UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the quarterly period ended March 31, 2020September 30, 2022
OR
| ☐ | 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: 001-39245
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
| Delaware | 84-3755666 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| Two Penn Plaza | New York | , | NY | 10121 | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
Registrant’s telephone number, including area code: (212) 465-6000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Class A Common Stock | MSGE | New York Stock Exchange | ||||||
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 was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the 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.
| Large accelerated filer | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Number of shares of common stock outstanding as of April 30, 2020:October 31, 2022:
| Class A Common Stock par value $0.01 per share | — | |||||||
| Class B Common Stock par value $0.01 per share | — | |||||||
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
INDEX TO FORM 10-Q
| Page | |||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(in thousands)thousands, except per share data)
| September 30, 2022 | June 30, 2022 | |||||||||||||
| ASSETS | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 458,893 | $ | 846,010 | ||||||||||
| Accounts receivable, net | 202,304 | 216,652 | ||||||||||||
| Prepaid expenses and other current assets | 179,715 | 155,994 | ||||||||||||
| Total current assets | 840,912 | 1,218,656 | ||||||||||||
| Non-Current Assets: | ||||||||||||||
| Property and equipment, net | 3,226,436 | 2,939,052 | ||||||||||||
| Right-of-use lease assets | 458,070 | 446,499 | ||||||||||||
| Goodwill | 500,181 | 500,181 | ||||||||||||
| Intangible assets, net | 222,005 | 227,885 | ||||||||||||
| Other non-current assets | 178,449 | 189,887 | ||||||||||||
| Total assets | $ | 5,426,053 | $ | 5,522,160 | ||||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | ||||||||||||||
| Current Liabilities: | ||||||||||||||
| Accounts payable, accrued and other current liabilities | $ | 517,265 | $ | 589,246 | ||||||||||
| Current portion of long-term debt, net of deferred financing costs | 86,168 | 73,843 | ||||||||||||
| Operating lease liabilities, current | 62,887 | 65,310 | ||||||||||||
| Deferred revenue | 253,781 | 228,032 | ||||||||||||
| Total current liabilities | 920,101 | 956,431 | ||||||||||||
| Non-Current Liabilities: | ||||||||||||||
| Long-term debt, net of deferred financing costs | 1,652,638 | 1,669,245 | ||||||||||||
| Operating lease liabilities, non-current | 441,544 | 427,971 | ||||||||||||
| Deferred tax liabilities, net | 161,509 | 163,441 | ||||||||||||
| Other non-current liabilities | 145,824 | 145,496 | ||||||||||||
| Total liabilities | 3,321,616 | 3,362,584 | ||||||||||||
| Commitments and contingencies (see Note 7) | ||||||||||||||
| Redeemable noncontrolling interests | 185,711 | 184,192 | ||||||||||||
| Equity: | ||||||||||||||
Class A Common Stock(a) | 273 | 273 | ||||||||||||
Class B Common Stock(b) | 69 | 69 | ||||||||||||
| Additional paid-in capital | 2,303,135 | 2,301,970 | ||||||||||||
| Accumulated deficit | (335,493) | (290,736) | ||||||||||||
| Accumulated other comprehensive loss | (60,981) | (48,355) | ||||||||||||
| Total Madison Square Garden Entertainment Corp. stockholders’ equity | 1,907,003 | 1,963,221 | ||||||||||||
| Nonredeemable noncontrolling interests | 11,723 | 12,163 | ||||||||||||
| Total equity | 1,918,726 | 1,975,384 | ||||||||||||
| Total liabilities, redeemable noncontrolling interests and equity | $ | 5,426,053 | $ | 5,522,160 | ||||||||||
_________________
(a)Class A Common Stock, $0.01 par value per share, 120,000 shares authorized;27,683 and 27,368 shares outstanding as of September 30, 2022 and June 30, 2022, respectively.
(b)Class B Common Stock, $0.01 par value per share, 30,000 shares authorized;6,867 shares outstanding as of September 30, 2022 and June 30, 2022.
See accompanying notes to the unaudited condensed consolidated financial statements.
1
| March 31, 2020 | June 30, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 1,003,893 | $ | 1,082,055 | ||||
| Restricted cash | 17,955 | 10,010 | ||||||
| Short-term investments | 331,019 | 108,416 | ||||||
| Accounts receivable, net | 105,212 | 81,044 | ||||||
| Net related party receivables | 2,288 | 1,722 | ||||||
| Prepaid expenses | 39,255 | 24,067 | ||||||
| Other current assets | 40,581 | 39,430 | ||||||
| Assets held for sale | 109,155 | — | ||||||
| Total current assets | 1,649,358 | 1,346,744 | ||||||
| Investments and loans to nonconsolidated affiliates | 61,998 | 84,560 | ||||||
| Property and equipment, net of accumulated depreciation and amortization | 1,540,786 | 1,349,122 | ||||||
| Right-of-use lease assets | 234,760 | — | ||||||
| Amortizable intangible assets, net | 155,948 | 214,391 | ||||||
| Indefinite-lived intangible assets | 64,881 | 65,421 | ||||||
| Goodwill | 81,996 | 165,558 | ||||||
| Other assets | 37,438 | 89,963 | ||||||
| Total assets | $ | 3,827,165 | $ | 3,315,759 | ||||
| See accompanying notes to combined financial statements. | ||||||||
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
| March 31, 2020 | June 30, 2019 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND DIVISIONAL EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 18,766 | $ | 23,974 | ||||
| Net related party payables, current | 31,728 | 18,911 | ||||||
| Current portion of long-term debt, net of deferred financing costs | 4,792 | 6,042 | ||||||
| Accrued liabilities: | ||||||||
| Employee related costs | 70,418 | 82,411 | ||||||
| Other accrued liabilities | 117,207 | 88,614 | ||||||
| Operating lease liabilities, current | 54,506 | — | ||||||
| Collections due to promoters | 49,421 | 67,212 | ||||||
| Deferred revenue | 206,045 | 186,883 | ||||||
| Liabilities held for sale | 72,811 | — | ||||||
| Total current liabilities | 625,694 | 474,047 | ||||||
| Related party payables, noncurrent | — | 172 | ||||||
| Long-term debt, net of deferred financing costs | 29,962 | 48,556 | ||||||
| Operating lease liabilities, noncurrent | 191,762 | — | ||||||
| Defined benefit and other postretirement obligations | 32,359 | 41,318 | ||||||
| Other employee related costs | 17,570 | 15,703 | ||||||
| Deferred tax liabilities, net | 13,131 | 22,973 | ||||||
| Other liabilities | 77,770 | 59,525 | ||||||
| Total liabilities | 988,248 | 662,294 | ||||||
| Commitments and contingencies (see Note 10) | ||||||||
| Redeemable noncontrolling interests | 23,000 | 67,627 | ||||||
| Company Divisional Equity: | ||||||||
| Madison Square Garden Sports Corp. Investment | 2,851,522 | 2,618,971 | ||||||
| Accumulated other comprehensive loss | (52,607 | ) | (46,923 | ) | ||||
| Total Company divisional equity | 2,798,915 | 2,572,048 | ||||||
| Nonredeemable noncontrolling interests | 17,002 | 13,790 | ||||||
| Total divisional equity | 2,815,917 | 2,585,838 | ||||||
| Total liabilities, redeemable noncontrolling interests and divisional equity | $ | 3,827,165 | $ | 3,315,759 | ||||
(Unaudited)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues (a) | $ | 199,861 | $ | 250,018 | $ | 767,038 | $ | 832,384 | ||||||||
| Operating expenses: | ||||||||||||||||
Direct operating expenses (b) | 132,809 | 158,710 | 472,582 | 507,249 | ||||||||||||
Selling, general and administrative expenses (c) | 84,186 | 83,159 | 257,970 | 231,038 | ||||||||||||
| Depreciation and amortization | 26,196 | 26,768 | 80,271 | 81,606 | ||||||||||||
| Impairment for intangibles, long-lived assets, and goodwill | 102,211 | — | 102,211 | — | ||||||||||||
| Operating income (loss) | (145,541 | ) | (18,619 | ) | (145,996 | ) | 12,491 | |||||||||
| Other income (expense): | ||||||||||||||||
| Earnings (loss) in equity method investments | (1,096 | ) | (2,881 | ) | (3,739 | ) | 17,131 | |||||||||
Interest income (d) | 3,659 | 7,987 | 17,242 | 22,020 | ||||||||||||
| Interest expense | (605 | ) | (3,247 | ) | (1,854 | ) | (10,076 | ) | ||||||||
Miscellaneous income (expense), net (e) | (17,381 | ) | 4,613 | (2,893 | ) | (4,118 | ) | |||||||||
| (15,423 | ) | 6,472 | 8,756 | 24,957 | ||||||||||||
| Income (loss) from operations before income taxes | (160,964 | ) | (12,147 | ) | (137,240 | ) | 37,448 | |||||||||
| Income tax benefit (expense) | 10,126 | (469 | ) | 8,686 | (1,253 | ) | ||||||||||
| Net income (loss) | (150,838 | ) | (12,616 | ) | (128,554 | ) | 36,195 | |||||||||
| Less: Net loss attributable to redeemable noncontrolling interests | (22,447 | ) | (7 | ) | (23,851 | ) | (3,662 | ) | ||||||||
| Less: Net income (loss) attributable to nonredeemable noncontrolling interests | 195 | (680 | ) | 38 | (3,121 | ) | ||||||||||
| Net income (loss) attributable to the Company | $ | (128,586 | ) | $ | (11,929 | ) | $ | (104,741 | ) | $ | 42,978 | |||||
Basic and diluted earnings (loss) per common share attributable to the Company (f) | $ | (5.36 | ) | $ | (0.50 | ) | $ | (4.37 | ) | $ | 1.79 | |||||
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
Revenues(a) | $ | 401,218 | $ | 294,510 | ||||||||||
Direct operating expenses(a) | (253,901) | (165,761) | ||||||||||||
Selling, general and administrative expenses(a) | (164,410) | (174,839) | ||||||||||||
| Depreciation and amortization | (29,755) | (29,430) | ||||||||||||
| Impairment and other gains (losses), net | 2,000 | (7,818) | ||||||||||||
| Operating loss | (44,848) | (83,338) | ||||||||||||
| Interest income | 3,954 | 775 | ||||||||||||
| Interest expense | (2,167) | (9,248) | ||||||||||||
| Other income (expense), net | 1,525 | (3,754) | ||||||||||||
| Loss from operations before income taxes | (41,536) | (95,565) | ||||||||||||
| Income tax (expense) benefit | (2,507) | 18,910 | ||||||||||||
| Net loss | (44,043) | (76,655) | ||||||||||||
| Less: Net income attributable to redeemable noncontrolling interests | 1,124 | 2,212 | ||||||||||||
| Less: Net (loss) income attributable to nonredeemable noncontrolling interests | (410) | 365 | ||||||||||||
| Net loss attributable to Madison Square Garden Entertainment Corp.’s stockholders | $ | (44,757) | $ | (79,232) | ||||||||||
| EARNINGS PER SHARE DATA | ||||||||||||||
| Weighted-average shares outstanding: | ||||||||||||||
| Basic and diluted | 34,403 | 34,095 | ||||||||||||
| Net loss from operations attributable to Madison Square Garden Entertainment Corp.’s stockholders per share: | ||||||||||||||
| Basic and diluted | $ | (1.30) | $ | (2.32) | ||||||||||
_________________
(a)See Note 12, Related Party Transactions, for further information on related party revenues and expenses |
See accompanying notes to combinedthe unaudited condensed consolidated financial statements.
