs will be dynamic as the project moves forward. The actual construction costs for MSG Sphere in Las Vegas incurred through June 30, 2019 were approximately $109,000.
In June, the Company announced that it engaged AECOM — a leading builder known for creating bold, innovative projects — as its general contractordeferred revenue, for the Las Vegas project. We made the strategic decision to enter into a “cost plus” construction contract with AECOM. While this type of contract adds to the complexity of the cost estimation process, we believe our “cost plus” construction contract with AECOM will help our efforts to maximize the quality of the work, while permitting us to play a more vigilant role in managing the project’s costs, including full transparency into the selection of, negotiations with, and labor and materials utilized by subcontractors.foreseeable future.
In order to further drive cost control, under the terms of the construction contract, AECOM will receive lower fees if the “hard” construction costs come in greater than an “incentive benchmark” agreed upon by the Company and AECOM. The process of setting the incentive benchmark began in July when AECOM provided the Company with its proposal, representing its estimate of the hard construction costs of the project. AECOM’s initial benchmark proposal, together with the costs of additional core technology and estimated soft costs, results in a project cost estimate that is approximately $1,700,000. We believe this cost estimate is too high and are now in the contractual process of reviewing, testing and challenging the elements of AECOM’s estimates and assumptions. We are also value engineering aspects of the project to further reduce costs. We intend to do this in a granular fashion using, among other resources, our outside project manager. We believe we will be successful in achieving significant cost reductions through this process, while noting that there are no assurances that we will reach an agreement on the incentive benchmark.
The above cost estimates for the MSG Sphere in Las Vegas have been reduced to reflect the $75,000 that the Las Vegas Sands Corp. has agreed to pay the Company to defray the construction costs of a pedestrian bridge that will link the venue to the Sands Expo Convention Center. The estimates and costs also do not contain significant capitalized and non-capitalized costs for items
such as content creation, internal labor costs, and furniture and equipment. As with any major construction project, the construction of MSG Spheres is subject to potential unexpected delays, costs or other complications. Our goal is to open MSG Sphere in Las Vegas in calendar year 2021.
See Exhibit 10.65 to this Form 10-K for a copy of the Construction Agreement, dated May 13, 2019, by and between MSG Las Vegas, LLC and Hunt Construction Group Inc. (AECOM).
In February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to the Company’s second MSG Sphere and first large-scale international venue. Cost estimates for MSG Sphere in London are still in development as the Company continues to refine its design, which it currently expects will be substantially similar to MSG Sphere in Las Vegas, including having approximately the same seating capacity. The Company submitted a planning application to the local planning authority in March 2019 and expects a planning determination by the end of calendar year 2019 (which may become the subject of further discussions with the planning authority). Our plan is to begin construction on the MSG Sphere venue in London only once we have received all necessary approvals and have further advanced our design for the venue.
We anticipate that MSG Sphere in Las Vegas will generate substantial incremental revenue and adjusted operating income on an annual basis. For additional information regarding the Company’s capital expenditures related to the MSG Spheres, see Note 19 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
In connection with these efforts, the Company will need to pursue additional capital beyond that which is available from cash on hand, cash flows from operations and borrowings under our revolving credit facilities. There is no assurance that the Company will be able to obtain such capital.
The potential Sports Distribution, if consummated, will provide the Company with additional liquidity, some or all of which could be used to finance part of the cost of constructing the MSG Spheres. The current plan for the Sports Distribution contemplates that the Company would retain up to about one-third of the common stock of Sports Spinco. Some or all of that interest could be sold for cash by the Company.
We will continue to explore additional domestic and international markets where we believe next-generation venues such as the MSG Sphere can be successful.
Financing Agreements, Revolving Credit Facilities Provided to Nonconsolidated Affiliates and Stock Repurchases
Financing Agreements
On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default. There was no borrowing under the Knicks Revolving Credit Facility as of June 30, 2019. As of June 30, 2019, Knicks LLC was in compliance with the required financial covenant.
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364-day term (the “Knicks Unsecured Credit Facility”). Knicks LLC renewed this facility with the lender on the same terms in successive years and the facility has been renewed for a new term effective as of September 27, 2019. There was no borrowing under the Knicks Unsecured Credit Facility as of June 30, 2019. This facility does not have financial covenants.
On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default. There was no borrowing under the Rangers Revolving Credit Facility as of June 30, 2019. As of June 30, 2019, Rangers LLC was in compliance with the required financial covenant.
On May 23, 2019, TAO Group Intermediate Holdings LLC (“TAOIH”) and TAO Group Operating LLC (“TAOG”), entered into a credit agreement (the “TAO Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., and the lenders party thereto. The TAO Senior Credit Agreement provides TAOG with senior secured credit facilities (the “TAO Senior Secured Credit Facilities”) consisting of: (i) an initial $40,000 term loan facility with a term of five years and (ii) a $25,000 revolving credit facility with a term of five years (the “TAO Revolving Credit Facility”). The TAO Senior Secured Credit Facilities were obtained without recourse to the Company or any of its affiliates (other than TAOG, TAOIH and its subsidiaries). The outstanding amount drawn
on the TAO Revolving Credit Facility was $15,000 as of June 30, 2019. As of June 30, 2019, TAOIH was in compliance with the required financial covenants.