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(Unaudited)
(in thousands)
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Net loss | $ | (44,043) | $ | (76,655) | ||||||||||||||||||||||||||||
| Other comprehensive loss, before income taxes: | ||||||||||||||||||||||||||||||||
| Amortization of prior service credit included in net periodic benefit cost | 510 | 510 | ||||||||||||||||||||||||||||||
| Cumulative translation adjustments | (16,080) | (6,418) | ||||||||||||||||||||||||||||||
| Other comprehensive loss, before income taxes | (15,570) | (5,908) | ||||||||||||||||||||||||||||||
| Income tax benefit related to items of other comprehensive loss | 2,944 | 1,120 | ||||||||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | (12,626) | (4,788) | ||||||||||||||||||||||||||||||
| Comprehensive loss | (56,669) | (81,443) | ||||||||||||||||||||||||||||||
| Less: Net income attributable to redeemable noncontrolling interests | 1,124 | 2,212 | ||||||||||||||||||||||||||||||
| Less: Net (loss) income attributable to nonredeemable noncontrolling interests | (410) | 365 | ||||||||||||||||||||||||||||||
| Comprehensive loss attributable to Madison Square Garden Entertainment Corp.’s stockholders | $ | (57,383) | $ | (84,020) | ||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
| Net income (loss) | $ | (150,838 | ) | $ | (12,616 | ) | $ | (128,554 | ) | $ | 36,195 | |||||||||||||||||||||
| Other comprehensive income (loss), before income taxes: | ||||||||||||||||||||||||||||||||
| Pension plans and postretirement plan: | ||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss: | ||||||||||||||||||||||||||||||||
| Amortization of actuarial loss included in net periodic benefit cost | $ | 342 | $ | 328 | $ | 1,027 | $ | 984 | ||||||||||||||||||||||||
| Settlement loss recognized | 67 | — | 67 | — | ||||||||||||||||||||||||||||
| Amortization of prior service credit included in net periodic benefit cost | — | 409 | (1 | ) | 327 | — | 1,094 | (4 | ) | 980 | ||||||||||||||||||||||
| Cumulative translation adjustments | (19,946 | ) | 6,383 | (6,778 | ) | 3,181 | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | (19,537 | ) | 6,710 | (5,684 | ) | 4,161 | ||||||||||||||||||||||||||
| Comprehensive income (loss) | (170,375 | ) | (5,906 | ) | (134,238 | ) | 40,356 | |||||||||||||||||||||||||
| Less: Comprehensive loss attributable to redeemable noncontrolling interests | (22,447 | ) | (7 | ) | (23,851 | ) | (3,662 | ) | ||||||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to nonredeemable noncontrolling interests | 195 | (680 | ) | 38 | (3,121 | ) | ||||||||||||||||||||||||||
| Comprehensive income (loss) attributable to the Company | $ | (148,123 | ) | $ | (5,219 | ) | $ | (110,425 | ) | $ | 47,139 | |||||||||||||||||||||
See accompanying notes to combinedthe unaudited condensed consolidated financial statements.
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(Unaudited)
(in thousands)
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||
| Net loss | $ | (44,043) | $ | (76,655) | ||||||||||
| Adjustment to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 29,755 | 29,430 | ||||||||||||
| Impairment and other (gains) losses, net | (2,000) | 7,818 | ||||||||||||
| Amortization of deferred financing costs | 1,304 | 2,184 | ||||||||||||
| Benefit (expense) from deferred income taxes | 1,012 | (20,036) | ||||||||||||
| Share-based compensation expense | 15,188 | 19,528 | ||||||||||||
| Amortization of right-of-use assets | 7,780 | 6,494 | ||||||||||||
| Net unrealized (gain) loss on equity investments with and without readily determinable fair value | (1,310) | 2,460 | ||||||||||||
| Other non-cash adjustments | 2,370 | 1,555 | ||||||||||||
| Change in assets and liabilities: | ||||||||||||||
| Accounts receivable, net | 14,293 | 5,546 | ||||||||||||
| Prepaid expenses and other current assets | (30,212) | 3,022 | ||||||||||||
| Accounts payable, accrued and other current liabilities | (92,590) | (29,891) | ||||||||||||
| Deferred revenue | 25,468 | 56,299 | ||||||||||||
| Right-of-use lease assets and operating lease liabilities | (8,198) | (766) | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (81,183) | $ | 6,988 | ||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||
| Capital expenditures, net | $ | (270,088) | $ | (137,271) | ||||||||||
| Capitalized interest | (20,466) | (9,326) | ||||||||||||
| Proceeds from sale of equity securities | 3,819 | — | ||||||||||||
| Other investing activities | 1,517 | 295 | ||||||||||||
| Net cash used in investing activities | $ | (285,218) | $ | (146,302) | ||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||
| Proceeds from revolving credit facility | 7,860 | — | ||||||||||||
| Taxes paid in lieu of shares issued for equity-based compensation | (13,967) | (14,903) | ||||||||||||
| Noncontrolling interest holders’ capital contributions | 500 | 872 | ||||||||||||
| Distributions to noncontrolling interest holders | (530) | — | ||||||||||||
| Distributions to related parties associated with the settlement of certain share-based awards | (571) | (516) | ||||||||||||
| Repayments of revolving credit facility | — | (15,000) | ||||||||||||
| Principal repayments on long-term debt | (13,312) | (15,250) | ||||||||||||
| Payments for financing costs | (3) | — | ||||||||||||
| Net cash used in financing activities | $ | (20,023) | $ | (44,797) | ||||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | (693) | (386) | ||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | (387,117) | (184,497) | ||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 846,010 | 1,539,976 | ||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 458,893 | $ | 1,355,479 | ||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||
| Investments and loans to nonconsolidated affiliates | $ | 1,969 | $ | 547 | ||||||||||
| Capital expenditures incurred but not yet paid | $ | 35,986 | $ | 16,052 | ||||||||||
| Share-based compensation capitalized in property and equipment | $ | 910 | $ | 751 | ||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (128,554 | ) | $ | 36,195 | |||
| Adjustment to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 80,271 | 81,606 | ||||||
| Impairment of intangibles, long-lived assets and goodwill | 102,211 | — | ||||||
| Provision (benefits) from deferred income taxes | (9,842 | ) | 794 | |||||
| Share-based compensation expense | 29,294 | 27,929 | ||||||
| Loss (earnings) in equity method investments | 3,739 | (17,131 | ) | |||||
| Purchase accounting adjustments associated with leases | 4,458 | 3,197 | ||||||
| Unrealized loss on equity investment with readily determinable fair value | 2,471 | 2,405 | ||||||
| Provision for doubtful accounts | 6,954 | 765 | ||||||
| Other non-cash adjustments | (1,488 | ) | 2,569 | |||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable, net | (31,413 | ) | (70,436 | ) | ||||
| Net related party receivables | (566 | ) | (885 | ) | ||||
| Prepaid expenses and other assets | (32,231 | ) | (38,937 | ) | ||||
| Accounts payable | 3,327 | (4,589 | ) | |||||
| Net related party payables | 12,645 | 18,693 | ||||||
| Accrued and other liabilities | 46,519 | (2,359 | ) | |||||
| Collections due to promoters | 15,924 | (16,953 | ) | |||||
| Deferred revenue | 34,193 | 22,103 | ||||||
| Operating lease right-of-use assets and lease liabilities | (961 | ) | — | |||||
| Net cash provided by operating activities | $ | 136,951 | $ | 44,966 | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | $ | (326,596 | ) | $ | (114,313 | ) | ||
| Proceeds from insurance recoveries | 476 | — | ||||||
| Purchase of short-term investments | (405,935 | ) | (112,735 | ) | ||||
| Proceeds from maturity of short-term investment | 176,661 | — | ||||||
| Investments and loans to nonconsolidated affiliates | (75 | ) | (51,807 | ) | ||||
| Proceeds from sale of nonconsolidated affiliate | 18,000 | 125,000 | ||||||
| Loan repayment received from subordinated debt | 58,735 | 4,765 | ||||||
| Cash received (paid) for notes receivable | 750 | (7,761 | ) | |||||
| Net cash used in investing activities | $ | (477,984 | ) | $ | (156,851 | ) | ||
| See accompanying notes to combined financial statements. | ||||||||
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(in thousands)
| Common Stock Issued | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Madison Square Garden Entertainment Corp. Stockholders’ Equity | Non - redeemable Noncontrolling Interests | Total Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | 342 | $ | 2,301,970 | $ | (290,736) | $ | (48,355) | $ | 1,963,221 | $ | 12,163 | $ | 1,975,384 | $ | 184,192 | ||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | (44,757) | — | (44,757) | (410) | (45,167) | 1,124 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (12,626) | (12,626) | — | (12,626) | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 15,511 | — | — | 15,511 | — | 15,511 | — | ||||||||||||||||||||||||||||||||||||||||||
| Tax withholding associated with shares issued for equity-based compensation | — | (13,967) | — | — | (13,967) | — | (13,967) | — | ||||||||||||||||||||||||||||||||||||||||||
| Accretion of put options | — | — | — | — | — | — | — | 587 | ||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | 500 | 500 | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (379) | — | — | (379) | (530) | (909) | (192) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | 342 | $ | 2,303,135 | $ | (335,493) | $ | (60,981) | $ | 1,907,003 | $ | 11,723 | $ | 1,918,726 | $ | 185,711 | ||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | 340 | $ | 2,294,775 | $ | (96,341) | $ | (30,272) | $ | 2,168,502 | $ | 11,904 | $ | 2,180,406 | $ | 137,834 | ||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | (79,232) | — | (79,232) | 365 | (78,867) | 2,212 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (4,788) | (4,788) | — | (4,788) | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | 19,692 | — | — | 19,692 | — | 19,692 | — | ||||||||||||||||||||||||||||||||||||||||||
| Tax withholding associated with shares issued for equity-based compensation | 2 | (14,905) | — | — | (14,903) | — | (14,903) | — | ||||||||||||||||||||||||||||||||||||||||||
| Accretion of put options | — | — | — | — | — | — | — | 587 | ||||||||||||||||||||||||||||||||||||||||||
| Adjustments of redeemable noncontrolling interest | (6,178) | (6,178) | (6,178) | 66 | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | 872 | 872 | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (227) | — | — | (227) | — | (227) | (289) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | 342 | $ | 2,293,157 | $ | (175,573) | $ | (35,060) | $ | 2,082,866 | $ | 13,141 | $ | 2,096,007 | $ | 140,410 | ||||||||||||||||||||||||||||||||||
| See accompanying notes to the unaudited condensed consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||
5
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from financing activities: | ||||||||
| Noncontrolling interest holders’ capital contribution | $ | 4,000 | $ | 5,560 | ||||
| Distributions to noncontrolling interest holders | (535 | ) | (1,263 | ) | ||||
| Loans from noncontrolling interest holders | — | 606 | ||||||
| Repayment of revolving credit facility | (15,000 | ) | — | |||||
| Principal repayment on long-term debt | (5,000 | ) | (3,929 | ) | ||||
| Net transfers from Madison Square Garden Sports Corp. and its subsidiaries | 283,435 | 31,604 | ||||||
| Net cash provided by financing activities | $ | 266,900 | $ | 32,578 | ||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | 3,916 | 6,440 | ||||||
| Net decrease in cash, cash equivalents and restricted cash | (70,217 | ) | (72,867 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 1,092,065 | 1,232,356 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,021,848 | $ | 1,159,489 | ||||
| Non-cash investing and financing activities: | ||||||||
| Non-cash acquisition of additional redeemable noncontrolling interests | $ | 37,715 | $ | — | ||||
| Capital expenditures incurred but not yet paid | $ | 75,656 | $ | 17,515 | ||||
Tenant improvement paid by landlord | $ | 195 | $ | 13,715 | ||||
| Share-based compensation capitalized in property and equipment | $ | 3,790 | $ | 1,926 | ||||
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
| Three Months Ended March 31, 2020 | ||||||||||||||||||||||||
| Madison Square Garden Sports Corp. Investment | Accumulated Other Comprehensive Loss | Total Company Divisional Equity | Non - redeemable Noncontrolling Interests | Total Divisional Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||
| Balance as of December 31, 2019 | $ | 2,638,955 | $ | (33,070 | ) | $ | 2,605,885 | $ | 16,807 | $ | 2,622,692 | $ | 66,223 | |||||||||||
| Net income (loss) | (128,586 | ) | — | (128,586 | ) | 195 | (128,391 | ) | (22,447 | ) | ||||||||||||||
| Other comprehensive loss | — | (19,537 | ) | (19,537 | ) | — | (19,537 | ) | — | |||||||||||||||
| Comprehensive income (loss) | — | — | (148,123 | ) | 195 | (147,928 | ) | (22,447 | ) | |||||||||||||||
| Net increase in Madison Square Garden Sports Corp. Investment | 320,377 | — | 320,377 | — | 320,377 | — | ||||||||||||||||||
| Noncontrolling interests non-cash acquisition | 37,715 | — | 37,715 | — | 37,715 | (37,715 | ) | |||||||||||||||||
| Redeemable noncontrolling interest adjustment to redemption fair value | (16,939 | ) | — | (16,939 | ) | — | (16,939 | ) | 16,939 | |||||||||||||||
| Balance as of March 31, 2020 | $ | 2,851,522 | $ | (52,607 | ) | $ | 2,798,915 | $ | 17,002 | $ | 2,815,917 | $ | 23,000 | |||||||||||
| Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
| Madison Square Garden Sports Corp. Investment | Accumulated Other Comprehensive Loss | Total Company Divisional Equity | Non - redeemable Noncontrolling Interests | Total Divisional Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||
| Balance as of December 31, 2018 | $ | 2,616,196 | $ | (43,897 | ) | $ | 2,572,299 | $ | 14,308 | $ | 2,586,607 | $ | 72,770 | |||||||||||
| Net loss | (11,929 | ) | — | (11,929 | ) | (680 | ) | (12,609 | ) | (7 | ) | |||||||||||||
| Other comprehensive income | — | 6,710 | 6,710 | — | 6,710 | — | ||||||||||||||||||
| Comprehensive loss | — | — | (5,219 | ) | (680 | ) | (5,899 | ) | (7 | ) | ||||||||||||||
| Net increase in Madison Square Garden Sports Corp. Investment | 53,299 | — | 53,299 | — | 53,299 | — | ||||||||||||||||||
| Contribution from noncontrolling interest holders | — | — | — | 3,156 | 3,156 | — | ||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | — | — | (1,004 | ) | |||||||||||||||||
| Balance as of March 31, 2019 | $ | 2,657,566 | $ | (37,187 | ) | $ | 2,620,379 | $ | 16,784 | $ | 2,637,163 | $ | 71,759 | |||||||||||
| See accompanying notes to combined financial statements. | ||||||||||||||||||||||||
| MADISON SQUARE GARDEN ENTERTAINMENT CORP. | ||||||||||||||||||||||||
| COMBINED STATEMENTS OF DIVISIONAL EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS | ||||||||||||||||||||||||
| (Continued) | ||||||||||||||||||||||||
| (Unaudited) (in thousands) | ||||||||||||||||||||||||
| Nine Months Ended March 31, 2020 | ||||||||||||||||||||||||
| Madison Square Garden Sports Corp. Investment | Accumulated Other Comprehensive Loss | Total Company Divisional Equity | Non - redeemable Noncontrolling Interests | Total Divisional Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||
| Balance as of June 30, 2019 | $ | 2,618,971 | $ | (46,923 | ) | $ | 2,572,048 | $ | 13,790 | $ | 2,585,838 | $ | 67,627 | |||||||||||
| Net income (loss) | (104,741 | ) | — | (104,741 | ) | 38 | (104,703 | ) | (23,851 | ) | ||||||||||||||
| Other comprehensive loss | — | (5,684 | ) | (5,684 | ) | — | (5,684 | ) | — | |||||||||||||||
| Comprehensive income (loss) | — | — | (110,425 | ) | 38 | (110,387 | ) | (23,851 | ) | |||||||||||||||
| Net increase in Madison Square Garden Sports Corp. Investment | 316,516 | — | 316,516 | — | 316,516 | — | ||||||||||||||||||
| Contributions from noncontrolling interest holders | — | — | — | 3,709 | 3,709 | — | ||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | (535 | ) | (535 | ) | — | ||||||||||||||||
| Noncontrolling interest non-cash acquisition | 37,715 | — | 37,715 | — | 37,715 | (37,715 | ) | |||||||||||||||||
| Redeemable noncontrolling interest adjustment to redemption fair value | (16,939 | ) | — | (16,939 | ) | — | (16,939 | ) | 16,939 | |||||||||||||||
| Balance as of March 31, 2020 | $ | 2,851,522 | $ | (52,607 | ) | $ | 2,798,915 | $ | 17,002 | $ | 2,815,917 | $ | 23,000 | |||||||||||
| Nine Months Ended March 31, 2019 | ||||||||||||||||||||||||
| Madison Square Garden Sports Corp. Investment | Accumulated Other Comprehensive Loss | Total Company Divisional Equity | Non - redeemable Noncontrolling Interests | Total Divisional Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||
| Balance as of June 30, 2018 | $ | 2,525,031 | $ | (46,918 | ) | $ | 2,478,113 | $ | 11,505 | $ | 2,489,618 | $ | 76,684 | |||||||||||
| Adoption of ASU No. 2016-01 | (5,570 | ) | 5,570 | — | — | |||||||||||||||||||
| Adoption of ASC Topic 606 | 33,669 | — | 33,669 | — | 33,669 | — | ||||||||||||||||||
| Net income (loss) | 42,978 | — | 42,978 | (3,121 | ) | 39,857 | (3,662 | ) | ||||||||||||||||
| Other comprehensive income | — | 4,161 | 4,161 | — | 4,161 | — | ||||||||||||||||||
| Comprehensive income (loss) | — | — | 47,139 | (3,121 | ) | 44,018 | (3,662 | ) | ||||||||||||||||
| Net increase in Madison Square Garden Sports Corp. Investment | 61,458 | — | 61,458 | — | 61,458 | — | ||||||||||||||||||
| Contributions from noncontrolling interest holders | — | — | — | 8,400 | 8,400 | — | ||||||||||||||||||
| Distributions to noncontrolling interest holders | — | — | — | — | — | (1,263 | ) | |||||||||||||||||
| Balance as of March 31, 2019 | $ | 2,657,566 | $ | (37,187 | ) | $ | 2,620,379 | $ | 16,784 | $ | 2,637,163 | $ | 71,759 | |||||||||||
| See accompanying notes to combined financial statements. | ||||||||||||||||||||||||
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following notes to combinedcondensed consolidated financial statements (unaudited) are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Hospitality. As of March 31, 2020,September 30, 2022, there have been no changes to the Company operated and reported its financial information as one segment. In making this determination, the Company (i) determined its Chief Operating Decision Maker (“CODM”), (ii) identified and analyzed potential business components, (iii) identified its operatingreportable segments and (iv) determined whether there were multiple operating segments requiring presentation as reportable segments. The Company’s decision to report as 1 segment was based upon the following:
Basis of Presentation
The combinedCompany reports on a fiscal year basis ending on June 30th (“Fiscal Year”). In these unaudited condensed consolidated interim financial statements of the Company (the “combined (“financial statements”) were prepared, the years ended on a stand-alone basis derived fromJune 30, 2023 and 2022 are referred to as “Fiscal Year 2023” and “Fiscal Year 2022,” respectively. Certain Fiscal Year 2022 amounts have been reclassified to conform to the consolidatedFiscal Year 2023 presentation.