On May 23, 2019, a subsidiary of the Company and a subsidiary of TAO Group Holdings LLC entered into an intercompany subordinated term loan credit agreement providing for a credit facility of $49,000 that matures in August 2024 (the “TAO Subordinated Credit Facility”). The balances and interest-related activities pertaining to the TAO Subordinated Credit Agreement have been eliminated in the consolidated financial statements in accordance with ASC Topic 810, Consolidation. As of June 30, 2019, TAO Group Holdings LLC was in compliance with the required financial covenants.
See Note 12 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on the Knicks Revolving Credit Facility, Knicks Unsecured Credit Facility, Rangers Revolving Credit Facility and the TAO Senior Secured Credit Facility.
Revolving Credit Facilities Provided to Nonconsolidated Affiliates, Financing Agreements and Stock Repurchases
See Note 713 and Note 1516 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussions of the Company’s revolving credit facility extended to a nonconsolidated affiliatedebt obligations and various financing agreements, and the Company’s stock repurchases, respectively.
Bilateral Letters
The Company has established bilateral credit lines with a bank to issue letters of credit in support of the Company’s business operations. The Company pays fees for the letters of credit that are credited against interest income the Company receives in return from its investments in notes receivable with the same bank. As of June 30, 2019, the Company had $12,512 of letters of credit outstanding pursuant to which fees were credited against note investments. Of which, TAO Group had two letters of credit outstanding for $750 as of March 31, 2019.
Cash Flow Discussion
As of June 30, 2019, cash, cash equivalents and restricted cash totaled $1,117,901, as compared to $1,256,620 as of June 30, 2018. The following table summarizes the Company’s cash flow activities for the years ended June 30, 2019, 20182022 and 2017:2021:
|
| | | | | | | | | | | | |
| | Years Ended June 30, |
| | 2019 | | 2018 | | 2017 |
Net cash provided by operating activities | | $ | 161,253 |
| | $ | 217,629 |
| | $ | 223,532 |
|
Net cash used in investing activities | | (232,895 | ) | | (182,357 | ) | | (264,301 | ) |
Net cash used in financing activities | | (71,746 | ) | | (51,097 | ) | | (158,525 | ) |
Effect of exchange rates on cash, cash equivalents and restricted cash | | 4,669 |
| | 331 |
| | — |
|
Net decrease in cash, cash equivalents and restricted cash | | $ | (138,719 | ) | | $ | (15,494 | ) | | $ | (199,294 | ) |
| | | | | | | | | | | | | | | | |
| | Years Ended June 30, |
| | 2022 | | 2021 | | |
Net income (loss) | | $ | 48,880 | | | $ | (15,897) | | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | 55,600 | | | (36,744) | | | |
Subtotal | | $ | 104,480 | | | $ | (52,641) | | | |
Changes in working capital assets and liabilities | | 73,576 | | | 17,315 | | | |
Net cash provided by (used in) operating activities | | $ | 178,056 | | | $ | (35,326) | | | |
Net cash used in investing activities | | (2,932) | | | (466) | | | |
Net cash (used in) provided by financing activities | | (156,142) | | | 17,155 | | | |
| | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 18,982 | | | $ | (18,637) | | | |
Operating Activities
Net cash provided by operating activities for the year ended June 30, 2019 decreased by $56,376 to $161,2532022 was $178,056 as compared to net cash used in operating activities in the prior year of $35,326. This was primarily due to changes in certain assets and liabilities, as well as a decrease in net income to a net loss in the current year adjusted for non-cash items. The changes in certain assets and liabilities are driven by decreases in collections due to promoters and prepaid expenses and other assets, partially offset by higher accrued and other liabilities, all due to timing. The decreaseincrease in net income adjusted for non-cash items was impacted by earnings in equity method investments in the current year as comparedand, to a losslesser extent, changes in working capital assets and liabilities driven by the COVID-19 pandemic in the prior year and lower depreciation and amortization in the current year.
Net cash provided by operating activities for the year ended June 30, 2018 decreased by $5,903 to $217,629 as compared to the prior year primarily due to higher net income adjusted for non-cash items including (i) a reduction in net deferred tax liabilities as a result of the recently enacted Tax Cuts and Jobs Act effective January 1, 2018, (ii) a write-off of deferred production costs associated with the New York Spectacular in the prior year, and (iii) an impairment charge to write off the carrying value of the Company’s equity investment in Fuse Media in the prior year, partially offset by increases in depreciation and amortization and share-based compensation expense in fiscal year 2018 as compared to the prior year. This increase was offset by a severance-related payment in fiscal year 2018 attributable to a separation agreement with a team executive which was accrued for as of June 30, 2017 and a decrease in cash received related to deferred revenue primarily due to timing.
Investing Activities
Net cash used in investing activities for the year ended June 30, 20192022 increased by $50,538$2,466 to $232,895$2,932 as compared to the prior year primarily due to the Company’s investment in a British pound-denominated time deposit and an investment in SACO, partially offset by proceeds received from the sale of the Company’s 50% interest in AMSGE.