The accompanying financial statements and accounting records of Madison Square Garden Sports Corp. These financial statements reflect the combined historical results of operations, financial position and cash flows of the Companyhave been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and SEC Staff Accounting Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity, andArticle 10 of Regulation S-X of the SEC for interim financial information. References to GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting StandardsCodification, also referred to as the “Codification” or “ASC.”
In the opinion of management, the Company, the accompanying financial statements reflectcontain all adjustments, consisting solely of only normal recurring adjustments, necessary for a fair presentationstatement of its financial position as of September 30, 2022, and its results of operations for the three months ended September 30, 2022, and 2021, and cash flows for the three months ended September 30, 2022, and 2021. The condensed consolidated balance sheet as of Fiscal Year 2022, was derived from audited annual financial statements but does not contain all of the results forfootnote disclosures from the interim periods presented. annual financial statements.
The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The Company’s dependence on revenues fromAs a result of the production of the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”), arena license fees in connection with the use of Madison Square Garden (“The Garden”) by the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), and MSG Networks’ advertising revenue being largely derived from the sale of inventory in its live NBA and NHL professional sports programming, the Company generally means it earns a disproportionate share of its annual revenues in the second quarterand third quarters of the its fiscal year.
Impact of the COVID-19 Pandemic
The Company’s operations and operating results have been, and continue to be,were not materially impacted by the COVID-19 pandemic and actions taken in responseduring the three months ended September 30, 2022, as compared to the prior year period, which was impacted by the government and certain professional sports leagues. As of the date of this Quarterly Report on Form 10-Q, virtually all of the Company’s business operations have been suspended and it is not clear when those operations will resume. As a result of government mandated assembly limitations and closures, no events are currently permitted to be held at The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre or The Chicago Theatre, and virtually all(i) fewer ticketed events at our performance venues are postponed or cancelled through June. The 2020 Boston Calling music festival, which had been slateddue to the lead-time required to book touring acts and artists, (ii) a residual impact of reductions in MSG Networks media rights fees related to the shortened 2020-21 NHL season and (iii) certain regulatory requirements, including vaccination/mask requirements for Memorial Day weekend, has also been cancelled. Additionally, public officials have imposed mandates limiting restaurantsour performance, entertainment dining and bars to only take-out and delivery service and requiring that nightlife venues, close in the cities in which contributed to certain Tao Group Hospitality operates. As a result, virtually all Tao Group Hospitality venues inbranded locations remaining closed during the period. See Note 1, Impact of the COVID-19 Pandemic, to the consolidated and outside the United States are closed, which has resultedcombined financial statements included in the business being materially impacted.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in additional future impairment charges that management will evaluate as factsnew government or league-mandated capacity or other restrictions or vaccination/mask requirements or impact the use of and/or demand for our performance, entertainment dining and circumstances evolve over time. Refernightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to Note 9 for further detail.difficulties in staffing) or otherwise materially impact our operations.
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 2. Accounting Policies
Principles of CombinationConsolidation
The combined financial statements of the Company include assetsthe accounts of Madison Square Garden Entertainment Corp. and liabilities that have been determined to be specifically identifiable or otherwise attributable to the Company. All intracompany accounts within the Company’s combined businesses have been eliminated.its subsidiaries, which include Tao Group Holdings, LLC and its subsidiaries (“Tao Group Hospitality”) and Boston Calling Events, LLC (“BCE”). All significant intercompany transactions and balances between the Company and Madison Square
Use of Estimates
The preparation of the accompanying combined financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amountamounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the provision for credit losses, valuation of accounts receivable, investments, goodwill, intangible assets, other long-lived assets, deferred tax accrualsassets, pension and other postretirement benefit obligations and the related net periodic benefit cost, and other liabilities. In addition, estimates are used in revenue recognition, income tax,rights fees, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the financial statements to be reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time and, as such, these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.
Recently Issued Accounting Pronouncements
No recently issued accounting guidance materially impacted or is expected to impact the Company's financial statements.
Recently Adopted Accounting Pronouncements
In February 2016October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, No. Accounting for Contract Assets and Contract Liabilities From Contracts With Customers2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases. This ASU requires that the acquiring entity in a business combination recognize and measure contract assets and contract liabilities acquired in accordance with ASC Topic 840, Leases. ASU No. 2016-02, among other things, requires (i) lessees to account for leases as either finance leases or operating leases and generally requires all leases to be recorded on606. This standard was adopted by the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-use assets and corresponding lease liabilities, and (ii) extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by a lessor is largely unchanged from that applied under previous accounting guidance. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842, which provides a lessee or lessor the option to not assess at transition whether existing land easements, not currently accounted for as leases under the current lease guidance, should be treated as leases under the new standard. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842) Targeted improvements, which provides an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings.
7
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Prepaid expenses | $ | 589 | ||
| Other current assets | 381 | |||
| Property and equipment, net of accumulated depreciation and amortization | 104,781 | |||
| Indefinite-lived intangible assets | 540 | |||
| Goodwill | 2,864 | |||
| Assets held for sale | 109,155 | |||
| Accounts payable and accrued liabilities | 18,444 | |||
| Collections due to promoters | 33,715 | |||
| Deferred revenue | 18,791 | |||
| Other liabilities | 1,861 | |||
| Liabilities held for sale | 72,811 | |||
| Net assets held for sale | $ | 36,344 | ||
Note 4.3. Revenue Recognition
Contracts with Customers
See Note 32, Summary of Significant Accounting Policies and Note 4, Revenue Recognition, to the Company’s auditedconsolidated and combined financial statements and notes thereto for the year ended June 30, 2019 included in the Company’s Information Statement2022 Form 10-K for more information regarding the details of the Company’s revenue recognition.recognition policies. All revenue recognized in the combinedcondensed consolidated statements of operations is considered to be revenue from contracts with customers. Forcustomers in accordance with ASC Topic 606, except for revenues from the threearena license agreements that require the Knicks and nine the Rangers to play their home games at The Garden (the “Arena License Agreements”), leases and subleases that are accounted for in accordance with ASC Topic 842 of $2,786 and $2,316 for the threemonths ended March 31, 2020September 30, 2022 and 2019, the Company did not have any material impairment losses on receivables or contract assets arising from contracts with customers.2021, respectively.
Disaggregation of Revenue
The following table disaggregatestables disaggregate the Company’s revenue by major source and reportable segment based upon the timing of transfer of goods or services to the customer for the three and nine months ended March 31, 2020September 30, 2022 and 2019:2021:
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2022 | ||||||||||||||||||||||||||||||||
| Entertainment | MSG Networks | Tao Group Hospitality | Eliminations | Total | ||||||||||||||||||||||||||||
Event-related and entertainment dining and nightlife offerings (a) | $ | 102,790 | $ | — | $ | 115,518 | $ | (48) | $ | 218,260 | ||||||||||||||||||||||
Sponsorship, signage and suite licenses (b) | 38,393 | 244 | 803 | (414) | 39,026 | |||||||||||||||||||||||||||
Media related, primarily from affiliation agreements (b) | — | 121,812 | — | — | 121,812 | |||||||||||||||||||||||||||
Other (c) | 3,133 | 423 | 16,330 | (552) | 19,334 | |||||||||||||||||||||||||||
| Total revenues from contracts with customers | $ | 144,316 | $ | 122,479 | $ | 132,651 | $ | (1,014) | $ | 398,432 | ||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||||||||||
| Entertainment | MSG Networks | Tao Group Hospitality | Eliminations | Total | ||||||||||||||||||||||||||||
Event-related and entertainment dining and nightlife offerings (a) | $ | 22,580 | $ | — | $ | 108,690 | $ | (181) | $ | 131,089 | ||||||||||||||||||||||
Sponsorship, signage and suite licenses (b) | 7,776 | 636 | 135 | — | 8,547 | |||||||||||||||||||||||||||
Media related, primarily from affiliation agreements (b) | — | 140,471 | — | — | 140,471 | |||||||||||||||||||||||||||
Other (c) | 1,567 | 366 | 10,639 | (485) | 12,087 | |||||||||||||||||||||||||||
| Total revenues from contracts with customers | $ | 31,923 | $ | 141,473 | $ | 119,464 | $ | (666) | $ | 292,194 | ||||||||||||||||||||||
_________________
(a)Consists of (i) ticket sales and other ticket-related revenues, (ii) Tao Group Hospitality’s entertainment dining and nightlife offerings, (iii) venue license fees from third-party promoters, and (iv) food, beverage and merchandise sales. Event-related revenues and entertainment dining and nightlife offerings are recognized at a point in time. As such, these revenues have been included in the same category in the table above.
(b)See Note 2, Summary of Significant Accounting Policies, Revenue Recognition, and Note 4, Revenue Recognition, to the consolidated and combined financial statements included in the 2022 Form 10-K for further details on the pattern of recognition of sponsorship, signage and suite license revenues and media related revenue.
(c)Primarily consists of (i) revenues from sponsorship sales and representation agreements with Madison Square Garden Sports Corp. (“MSG Sports”), (ii) Tao Group Hospitality’s managed venue revenues, and (iii) advertising commission revenues recognized by the Entertainment segment from the MSG Networks segment of $376 and $410 for the three months ended September 30, 2022 and 2021, respectively, that are eliminated in consolidation.
8
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Event-related and entertainment dining and nightlife offerings (a) | $ | 126,185 | $ | 159,606 | ||||
Sponsorship, signage and suite licenses (b) | 61,800 | 77,897 | ||||||
Other (c) | 11,876 | 12,515 | ||||||
| Total revenues from contracts with customers | $ | 199,861 | $ | 250,018 | ||||
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Nine Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Event-related and entertainment dining and nightlife offerings (a) | $ | 560,996 | $ | 597,551 | ||||
Sponsorship, signage and suite licenses (b) | 172,368 | 195,652 | ||||||
Other (c) | 33,674 | 39,181 | ||||||
| Total revenues from contracts with customers | $ | 767,038 | $ | 832,384 | ||||
In addition to the disaggregation of the Company’s revenue by major source based upon the timing of transfer of goods or services to the customer disclosed above, the following table disaggregatestables disaggregate the Company’s combinedconsolidated revenues by type of goods or services in accordance with the required entity-wide disclosure requirements of ASC Subtopic 280-10-50-38 to 40 and the disaggregation of revenue required disclosures in accordance with ASC Subtopic 606-10-50-5 for the three and nine months ended March 31, 2020September 30, 2022 and 2019:
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Ticketing and venue license fee revenues (a) | $ | 47,758 | $ | 66,768 | ||||
| Sponsorship and signage, suite, and advertising commission revenues | 69,124 | 87,413 | ||||||
Revenues from entertainment dining and nightlife offerings (b) | 69,103 | 74,140 | ||||||
| Food, beverage and merchandise revenues | 11,694 | 17,508 | ||||||
Other (c) | 2,182 | 4,189 | ||||||
| Total revenues from contracts with customers | $ | 199,861 | $ | 250,018 | ||||
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended March 31, | September 30, 2022 | |||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Entertainment | MSG Networks | Tao Group Hospitality | Eliminations | Total | ||||||||||||||||||||||||||||||||||
Ticketing and venue license fee revenues (a) | $ | 308,874 | $ | 333,955 | Ticketing and venue license fee revenues (a) | $ | 72,132 | $ | — | $ | — | $ | — | $ | 72,132 | |||||||||||||||||||||||||
| Sponsorship and signage, suite, and advertising commission revenues | 192,081 | 217,644 | 45,134 | — | — | (791) | 44,343 | |||||||||||||||||||||||||||||||||
Revenues from entertainment dining and nightlife offerings | 191,965 | 190,463 | — | — | 132,651 | (223) | 132,428 | |||||||||||||||||||||||||||||||||
| Food, beverage and merchandise revenues | 62,339 | 68,255 | Food, beverage and merchandise revenues | 26,303 | — | — | — | 26,303 | ||||||||||||||||||||||||||||||||
Other (c) | 11,779 | 22,067 | ||||||||||||||||||||||||||||||||||||||
Media networks revenues (d) | Media networks revenues (d) | — | 122,479 | — | — | 122,479 | ||||||||||||||||||||||||||||||||||
| Other | Other | 747 | — | — | — | 747 | ||||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | $ | 767,038 | $ | 832,384 | Total revenues from contracts with customers | $ | 144,316 | $ | 122,479 | $ | 132,651 | $ | (1,014) | $ | 398,432 | |||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||||||||||
| Entertainment | MSG Networks | Tao Group Hospitality | Eliminations | Total | ||||||||||||||||||||||||||||
Ticketing and venue license fee revenues (a) | $ | 16,836 | $ | — | $ | — | $ | — | $ | 16,836 | ||||||||||||||||||||||
Sponsorship and signage, suite, and advertising commission revenues (b) | 10,813 | — | — | (410) | 10,403 | |||||||||||||||||||||||||||
Revenues from entertainment dining and nightlife offerings (c) | — | — | 119,464 | (256) | 119,208 | |||||||||||||||||||||||||||
| Food, beverage and merchandise revenues | 3,923 | — | — | — | 3,923 | |||||||||||||||||||||||||||
Media networks revenues (d) | — | 141,473 | — | — | 141,473 | |||||||||||||||||||||||||||
| Other | 351 | — | — | — | 351 | |||||||||||||||||||||||||||
| Total revenues from contracts with customers | $ | 31,923 | $ | 141,473 | $ | 119,464 | $ | (666) | $ | 292,194 | ||||||||||||||||||||||
_________________
(a)Amounts include ticket sales, including other ticket-related revenue, and venue license fees from the Company’s events such as (i) concerts and (ii) other live entertainment and sporting events. (b)Amounts include (i) revenues from sponsorship sales and representation agreements with MSG Sports and (ii) advertising commission revenues recognized by the Entertainment segment from the MSG Networks segment of $376 and $410 for the three months ended September 30, 2022 and 2021, respectively, that are eliminated in consolidation. (c)Primarily consist of revenues from (i) entertainment dining and nightlife offerings and (ii) venue management agreements. (d)Primarily consist of affiliation fees from Distributors and, to a lesser extent, advertising revenues through the sale of commercial time and other advertising inventory during MSG Networks programming. |
9
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Contract Balances
| September 30, | June 30, | |||||||||||||
| 2022 | 2022 | |||||||||||||
Receivables from contracts with customers, net (a) | $ | 200,394 | $ | 215,261 | ||||||||||
Contract assets, current (b) | 7,196 | 5,503 | ||||||||||||
Contract assets, non-current (b) | 869 | 756 | ||||||||||||
Deferred revenue, including non-current portion (c) | 254,162 | 228,703 | ||||||||||||
| March 31, | June 30, | |||||||
| 2020 | 2019 | |||||||
Receivables from contracts with customers, net (a) | $ | 105,222 | $ | 81,170 | ||||
Contract assets, current (b) | 8,164 | 6,873 | ||||||
Deferred revenue, including non-current portion (c) | 212,766 | 197,047 | ||||||
(b)Contract assets, which are reported as Prepaid expenses and other current assets or Other non-current assets in the Company’s condensed consolidated balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to customers, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable once the Company’s right to consideration becomes unconditional. (c)Deferred revenue primarily relates to the Company’s receipt of consideration from customers in advance of the Company’s transfer of goods or services to the customers. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to a customer. Revenue recognized for the three months ended September 30, 2022 relating to the deferred revenue balance as of June 30, 2022 was $105,586. |
Transaction Price Allocated to the Remaining Performance Obligations
| Fiscal Year 2020 (remainder) | $ | 21,317 | ||
| Fiscal Year 2021 | 207,045 | |||
| Fiscal Year 2022 | 141,696 | |||
| Fiscal Year 2023 | 85,300 | |||
| Fiscal Year 2024 | 59,141 | |||
| Thereafter | 127,529 | |||
| $ | 642,028 | |||
During Fiscal Year 2022, the Company underwent organizational changes to further streamline operations. These measures included termination of certain employees and executives in the Entertainment reportable segment.