Net cash used inhigher other investing activities for the year ended June 30, 2018 decreased by $81,944 to $182,357 as compared to the prior year primarily due to (i) a net decrease in business acquisitions, (ii) repayments received from loans to nonconsolidated affiliates, and (iii) the acquisition of available-for-sale securities in the prior year. These decreases were partially offset by (i) higher capital expenditures in fiscal year 2018, primarily associated with the purchase of land in London and costs incurred in developing the Company’s new venues in Las Vegas and London, (ii) new investments made in nonconsolidated affiliates, and (iii) a franchise fee payment made in fiscal year 2018 associated with CLG’s membership in the “League of Legends” North American League Championship Series.current year.
Financing Activities
Net cash used in financing activities for the year ended June 30, 2019 increased by $20,649 to $71,7462022 was $156,142 as compared to net cash provided by financing activities in the prior year of $17,155. This was due to (i) principal repayments on the repayment of all obligations under the 2017 TAO2021 Rangers Credit Agreement partially offset by (i) proceeds received from borrowings under the TAO Senior Credit Agreement, (ii) lower taxes paid in lieu of shares issued for equity-based compensation in the current year as compared toperiod, (ii) proceeds from the prior year, (iii repurchases of shares of the Company’s Class A Common Stock2021 Rangers NHL Advance Agreement in the prior year as compared to no repurchasesnone in the current year, and other financing activities.
Net cash used(iii) additional borrowings in investing activities for the prior year ended June 30, 2018 decreased by $107,428under the amended and extended 2021 Knicks Credit Agreement and 2021 Rangers Credit Agreement (prior to $51,097the amendment and restatement thereof) as compared to the prior year largely due to lower repurchases of shares of the Company’s Class A Common Stockno borrowings in the current year as compared to the prior year. This decrease was partially offset by (i) higher taxes paid in lieu
Contractual Obligations and Off Balance Sheet Arrangements
Future cash payments required under contracts entered into by the Company in the normal course of business and outstanding letters of credit as of June 30, 20192022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| Total | | Year 1 | | Years 2-3 | | Years 4-5 | | More Than 5 Years |
Off balance sheet arrangements (a) | $ | 577,325 | | | $ | 176,289 | | | $ | 286,448 | | | $ | 76,192 | | | $ | 38,396 | |
Contractual obligations reflected on the balance sheet: | | | | | | | | |
Leases (b) | 2,294,288 | | | 45,341 | | | 90,261 | | | 92,109 | | | 2,066,577 | |
Long-term debt (c) | 220,000 | | | — | | | — | | | 220,000 | | | — | |
Contractual obligations (d) | 111,852 | | | 83,158 | | | 17,285 | | | 4,649 | | | 6,760 | |
| 2,626,140 | | | 128,499 | | | 107,546 | | | 316,758 | | | 2,073,337 | |
Total (e) | $ | 3,203,465 | | | $ | 304,788 | | | $ | 393,994 | | | $ | 392,950 | | | $ | 2,111,733 | |
_________________
(a) |
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| Total | | Year 1 | | Years 2-3 | | Years 4-5 | | More Than 5 Years |
Off balance sheet arrangements: (a) | | | | | | | | | |
Contractual obligations (b) | $ | 256,913 |
| | $ | 115,483 |
| | $ | 110,976 |
| | $ | 24,294 |
| | $ | 6,160 |
|
Operating lease obligations (c) | 377,148 |
| | 55,078 |
| | 109,065 |
| | 89,647 |
| | 123,358 |
|
Letters of credit (d) | 12,512 |
| | 12,512 |
| | — |
| | — |
| | — |
|
| 646,573 |
| | 183,073 |
| | 220,041 |
| | 113,941 |
| | 129,518 |
|
Contractual obligations reflected on the balance sheet (e) | 117,160 |
| | 79,064 |
| | 18,179 |
| | 8,042 |
| | 11,875 |
|
Total (f) | $ | 763,733 |
| | $ | 262,137 |
| | $ | 238,220 |
| | $ | 121,983 |
| | $ | 141,393 |
|
_________________Contractual obligations not reflected on the balance sheet consist principally of the Company’s obligations under employment agreements that the Company has with certain of its professional sports teams’ personnel where services are to be performed in future periods and that are generally guaranteed regardless of employee injury or termination. | |
(a)
| Off balance sheet arrangements disclosed in the table above do not include MSG Sphere related commitments that are not reflected on the balance sheet of $1,049,781. Such arrangements are associated with the development and construction of MSG Sphere in Las Vegas. The timing of the future cash payments disclosed is uncertain and may change as the development and construction of MSG Sphere in Las Vegas progresses.
|
| |
(b)
| Contractual obligations not reflected on the balance sheet consist principally of the MSG Sports segment’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination. |
| |
(c)
| Operating lease obligations primarily represent future minimum rental payments on various long-term, noncancelable leases for the Company’s venues, including the TAO Group venues, CLG facility, and various corporate offices.
|
| |
(d)
| Consist of letters of credit obtained by the Company as collateral for development of MSG Sphere in Las Vegas and lease agreements. |
| |
(e)
| Consist primarily of amounts earned under employment agreements that the Company has with certain of its professional sports teams’ personnel in the MSG Sports segment. In addition, the amount includes MSG Sphere related commitments of approximately $19,700, all due within fiscal year 2020.
|
| |
(f)
| Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. SeeNote 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on the future funding requirements under our pension obligations.
|
one year under GAAP. These commitments are presented exclusive of the imputed interest used to reflect the payment’s present value. See Note 78 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussion ofinformation on the revolving credit facilities provided bycontractual obligations related to future lease payments, which are reflected on the Company to Tribeca Enterprises.