The Company’s restructuring activity through September 30, 2022 is as follows:
| June 30, 2022 | $ | 8,081 | ||||||
| Restructuring charges | — | |||||||
| Payments | (148) | |||||||
| September 30, 2022 | $ | 7,933 | ||||||
10
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 5. Cash, Cash Equivalents and Restricted Cash
| As of | ||||||||||||||||
| March 31, 2020 | June 30, 2019 | March 31, 2019 | June 30, 2018 | |||||||||||||
| Captions on the combined balance sheets: | ||||||||||||||||
| Cash and cash equivalents | $ | 1,003,893 | $ | 1,082,055 | $ | 1,151,428 | $ | 1,225,645 | ||||||||
Restricted cash (a) | 17,955 | 10,010 | 8,061 | 6,711 | ||||||||||||
| Cash, cash equivalents and restricted cash on the combined statements of cash flows | $ | 1,021,848 | $ | 1,092,065 | $ | 1,159,489 | $ | 1,232,356 | ||||||||
The Company’s investments and loans toin nonconsolidated affiliates, which are accounted for under the equity method of accounting andor as equity investments without readily determinable fair values in accordance with ASC Topic 323, Investments - Equity Methodvalue, are included within Other non-current assets on the accompanying condensed consolidated balance sheets and Joint Ventures and ASC Topic 321, Investments - Equity Securities, respectively, consisted of the following:
| Ownership Percentage | Investment | Loan | Total | ||||||||||||
| March 31, 2020 | |||||||||||||||
| Equity method investments: | |||||||||||||||
| SACO Technologies Inc. (“SACO”) | 30 | % | $ | 40,656 | $ | — | $ | 40,656 | |||||||
| Others | 8,007 | — | 8,007 | ||||||||||||
Equity investments without readily determinable fair values (a) | 13,335 | — | 13,335 | ||||||||||||
| Total investments and loans to nonconsolidated affiliates | $ | 61,998 | $ | — | $ | 61,998 | |||||||||
| June 30, 2019 | |||||||||||||||
| Equity method investments: | |||||||||||||||
| SACO | 30 | % | $ | 44,321 | $ | — | $ | 44,321 | |||||||
Tribeca Enterprises LLC (“Tribeca Enterprises”) (b) | 50 | % | — | 18,000 | 18,000 | ||||||||||
| Others | 8,372 | — | 8,372 | ||||||||||||
Equity investments without readily determinable fair values (a) | 13,867 | — | 13,867 | ||||||||||||
| Total investments and loans to nonconsolidated affiliates | $ | 66,560 | $ | 18,000 | $ | 84,560 | |||||||||
| Investment As of | ||||||||||||||||||||
| Ownership Percentage | September 30, 2022 | June 30, 2022 | ||||||||||||||||||
| Equity method investments: | ||||||||||||||||||||
| SACO Technologies Inc. (“SACO”) | 30 | % | $ | 27,786 | $ | 31,448 | ||||||||||||||
| Others | 4,749 | 5,248 | ||||||||||||||||||
| Equity securities without readily determinable fair values | 9,076 | 7,108 | ||||||||||||||||||
| Total investments in nonconsolidated affiliates | $ | 41,611 | $ | 43,804 | ||||||||||||||||
Equity InvestmentInvestments with Readily Determinable Fair Value
In addition to the investments discussed above, the Company holds an investmentinvestments of 3,208 shares of the common stock of(i) Townsquare Media, Inc. (“Townsquare”), and (ii) DraftKings Inc. (“DraftKings”).
•Townsquare is a media, entertainment and digital marketing solutions company that is listed on the New York Stock Exchange (“NYSE”) under the symbol “TSQ.” In accordance
•DraftKings is a fantasy sports contest and sports gambling provider that is listed on the NASDAQ Stock Market (“NASDAQ”) under the symbol “DKNG” for its common stock.
The fair value of the Company’s investments in Class A common stock of Townsquare and Class A common stock of DraftKings are determined based on quoted market prices in active markets on the NYSE and NASDAQ, respectively, which are classified within Level I of the fair value hierarchy. As a holder of Class C common stock of Townsquare, the Company is entitled to convert at any time all or any part of the Company’s shares into an equal number of shares of Class A common stock of Townsquare, subject to restrictions set forth in Townsquare’s certificate of incorporation.
The carrying fair value of these investments, which are reported under Other non-current assets in the accompanying condensed balance sheets as of September 30, 2022 and June 30, 2022, are as follows:
| Equity Investments with Readily Determinable Fair Value | September 30, 2022 | June 30, 2022 | ||||||||||||
| Townsquare Class A common stock | $ | 4,234 | $ | 4,776 | ||||||||||
| Townsquare Class C common stock | 19,057 | 21,499 | ||||||||||||
| DraftKings common stock | 10,142 | 10,146 | ||||||||||||
| Total Equity Investment with Readily Determinable Fair Values | $ | 33,433 | $ | 36,421 | ||||||||||
11
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following table summarizes the realized and unrealized gain (loss) on equity investments with ASC Topic 321, Investments — Equity Securities, this investment is measured atand without readily determinable fair value, andwhich is reported underin Other assets inincome (expenses), net, for the accompanying combined balance sheets as of March 31, 2020three months ended September 30, 2022 and June 30, 2019. See Note 11 for more information on the fair value of the investment in Townsquare.2021:
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Unrealized (loss) gain— Townsquare | $ | (2,983) | $ | 1,027 | ||||||||||
| Unrealized gain (loss) — DraftKings | 2,324 | (3,487) | ||||||||||||
| Unrealized gain — Other | 1,969 | — | ||||||||||||
| Gains from shares sold — DraftKings | 1,489 | — | ||||||||||||
| Total Realized and Unrealized gain (loss) | $ | 2,799 | $ | (2,460) | ||||||||||
| Supplemental information on realized gain: | ||||||||||||||
| Shares of common stock sold — DraftKings | 200 | — | ||||||||||||
| Cash proceeds from common stock sold — DraftKings | $ | 3,819 | $ | — | ||||||||||
Note 7.6. Property and Equipment
As of March 31, 2020September 30, 2022 and June 30, 2019,2022, property and equipment consisted of the following assets:following:
March 31, 2020 (a) | June 30, 2019 | |||||||
| Land | $ | 141,931 | $ | 167,405 | ||||
| Buildings | 992,496 | 1,091,851 | ||||||
| Equipment | 329,696 | 318,301 | ||||||
| Aircraft | 38,090 | 38,090 | ||||||
| Furniture and fixtures | 42,034 | 53,242 | ||||||
| Leasehold improvements | 183,033 | 180,111 | ||||||
| Construction in progress | 574,876 | 232,390 | ||||||
| 2,302,156 | 2,081,390 | |||||||
Less accumulated depreciation and amortization(b) | (761,370 | ) | (732,268 | ) | ||||
| $ | 1,540,786 | $ | 1,349,122 | |||||
| September 30, 2022 | June 30, 2022 | |||||||||||||
| Land | $ | 133,893 | $ | 140,239 | ||||||||||
| Buildings | 1,035,072 | 997,345 | ||||||||||||
| Equipment, furniture and fixtures | 499,382 | 477,040 | ||||||||||||
| Aircraft | 38,090 | 38,090 | ||||||||||||
| Leasehold improvements | 229,692 | 232,819 | ||||||||||||
Construction in progress (a) | 2,286,737 | 2,031,972 | ||||||||||||
| Total Property and equipment | 4,222,866 | 3,917,505 | ||||||||||||
| Less accumulated depreciation and amortization | (996,430) | (978,453) | ||||||||||||
| Property and equipment, net | $ | 3,226,436 | $ | 2,939,052 | ||||||||||
_________________
(a)Construction in progress includes labor and interest that are capitalized during the construction period for significant long term construction projects. These costs primarily relate to the construction of MSG Sphere in Las Vegas. For the three months ended September 30, 2022, the Company capitalized $20,466 of interest. |
The increase in Construction in progress is primarily associated with the development and construction of MSG SpheresSphere in Las Vegas, which includes capitalized labor and London.interest. The property and equipment balances above include $76,953$235,847 and $32,238$206,462 of capital expenditure accruals (primarily related to MSG Sphere construction) as of March 31, 2020September 30, 2022 and June 30, 2019,2022, respectively, which are reflected in “OtherAccounts payable, accrued liabilities”and other current liabilities in the accompanying combinedcondensed consolidated balance sheets.
Depreciation and amortization expense on property and equipment was $23,187$25,307 and $23,617$25,120 for the three months ended March 31, 2020September 30, 2022 and 2019, respectively. Depreciation and amortization expense on property and equipment was $69,240 and $72,155 for the nine months ended March 31, 2020 and 2019,2021, respectively.
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Line Item in the Company’s Combined Balance Sheet | ||||||
| Right-of-use assets: | ||||||
| Operating leases | Right-of-use lease assets | $ | 234,760 | |||
| Lease liabilities: | ||||||
| Operating leases, current | Operating lease liabilities, current | $ | 54,506 | |||
| Operating leases, noncurrent | Operating lease liabilities, noncurrent | 191,762 | ||||
| Total lease liabilities | $ | 246,268 | ||||
| Line Item in the Company’s Combined Statement of Operations | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | ||||||||
| Operating lease cost | Direct operating expenses | $ | 8,090 | $ | 24,397 | |||||
| Operating lease cost | Selling, general and administrative expenses | 5,348 | 15,066 | |||||||
| Short-term lease cost | Direct operating expenses | — | 348 | |||||||
| Variable lease cost | Direct operating expenses | 830 | 3,287 | |||||||
| Variable lease cost | Selling, general and administrative expenses | 14 | 40 | |||||||
| Total lease cost | $ | 14,282 | $ | 43,138 | ||||||
| Fiscal Year 2020 (remainder) | $ | 15,587 | ||
| Fiscal Year 2021 | 58,204 | |||
| Fiscal Year 2022 | 59,101 | |||
| Fiscal Year 2023 | 54,872 | |||
| Fiscal Year 2024 | 39,735 | |||
| Thereafter | 126,222 | |||
| Total lease payments | 353,721 | |||
| Less imputed interest | 107,453 | |||
Total lease liabilities (a) | $ | 246,268 | ||
| Balance as of June 30, 2019 | $ | 165,558 | ||
Allocation to the assets held for sale(a) | (2,864 | ) | ||
Goodwill impairment(b) | (80,698 | ) | ||
| Balance as of March 31,2020 | $ | 81,996 | ||
| Trademarks | Photographic related rights | Total | ||||||||||
| Balance as of June 30, 2019 | $ | 62,421 | $ | 3,000 | $ | 65,421 | ||||||
Reclassification to the assets held for sale(a) | (540 | ) | — | (540 | ) | |||||||
| Balance as of March 31,2020 | $ | 61,881 | $ | 3,000 | $ | 64,881 | ||||||
| March 31, 2020 | Gross | Accumulated Amortization | Net | |||||||||
Trade names(a) | $ | 97,530 | $ | (18,522 | ) | $ | 79,008 | |||||
| Venue management contracts | 79,000 | (13,310 | ) | 65,690 | ||||||||
Favorable lease assets (b) | — | — | — | |||||||||
| Non-compete agreements | 9,000 | (4,565 | ) | 4,435 | ||||||||
| Festival rights | 8,080 | (2,020 | ) | 6,060 | ||||||||
Other intangibles(c) | 4,217 | (3,462 | ) | 755 | ||||||||
| $ | 197,827 | $ | (41,879 | ) | $ | 155,948 | ||||||
| June 30, 2019 | Gross | Accumulated Amortization | Net | |||||||||
Trade names(a) | $ | 98,530 | $ | (11,346 | ) | $ | 87,184 | |||||
| Venue management contracts | 79,000 | (9,887 | ) | 69,113 | ||||||||
Favorable lease assets (b) | 54,253 | (10,382 | ) | 43,871 | ||||||||
| Non-compete agreements | 9,000 | (3,391 | ) | 5,609 | ||||||||
| Festival rights | 8,080 | (1,617 | ) | 6,463 | ||||||||
Other intangibles(c) | 6,717 | (4,566 | ) | 2,151 | ||||||||
| $ | 255,580 | $ | (41,189 | ) | $ | 214,391 | ||||||
Note 10.7. Commitments and Contingencies
Commitments
During the three months ended September 30, 2022, the Company did not have any material changes in its non-cancelable contractual obligations since the end of fiscal year 2019 other than activities in the ordinary course of business. See Note 8, Credit Facilities for details of the principal repayments required under the Company’s various credit facilities.
Legal Matters
Fifteen complaints were filed in connection with the Company’s acquisition of MSG Networks Inc. (the “Merger”) by purported stockholders of the Company and MSG Networks Inc.
Nine of these complaints involved allegations of materially incomplete and misleading information set forth in the joint proxy statement/prospectus filed by the Company and MSG Networks Inc. in connection with the Merger. As a result of supplemental disclosures made by the Company and MSG Networks Inc. on July 1, 2021, all of the disclosure actions were voluntarily dismissed with prejudice prior to or shortly following the consummation of the Merger.
Six complaints involved allegations of fiduciary breaches in connection with the negotiation and approval of the Merger and have since been consolidated into two remaining litigations.
On September 10, 2021, the Court of Chancery entered an order consolidating two derivative complaints filed by purported Company stockholders. The consolidated action is captioned: In re Madison Square Garden Entertainment Corp. Stockholders Litigation, C.A. No. 2021-0468-KSJM. The consolidated plaintiffs filed their Verified Consolidated Derivative Complaint on October 11, 2021. The complaint, which names the Company as only a nominal defendant, retains all of the derivative claims and alleges that the members of the board of directors and controlling stockholders violated their fiduciary duties in the course of negotiating and approving the Merger. Plaintiffs seek, among other relief, an award of damages to the Company including interest, and plaintiffs’ attorneys’ fees. The Company and other defendants filed answers to the complaint on December 30, 2021. The Company substantially completed its production of documents responsive to plaintiffs’ requests on June 24, 2022, and continues to be engaged in responding to plaintiffs’ additional discovery requests. Pursuant to the indemnity rights in its bylaws and Delaware law, the Company is advancing the costs incurred by defendants in this action, and defendants may assert indemnification rights in respect of any adverse judgment or settlement of the action.
On September 27, 2021, the Court of Chancery entered an order consolidating four complaints filed by purported stockholders of MSG Networks Inc. The consolidated action is captioned: In re MSG Networks Inc. Stockholder Class Action Litigation, C.A. No. 2021-0575-KSJM. The consolidated plaintiffs filed their Verified Consolidated Stockholder Class Action Complaint on October 29, 2021. The complaint asserts claims on behalf of a putative class of former MSG Networks Inc. stockholders against each member of the board of directors of MSG Networks Inc. and the controlling stockholders prior to the Merger. Plaintiffs allege that the MSG Networks Inc. board of directors and controlling stockholders breached their fiduciary duties in negotiating and approving the Merger. The Company is not named as a defendant but has been subpoenaed to produce documents and testimony related to the Merger. Plaintiffs seek, among other relief, monetary damages for the putative class and plaintiffs’ attorneys’ fees. Defendants to the MSG Networks Inc. consolidated action filed answers to the complaint on December 30, 2021. The Company substantially completed its production of documents responsive to plaintiffs’ requests on June 24, 2022, and continues to be engaged in responding to plaintiffs’ additional discovery requests.Pursuant to the indemnity rights in its bylaws and Delaware law, the Company is advancing the costs incurred by defendants in this action, and defendants may assert indemnification rights in respect of any adverse judgment or settlement of the action.
On September 19, 2022, the Court of Chancery approved a case schedule, governing the two consolidated actions, which set tentative trial dates for April 2023.
We are currently unable to determine a range of potential liability, if any, with respect to these Merger-related claims. Accordingly, no accrual for these matters has been made in our financial statements.
13
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty (including the extent of available insurance)insurance, if any), management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
| Fair Value Hierarchy | March 31, 2020 | June 30, 2019 | ||||||||
| Assets: | ||||||||||
| Commercial Paper | I | $ | — | $ | 169,707 | |||||
| Money market accounts | I | — | 101,517 | |||||||
| Time deposits | I | 67,761 | 789,833 | |||||||
| U.S. treasury bills | I | 999,542 | — | |||||||
| Equity investment with readily determinable fair value | I | 14,790 | 17,260 | |||||||
| Total assets measured at fair value | $ | 1,082,093 | $ | 1,078,317 | ||||||
| March 31, 2020 | June 30, 2019 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| Assets | ||||||||||||||||
Notes receivable (a) | $ | 12,566 | $ | 12,566 | $ | 13,348 | $ | 13,348 | ||||||||
Short-term investments (a) | 331,019 | 331,019 | 108,416 | 108,416 | ||||||||||||
Equity investment with readily determinable fair value (b) | 14,790 | 14,790 | 17,260 | 17,260 | ||||||||||||
Subordinated term loan receivable (c) | — | — | 58,735 | 57,711 | ||||||||||||
| Liabilities | ||||||||||||||||
Long-term debt, including current portion (d) | $ | 35,000 | $ | 31,310 | $ | 55,000 | $ | 54,883 | ||||||||
| The following table provides a reconciliation of the deferred and contingent consideration liabilities in connection with the acquisitions discussed above: | ||||
| Nine Months Ended March 31, 2020 | ||||
| Balance as of June 30, 2019 | $ | 1,210 | ||
Change in fair value of contingent consideration(a) | (1,210 | ) | ||
| Balance as of March 31, 2020 | $ | — | ||
Note 12. 8. Credit Facilities
See Note 15, Credit Facilities, to the consolidated and combined financial statements included in the 2022 Form 10-K for more information regarding the Company’s credit facilities. The following table summarizes the presentation of the outstanding balances under the Company’s credit agreements as of September 30, 2022 and June 30, 2022:
| September 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Principal | Unamortized Deferred Financing Costs | Net | Principal | Unamortized Deferred Financing Costs | Net | |||||||||||||||||||||||||||||||||
| Current portion | ||||||||||||||||||||||||||||||||||||||
| MSG Networks Term Loan | $ | 74,250 | $ | (1,219) | $ | 73,031 | $ | 66,000 | $ | (1,231) | $ | 64,769 | ||||||||||||||||||||||||||
| National Properties Term Loan Facility | 12,188 | (3,213) | 8,975 | 8,125 | (3,213) | 4,912 | ||||||||||||||||||||||||||||||||
| Tao Term Loan Facility | 3,750 | (225) | 3,525 | 3,750 | (225) | 3,525 | ||||||||||||||||||||||||||||||||
| Other debt | 637 | — | 637 | 637 | — | 637 | ||||||||||||||||||||||||||||||||
| Current portion of long-term debt, net of deferred financing costs | $ | 90,825 | $ | (4,657) | $ | 86,168 | $ | 78,512 | $ | (4,669) | $ | 73,843 | ||||||||||||||||||||||||||
| September 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Principal | Unamortized Deferred Financing Costs | Net | Principal | Unamortized Deferred Financing Costs | Net | |||||||||||||||||||||||||||||||||
| Non-current portion | ||||||||||||||||||||||||||||||||||||||
| MSG Networks Term Loan | $ | 911,625 | $ | (1,185) | $ | 910,440 | $ | 932,250 | $ | (1,484) | $ | 930,766 | ||||||||||||||||||||||||||
| National Properties Term Loan Facility | 637,812 | (12,048) | 625,764 | 641,875 | (12,851) | 629,024 | ||||||||||||||||||||||||||||||||
| National Properties Revolving Credit Facility | 36,960 | — | 36,960 | 29,100 | — | 29,100 | ||||||||||||||||||||||||||||||||
| Tao Term Loan Facility | 70,313 | (839) | 69,474 | 71,250 | (895) | 70,355 | ||||||||||||||||||||||||||||||||
| Tao Revolving Credit Facility | 10,000 | — | 10,000 | 10,000 | — | 10,000 | ||||||||||||||||||||||||||||||||
| Long-term debt, net of deferred financing costs | $ | 1,666,710 | $ | (14,072) | $ | 1,652,638 | $ | 1,684,475 | $ | (15,230) | $ | 1,669,245 | ||||||||||||||||||||||||||
MSG Networks Credit Facilities
General. MSGN Holdings, L.P. (“MSGN L.P.”), MSGN Eden, LLC, an indirect subsidiary of the Company and the general partner of MSGN L.P., Regional MSGN Holdings LLC, an indirect subsidiary of the Company and the limited partner of MSGN L.P. (collectively with MSGN Eden, LLC, the “MSGN Holdings Entities”), and certain subsidiaries of MSGN L.P. have senior secured credit facilities pursuant to a credit agreement (as amended and restated on October 11, 2019, the “MSGN Credit Agreement”) consisting of: (i) an initial $1,100,000 term loan facility (the “MSGN Term Loan Facility”) and (ii) a $250,000 revolving credit facility (the “MSGN Revolving Credit Facility” and, together with the MSGN Term Loan Facility, the “MSG Networks Credit Facilities”), each with a term of five years. Up to $35,000 of the MSGN Revolving Credit Facility is available for the issuance of letters of credit. As of September 30, 2022, there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility.