In connection with the TAO Group and CLG acquisitions, the Company has accrued contingent considerationconsolidated balance sheet as lease liabilities as part of June 30, 2022.
(c)Consists of amounts drawn under the purchase price.2021 Knicks Revolving Credit Facility. See Note 1113 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details of the amountdetails.
(d)Contractual obligations reflected on the balance sheet consist principally of the Company’s obligations under employment agreements that the Company has with certain of its professional sports teams’ personnel where services have been fully performed and that are being paid on a deferred basis.
(e)Pension obligations have been excluded from the table above as the timing of June 30, 2019. In addition, see the future cash payments is uncertain. SeeNote 1214 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details of the principal repayments required under the TAO Senior Secured Credit Facilitiesand the TAO Revolving Credit Facility.
MSG and a subsidiary of the Las Vegas Sands Corp. entered into a 50-year ground lease in Las Vegas pursuant to which MSG has agreed to construct a large-scale venue. MSG has announced plans to construct an MSG Sphere on that site. See “Item 1. Business — Our Business — Our Performance Venues — MSG Sphere.”
MSG has the right to increase its equity interest in TAO Group through a call rightmore information on the equity of the other TAO Group equityholders after the fifth anniversary of the closing date (January 31, 2022) and prior to such date in certain events. The other TAO Group equityholders have the right to put to TAO Group their equity interests in TAO Group after the fifth anniversary of the closing and, in certain circumstances to put to MSG prior to the fifth anniversary. The put and call prices are at fair market value (or in certain circumstances, subject to a discount). Consideration paid upon the exercise of any such put or call right shall be, at MSG’s option, in cash, debt, or MSG Class A Common Stock, subject to certain limitations.Company’s pension obligations.
Seasonality of Our Business
The Company’s dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. The dependenceOn March 11 and 12, 2020, respectively, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. In July and August 2020, the NBA and NHL, respectively, resumed their seasons and the NHL and NBA subsequently completed their seasons in September and October 2020, respectively. As a result, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have typically been recognized during the third and fourth quarter of fiscal year 2020. In addition, due to the delayed start of the MSG Entertainment segment on revenues from the Christmas Spectaculargenerally means it earns a disproportionate share of its revenues2020-21 NBA and operating incomeNHL seasons in the second quarter of the Company’s fiscal year. In addition, while it does not have a material impact on seasonality of our business, the firstDecember 2020 and third calendar quarters are seasonally lighter quarters for TAO Group as compared to its second and fourth calendar quarters. AsJanuary 2021, respectively, the Company consolidates TAO Group results of operations on a three-month lag basis,recognized certain revenues during the seasonally lighter quarters for TAO will be reflected in the secondthird and fourth quarters of fiscal year 2021, that otherwise would have typically been recognized during the Company’ssecond and third quarters of fiscal year.year 2021.
Recently Issued Accounting Pronouncements and Critical Accounting Policies
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements.
Critical Accounting Policies
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Management believes its use of estimates in the consolidated financial statements to be reasonable. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Arrangements with Multiple Performance Obligations
See Note 3 toThe Company has contracts with customers, including multi-year sponsorship agreements, that contain multiple performance obligations. Payment terms for such arrangements can vary by contract, but payments are generally due in installments throughout the consolidated financial statementscontractual term. The performance obligations included in Item 8each sponsorship agreement vary and may include various advertising benefits such as, but not limited to, signage, digital advertising, and event or property specific advertising, as well as non-advertising benefits such as suite licenses and event tickets. To the extent the Company’s multi-year arrangements provide for performance obligations that are consistent over the multi-year contractual term, such performance obligations generally meet the definition of this Annual Reporta series as provided for under the accounting guidance. If performance obligations meet the definition of a series, the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied.
The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company’s satisfaction of its respective performance obligation. The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on Form 10-K for discussionthe estimated relative standalone selling price of the performance obligation. The Company’s process for determining its estimated standalone selling prices involves management’s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation. Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include, but are not limited to, prices charged for similar performance obligations, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations, primarilyobligations.
The Company may incur costs such as commissions to obtain its multi-year sponsorship agreements.
the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract. The contract asset is amortized over the estimated useful life.
Impairment of Long-Lived and Indefinite-Lived Assets
The Company’s long-lived and indefinite-lived assets accounted for approximately 58%29% of the Company’s consolidated total assets as of June 30, 20192022 and consisted of the following:
|
| | | |
Goodwill | $ | 392,513 |
|
Indefinite-lived intangible assets | 176,485 |
|
Amortizable intangible assets, net of accumulated amortization | 220,706 |
|
Property and equipment, net | 1,380,392 |
|
| $ | 2,170,096 |
|
| | | | | |
Goodwill | $ | 226,955 | |
Indefinite-lived intangible assets | 112,144 | |
Amortizable intangible assets, net of accumulated amortization | 636 | |
Property and equipment, net | 32,892 | |
| $ | 372,627 | |
In assessing the recoverability of the Company’s long-lived and indefinite-lived assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve significant uncertainties and judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, the Company may be required to record impairment charges related to its long-lived and/or indefinite-lived assets.
Goodwill
Goodwill is tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company has twoone operating and reportable segments, MSG Entertainmentsegment, and MSG Sports, consistent withfor the way management makes decisions and allocates resources to the business.
For purposes of evaluating goodwill for impairment,year ended June 30, 2022, the Company has threehad one reporting units across its two operating segments, which are MSG Sports, MSG Entertainment and TAO Group. TAO Group was acquired after the annual goodwill impairment test for fiscal year 2017 and represents a separate reporting unit within the MSG Entertainment segment for goodwill impairment testing.
The goodwill balance reported on the Company’s consolidated balance sheet as of June 30, 2019 by reporting unit was as follows:
|
| | | |
MSG Sports | $ | 226,955 |
|
MSG Entertainment | 76,975 |
|
TAO Group | 88,583 |
|
| $ | 392,513 |
|
_________________testing purposes.The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have
occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform the two-stepa quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company’s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. IfSubsequent to the adoption of ASU No. 2017-04 in the third quarter of fiscal year 2020, the amount of an impairment loss is measured as the amount by which a reporting unit’s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill. Prior to the adoption of ASU No. 2017-04, if the carrying amount of a reporting unit exceedsexceeded its fair value, the second step of the goodwill impairment test iswas performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test comparescompared the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceedsexceeded the implied fair value of that goodwill, an impairment loss iswas recognized in an amount equal to that excess. The implied fair value of goodwill iswas determined in the same manner as the amount of goodwill that would be recognized in a business combination.
The Company elected to perform the qualitative assessment of impairment for all of the Company’s reporting unitsunit for the fiscal year 20192022 impairment test. These assessments considered factors such as:
•macroeconomic conditions;
•industry and market considerations;
•market capitalization;
•cost factors;
•overall financial performance of the reporting unit;
•other relevant company-specific factors such as changes in management, strategy or customers; and
•relevant reporting unit specific events such as changes in the carrying amount of net assets.
The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2019,2022, and there was no impairment of goodwill identified for any of its reporting units.goodwill. Based on thesethis impairment tests,test, the Company’s MSG Sports, MSG Entertainment and TAO Group reporting unitsunit had sufficient safety margins, defined as the excess of the amount by which the estimated fair value of eachthe reporting unit exceeded the respective carrying value of eachthe reporting unit, (including goodwill allocated to each respective reporting unit). For MSG Sports and MSG Entertainment theincluding goodwill. The most recent quantitative assessments were used in making this determination and due to the proximity of the acquisition date for TAO Group to the goodwill impairment test date, the initial purchase price was assumed to be the fair value of the TAO Group reporting unit for purposes of the goodwill impairment test.determination. The Company believes that if the fair value of a reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.
Identifiable Indefinite-Lived Intangible Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of June 30, 2019 by reportable segment:2022:
|
| | | |
Sports franchises (MSG Sports segment) | $ | 111,064 |
|
Trademarks (MSG Entertainment segment) | 62,421 |
|
Photographic related rights (MSG Sports segment) | 3,000 |
|
| $ | 176,485 |
|
| | | | | |
Sports franchises | $ | 111,064 | |
Photographic related rights | 1,080 | |
| $ | 112,144 | |
The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets in the MSG Sports segment and the majority of the trademarks in the MSG Entertainment segment.assets. These assessments considered the events
and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include:
•cost factors;
•financial performance;
•legal, regulatory, contractual, business or other factors;
•other relevant company-specific factors such as changes in management, strategy or customers;
•industry and market considerations; and
•macroeconomic conditions.
The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2019,2022, and there were no impairments identified. Based on thesethis impairment tests,test, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value. The Company believes that if the fair value of an indefinite-lived intangible asset exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.
Other Long-Lived AssetsLease Accounting
The Company’s leases primarily consist of the lease of the Company’s corporate offices under the Sublease Agreement with MSG Entertainment (the “Sublease Agreement”) for our principal executive offices at Two Pennsylvania Plaza in New York and the lease of CLG Performance Center. In, addition, the Company accounts for the rights of use of The Garden pursuant to the Arena License Agreements as leases under the Accounting Standards Codification Topic 842, Leases. The Company determines whether an arrangement contains a lease at the inception of the arrangement. If a lease is determined to exist, the lease term is assessed based on the date when the underlying asset is made available for the Company’s use by the lessor. The Company’s assessment of the lease term reflects the non-cancelable term of the lease, inclusive of any rent-free periods and/or periods covered by early-termination options which the Company is reasonably certain not to exercise, as well as periods covered by renewal options which the Company is reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations over the lease term.
For other long-lived assets, including intangible assets that are amortized,leases with a term exceeding 12 months, a lease liability is recorded on the Company evaluates assets for recoverability when there is an indication of potential impairment. IfCompany’s consolidated balance sheet at lease commencement reflecting the undiscounted cash flows from a group of assets being evaluated is less than the carrying value of that group of assets, the fairpresent value of the fixed minimum payment obligations over the lease term. A corresponding right of use (“ROU”) asset groupequal to the initial lease liability is determinedalso recorded, adjusted for any prepaid rent and/or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received.
The Company includes fixed payment obligations related to non-lease components in the carryingmeasurement of ROU assets and lease liabilities, as the Company has elected to account for lease and non-lease components together as a single lease component. ROU assets associated with finance leases are presented separate from operating leases ROU assets and are included within Property and equipment, net on the Company’s consolidated balance sheet. For purposes of measuring the present value of the asset group is written downCompany’s fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, as rates implicit in the underlying leasing arrangements are typically not readily determinable. The Company’s incremental borrowing rate reflects the rate it would pay to fair value.borrow on a secured basis and incorporates the term and economic environment surrounding the associated lease.
On April 17, 2020, in connection with the MSGE Distribution, we entered into a sublease agreement with MSG Entertainment (the “Sublease Agreement”) for our principal executive offices at Two Pennsylvania Plaza in New York. The estimated useful livesSublease Agreement right of use assets and net carrying valuesliabilities are recorded on the balance sheet at lease commencement based on the present value of minimum base rent and other fixed payments over the reasonably certain lease term.
In November 2021, MSG Entertainment entered into a new lease for principal executive offices at Two Pennsylvania Plaza in New York (the “New MSGE Lease Agreement”). In accordance with the terms of the Sublease Agreement and the New MSGE Lease Agreement, the lease term of the Sublease Agreement was extended until October 31, 2024. The Company has accounted for this extension as a lease remeasurement and remeasured the right-of-use asset and operating lease liability utilizing the Company’s intangibleincremental borrowing rate as of the date of remeasurement.
In accordance with the terms of the Sublease Agreement, the Company has committed to enter into a new sublease agreement with MSG Entertainment for a lease term equivalent to the New MSGE Lease Agreement term, which ends January 31, 2046. In addition, in connection with the New MSGE Lease Agreement, the Company has entered into a commitment whereby if the New MSGE Lease Agreement were terminated under certain circumstances, the Company would be required to enter into a new lease for executive offices in Two Pennsylvania Plaza directly with the landlord, with a consistent lease term through January 31, 2046. As the Company has not yet entered into a new sublease for or taken possession of the new executive office space at Two
Pennsylvania Plaza, no additional right-of-use assets subject to amortizationor operating lease liabilities have been recorded as of June 30, 20192022 related to the commitments discussed above.
In addition, in connection with the MSGE Distribution we entered into long term leases with MSG Entertainment that end June 30, 2055 and allow the Knicks and the Rangers to play their home games at The Garden. The Arena License Agreements provide for fixed payments to be made from inception through June 30, 2055 in 12 equal installments during each year of the contractual term. The contracted license fee for the first full contract year ending June 30, 2021 was approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees are
as follows:103% of the license fees for the immediately preceding contract year. |
| | | | | | | |
| Estimated Useful Lives | | Net Carrying Value |
Trade names | 5 | to | 25 years | | $ | 88,602 |
|
Venue management contracts | 12 | to | 25 years | | 69,113 |
|
Favorable lease assets | 1.5 | to | 16 years | | 43,871 |
|
Season ticket holder relationships | | | 15 years | | 2,491 |
|
Non-compete agreements | 5 | to | 5.75 years | | 7,089 |
|
Festival rights | | | 15 years | | 6,463 |
|
Other intangibles | 3 months | to | 15 years | | 3,077 |
|
| | | | | $ | 220,706 |
|
At the time of the MSGE Distribution, the Garden was not available for use due to the government-mandated suspension of events in response to COVID-19, and was only available at reduced capacity beginning in December 2020 through May 2021. As a result, the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, and the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts.The Knicks and the Rangers are entitled to use The Garden on home game days, which are usually nonconsecutive, for a pre-defined period of time from before and after the game. In evaluating the Company’s lease cost, the Company has recognized intangible assetsconsidered the timing of payments throughout the lease terms and the nonconsecutive periods of use, provided for trade names, venue management contracts, favorable lease assets, season ticket holder relationships, non-compete agreements, festival rights and other intangibles as a resultwithin each license. While payments are made throughout the contract year in twelve equal installments under each arrangement, the periods of purchase accounting. The Company has determined that these intangible assets have finite lives.
The useful livesuse only span each of the Company’s long-lived assetsindividual team event days. As such, the Company concluded that the related straight-line operating lease costs should be recorded by each team equally over each team’s individual event days.
As part of Arena License Agreements, we recognized license fees which are based on estimatescharacterized as operating lease liabilities and a right of use assets. We measured the lease liabilities at the present value of the future lease payments as of April 17, 2020 and remeasured the lease liabilities during the period over which the Company expects the assets to be of economic benefit to the Company. In estimating the useful lives, the Company considers factors suchthat The Garden was not available for use as but not limited to, risk of obsolescence, anticipateddiscussed above. We use plans of the Company, and applicable laws and permit requirements. In light of these facts and circumstances, the Company has determined that its estimated useful lives are appropriate.
Contingent Consideration
Some of the Company’s acquisition agreements include contingent earn-out arrangements, which are generallyour incremental borrowing rates based on the achievement of future operating targets.
The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration that the Company will payremaining lease term to the former owners as a liability in Other liabilities on the consolidated balance sheets.
The Company measures its contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level III of the fair value hierarchy, which can result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.
See Note 11 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information regarding the fair value of the Company’s contingent consideration liabilities related to the acquisition of TAO Group and CLG.
Defined Benefit Pension Plans and Other Postretirement Benefit Plan
The Company utilizes actuarial methods to calculate pension and other postretirement benefit obligations and the related net periodic benefit cost which are based on actuarial assumptions. Key assumptions, the discount rates and the expected long-term rate of return on plan assets, are important elements of the plans’ expense and liability measurement and we evaluate these key assumptions annually. Other assumptions include demographic factors, such as mortality, retirement age and turnover. The actuarial assumptions used by the Company may differ materially from actual results due to various factors, including, but not limited to, changing economic and market conditions. Differences between actual and expected occurrences could significantly impact the actual amount of net periodic benefit cost and the benefit obligation recorded by the Company. Material changes in the costs of the plans may occur in the future due to changes in these assumptions, changes in the number of the plan participants, changes in the level of benefits provided, changes in asset levels and changes in legislation. Our assumptions reflect our historical experience and our best estimate regarding future expectations.
Accumulated and projected benefit obligations reflectdetermine the present value of future cash paymentslease payments. Our incremental borrowing rate for benefits. We usea lease is the Willis Towers Watson U.S. Rate Link: 40-90 Discount Rate Model (which is developed by examining the yields on selected highly rated corporate bonds)rate of interest we would have to discount these benefit paymentspay on a plan by plancollateralized basis to select a rate at which we believe each plan’s benefits could be effectively settled. Additionally, the Company measures service and interest costs by applying the specific spot rates along that yield curveborrow an amount equal to the plans’lease payments under similar terms.
Our incremental borrowing rate is calculated as the weighted average risk-free rate plus a spread to reflect our current unsecured credit rating. We subsequently measure the lease liability cash flows (“Spot Rate Approach”). The Company believes the Spot Rate Approach provides a more accurate measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates on the yield curve.
Lower discount rates increaseat the present value of benefit obligations and will usually increase the subsequent year’s net periodic benefit cost. The weighted-average discount rates used to determine benefit obligationsfuture lease payments as of June 30, 2019 for the Company’s Pension Plans and Postretirement Plan were 3.58% and 3.18%, respectively. A 25 basis point decrease in each of these assumed discount rates would increasereporting date with a corresponding adjustment to the projected benefit obligations forright-to-use asset. Absent a lease modification we will continue to utilize the Company’s Pension Plans and Postretirement Plan at June 30, 2019 by $5,950 and $80, respectively. The weighted-average discount rates used to determine service cost, interest cost and the projected benefit obligation components of net periodic benefit cost were 4.25%, 3.90% and 4.19%, respectively, for the year ended June 30, 2019 for the Company’s Pension Plans. The weighted-average discount rates used to determine service cost, interest cost and the projected benefit obligation components of net periodic benefit cost were 4.25%, 3.67% and 4.06%, respectively, for the year ended June 30, 2019 for the Company’s Postretirement Plan. A 25 basis point decrease in these assumed discount rates would increase the total net periodic benefit cost for the Company’s Pension Plans by $100 and decrease net periodic benefit cost for Postretirement Plan by $6 for the year ended June 30, 2019.April 17, 2020 incremental borrowing rate.
The expected long-term return on plan assets is based on a periodic review and modelingEstimation of the plans’ asset allocation structures over a long-term horizon. Expectationsincremental borrowing rate requires judgment by management and reflects an assessment of returns for each asset class are the most importantcredit standing to derive an implied secured credit rating and corresponding yield curve. Changes in management’s estimates of thediscount rate assumptions used in the review and modeling, and are based on comprehensive reviews of historical data, forward-looking economic outlook, and economic/financial market theory. The expected long-term rate of return was selected from within the reasonable range of rates determined by (a) historical real returns, net of inflation, for the asset classes covered by the investment policy, and (b) projections of inflation over the long-term period during which benefits are payable to plan participants. The expected long-term rate of return on plan assets for the Company’s funded pension plans was 3.72% for the year ended June 30, 2019.
Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under the Company’s funded plans. Adverse market performance in the future could result in lower ratesa significant overstatement or understatement of return for theseright of use assets than projected by the Company which could increase the Company’s funding requirements relatedor lease liabilities, resulting in an adverse impact to these plans, as well as negatively affect the Company’s operating results by increasing the net periodic benefit cost. A 25 basis point decrease in the long-term return on pension plan assets assumption would increase net periodic pension benefit cost by $300 for the year ended June 30, 2019.
Another important assumption for our Postretirement Plan is healthcare cost trend rates. We developed our estimate of the healthcare cost trend rates through examination of the Company’s claims experience and the results of recent healthcare trend surveys.
Assumptions for healthcare cost trend rates used to determine the net periodic benefit cost and benefit obligation for our Postretirement Plan as of and for the year ended June 30, 2019 are as follows:
|
| | | |
| Net Periodic Benefit Cost | | Benefit Obligation |
Healthcare cost trend rate assumed for next year | 7.00% | | 6.75% |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00% | | 5.00% |
Year that the rate reaches the ultimate trend rate | 2027 | | 2027 |
A one percentage point change in assumed healthcare cost trend rates would have the following effects on the net periodic postretirement benefit cost and benefit obligation for our postretirement plan as of and for the year ended June 30, 2019: |
| | | | | | | |
| Increase (Decrease) on Total of Service and Interest Cost Components | | Increase (Decrease) on Benefit Obligation |
One percentage point increase | $ | 19 |
| | $ | 335 |
|
One percentage point decrease | (17 | ) | | (303 | ) |
GAAP includes mechanisms that serve to limit the volatility in the Company’s earnings that otherwise would result from recording changes in the value of plan assets and benefit obligations in our consolidatedMSG Sports’ financial statements in the periods in which those changes occur. For example, while the expected long-term rate of return on the plans’ assets should, over time, approximate the actual long-term returns, differences between the expected and actual returns could occur in any given year. These differences contribute to the deferred actuarial gains or losses, which are then amortized over time.
position. See Note 138 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our pension plans and other postretirement benefit plan.leases.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For sensitivity analysis and other information regarding market risks we faceWe have potential interest rate risk exposure related to outstanding borrowings incurred under our credit facilities. Changes in connectioninterest rates may increase interest expense payments with our Pension Plans and Postretirement Plan, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Policies — Critical Accounting Policies — Defined Benefit Pension Plans and Other Postretirement Benefit Plan,” which information is incorporated by reference herein.respect to any borrowings incurred under the credit facilities.
Borrowings under our Knicks Revolving Credit Facility, Knicks Unsecured Credit Facility and Rangers Revolving Credit Facility, collectively, the “MSG Credit Facilities”, wouldcredit facilities incur interest, depending on our election, at a floating rate based upon LIBOR,SOFR plus a credit spread adjustment, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. See Note 1213 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our MSG Credit Facilities. We currently have no interest rate risk exposure with our MSG Credit Facilities ascredit facilities. As of June 30, 2022, we have no debthad a total of $220 million borrowings outstanding under our MSG Credit Facilities.
In addition to the MSG Credit Facilities above, the Company, through the consolidation of TAO Group, also has TAO Term Loan Facility and TAO Revolving Credit Facility, collectively, the “TAO Credit Facilities”. Borrowings under the TAO Credit Facilities incur interest, depending on TAO Group Operating LLC’s election, at a floating rate based upon LIBOR, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, an additional spread which is dependent upon the total leverage ratio at the time. Accordingly, TAO Credit Facilities are subject to interest rate risk with respect to the tenor of any borrowings incurred.credit facilities. The effect of a hypothetical 100 basis point increase in floating interest rates prevailing as of June 30, 20192022 and continuing for a full year would increase interest expense approximately $2.2 million.
In addition, see “Item 7. Management’s Discussion and Analysis of the amount outstanding on the TAO Credit FacilitiesFinancial Condition and Results of Operations — Factors Affecting Operating Results — Impact of COVID-19 on Our Business” for discussions of disruptions caused by $550. If appropriate, the TAO entities may seek to reduce such exposure through the use of interest rate swaps or similar instruments that qualify for hedge accounting treatment. See Note 12 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on the TAO Credit Facilities.COVID-19.
We are exposed to market risk resulting from foreign currency fluctuations, primarily to the British pound sterling through our net investment position initiated with our acquisition
As of June 30, 2019, a uniform hypothetical 5% fluctuation in the GBP/USD exchange rate would have resulted in a change of approximately $15,155 in net asset value.
We do not have any meaningful commodity risk exposures associated with the operation of our venues.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by this Item 8 appear beginning on page F-1 of this Annual Report on Form 10-K, and are incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 20192022 the Company’s disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2019.2022.
The effectiveness of our internal control over financial reporting as of June 30, 20192022 has been audited by KPMGDeloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 20192022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information relating to our directors, executive officers and corporate governance will be included in the proxy statement for the 20192022 annual meeting of the Company’s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.
Item 11. Executive Compensation
Information relating to executive compensation will be included in the proxy statement for the 20192022 annual meeting of the Company’s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to the beneficial ownership of our common stock will be included in the proxy statement for the 20192022 annual meeting of the Company’s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to certain relationships and related transactions and director independence will be included in the proxy statement for the 20192022 annual meeting of the Company’s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information relating to principal accountant fees and services will be included in the proxy statement for the 20192022 annual meeting of the Company’s stockholders, which is expected to be filed within 120 days of our fiscal year end, and is incorporated herein by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.