14
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
principal, interest or other amounts due and payable under the MSGN Credit Agreement or related loan documents, default interest will accrue on all overdue amounts at an additional rate of 2.00% per annum. The MSGN Credit Agreement requires that MSGN L.P. pay a commitment fee ranging from 0.225% to 0.30% (determined based on a total net leverage ratio) in respect of the average daily unused commitments under the MSGN Revolving Credit Facility. MSGN L.P. will also be required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit. The interest rate on the MSGN Term Loan Facility as of September 30, 2022 was 4.615%.
Principal Repayments. Subject to customary notice and minimum amount conditions, MSGN L.P. may voluntarily repay outstanding loans under the MSGN Credit Agreement at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurodollar loans).The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date of October 11, 2024. MSGN L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including MSGN Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.
Covenants. The MSGN Credit Agreement generally requires the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis to comply with a maximum total leverage ratio of 5.50:1.00, subject, at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, the MSGN Credit Agreement requires a minimum interest coverage ratio of 2.00:1.00 for the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis. As of September 30, 2022, the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the covenants.
In addition to the financial covenants discussed above, the MSGN Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants, and events of default. The MSGN Credit Agreement contains certain restrictions on the ability of MSGN L.P. and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the MSGN Credit Agreement, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making investments, loans or advances in or to other persons; (iv) paying dividends and distributions or repurchasing capital stock; (v) changing their lines of business; (vi) engaging in certain transactions with affiliates; (vii) amending specified material agreements; (viii) merging or consolidating; (ix) making certain dispositions; and (x) entering into agreements that restrict the granting of liens. The MSGN Holdings Entities are also subject to customary passive holding company covenants.
Guarantors and Collateral. All obligations under the MSGN Credit Agreement are guaranteed by the MSGN Holdings Entities and MSGN L.P.’s existing and future direct and indirect domestic subsidiaries that are not designated as excluded subsidiaries or unrestricted subsidiaries (the “MSGN Subsidiary Guarantors,” and together with the MSGN Holdings Entities, the “MSGN Guarantors”). All obligations under the MSGN Credit Agreement, including the guarantees of those obligations, are secured by certain assets of MSGN L.P. and each MSGN Guarantor (collectively, “MSGN Collateral”), including, but not limited to, a pledge of the equity interests in MSGN L.P. held directly by the Holdings Entities and the equity interests in each MSGN Subsidiary Guarantor held directly or indirectly by MSGN L.P.
National Properties Credit Facilities
General.On May 23, 2019,June 30, 2022, MSG National Properties, LLC (“MSG National Properties”) an indirect, wholly-owned subsidiary of the Company, MSG Entertainment Group, LLC (“MSG Entertainment Group”) and certain subsidiaries of MSG National Properties entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and L/C issuers party thereto (the “National Properties Credit Agreement”), providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $100,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Credit Facilities”). As of September 30, 2022, outstanding letters of credit were $7,860 and the remaining balance available under the National Properties Revolving Credit Facility was $63,040.
Interest Rates. Borrowings under the current National Properties Credit Facilities bear interest at a floating rate, which at the option of MSG National Properties may be either (a) a base rate plus an applicable margin ranging from 1.50% to 2.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties Base Rate”), or (b) Term SOFR plus an applicable margin ranging from 2.50% to 3.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties SOFR
15
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Rate”). The National Properties Credit Agreement requires MSG National Properties to pay a commitment fee ranging from 0.30% to 0.50% in respect of the daily unused commitments under the National Properties Revolving Credit Facility. MSG National Properties is also required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit pursuant to the National Properties Credit Agreement. The interest rate on the National Properties Credit Facilities as of September 30, 2022 was 6.18%.
Principal Repayments. Subject to customary notice and minimum amount conditions, MSG National Properties may voluntarily repay outstanding loans under the National Properties Credit Facilities and terminate commitments under the National Properties Revolving Credit Facility, at any time, in whole or in part, subject only to customary breakage costs in the case of prepayment of Term SOFR loans. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ending March 31, 2023, in an aggregate amount equal to 2.50% per annum (0.625% per quarter), stepping up to 5.0% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility on June 30, 2027. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facility. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair, or replacement rights), subject to certain exceptions.
Covenants. The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Credit Facilities. The debt service coverage ratio covenant begins testing in the fiscal quarter ending December 31, 2022, and is set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ending September 30, 2024. The leverage ratio covenant begins testing in the fiscal quarter ending June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, stepping down to 5.5:1 in the fiscal quarter ending June 30, 2024 and 4.5:1 in the fiscal quarter ending June 30, 2026. As of September 30, 2022, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement.
In addition to the financial covenants discussed above, the National Properties Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative and negative covenants and events of default. The National Properties Credit Agreement contains certain restrictions on the ability of MSG National Properties and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the National Properties Credit Agreement, including the following: (i) incur additional indebtedness; (ii) create liens on certain assets; (iii) make investments, loans or advances in or to other persons; (iv) pay dividends and distributions or repurchase capital stock (which will restrict the ability of MSG National Properties to make cash distributions to the Company); (v) repay, redeem or repurchase certain indebtedness; (vi) change its lines of business; (vii) engage in certain transactions with affiliates; (viii) amend their respective organizational documents; (ix) merge or consolidate; and (x) make certain dispositions.
Guarantors and Collateral. All obligations under the National Properties Credit Facilities are guaranteed by MSG Entertainment Group and MSG National Properties’ existing and future direct and indirect domestic subsidiaries, other than the subsidiaries that own The Garden and certain other excluded subsidiaries (the “Subsidiary Guarantors”).
All obligations under the National Properties Credit Facilities, including the guarantees of those obligations, are secured by certain of the assets of MSG National Properties and the Subsidiary Guarantors (collectively, “Collateral”) including, but not limited to, a pledge of some or all of the equity interests held directly or indirectly by MSG National Properties in each Subsidiary Guarantor. The Collateral does not include, among other things, any interests in The Garden or the leasehold interests in Radio City Music Hall and the Beacon Theatre. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions.
16
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Tao Credit Facilities
General. On June 9, 2022, TAO Group Intermediate Holdings LLC (“TAOIH” or “Intermediate Holdings”) and TaoTAO Group Operating LLC (“TAOG” or “Senior Borrower”), entered into aan amended and restated credit agreement (the “Tao“Restated Tao Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and a letter of credit issuer, and the lenders party thereto. Together the Tao Senior Credit Agreement and a $49,000 intercompany subordinated credit agreement (the “Tao Subordinated Credit Agreement”) between a subsidiary of the Company and Tao Group Sub-Holdings LLC, a subsidiary of Tao Group Hospitality, replaced the Senior Borrower’s prior credit agreement dated January 31, 2017 (“2017 Tao Credit Agreement”). The 2017 Tao Credit Agreement was terminated on May 23, 2019 in its entirety in accordance with its terms as a result of the repayment of all obligations thereunder from the proceeds of the Tao Senior Credit Agreement and the Tao Subordinated Credit Agreement as well as cash on hand. During the nine months ended March 31, 2020, Tao Group Hospitality repaid $5,000 under the Tao Subordinated Credit Agreement. The balances and interest-related activities pertaining to the Tao Subordinated Credit Agreement have been eliminated in the combined financial statements in accordance with ASC Topic 810, Consolidation.
Interest Rates. Borrowings under the revolving line of credit are subject to the satisfaction of customary conditions. 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 as discussed below).
Principal Repayments. Subject to customary notice and minimum amount conditions, TAOG may voluntarily repay outstanding loans under the Restated Tao Senior Credit Agreement at any time, in whole or in part, without premium or penalty. The outstanding amount drawnTao Term Loan Facility amortizes quarterly in accordance with its terms from June 9, 2022 through the maturity date on the Tao Revolving Credit Facility was $15,000 asJune 9, 2027. TAOG is required to make mandatory prepayments of June 30, 2019, which is reported under Long-term debt, net of deferred financing costs in the accompanying combined balance sheet. In addition to scheduled repayments required under the Tao Term Loan Facility Tao Group Hospitality repaidfrom the $15,000 outstanding balance undernet cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (in each case, subject to certain reinvestment, repair or replacement rights) and the Tao Revolving Credit Facility during the nine months ended March 31, 2020. There was 0 borrowing under the Tao Revolving Credit Facility asincurrence of March 31, 2020.certain indebtedness, subject to certain exceptions.
In addition to the financial covenants described above, the Restated Tao Senior Credit Agreement and the related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The Restated Tao Senior Credit Agreement contains certain restrictions on the ability of TAOIH, TAOG and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Restated Tao Senior Credit Agreement, including, without limitation, the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making investments, loans or advances in or to other persons; (iv) paying dividends and distributions or repurchasing capital stock; (v) engaging in certain transactions with affiliates; (vi) amending specified agreements; (vii) merging or consolidating; (viii) making certain dispositions; and (ix) entering into agreements that restrict the granting of liens. Intermediate Holdings is subject to a customary passive holding company covenant.
17
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Interest Payments | Loan Principal Repayments | |||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| MSG Networks Credit Facilities | $ | 9,596 | $ | 4,427 | $ | 12,375 | $ | 12,375 | ||||||||||||||||||
| National Properties Credit Facilities | 2,804 | 11,585 | — | 1,625 | ||||||||||||||||||||||
| Tao Credit Facilities | 981 | 241 | 937 | 16,250 | ||||||||||||||||||||||
| $ | 13,381 | $ | 16,253 | $ | 13,312 | $ | 30,250 | |||||||||||||||||||
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
| September 30, 2022 | June 30, 2022 | |||||||||||||||||||||||||
Carrying Value (a) | Fair Value | Carrying Value (a) | Fair Value | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| MSG Networks Credit Facilities | $ | 985,875 | $ | 961,228 | $ | 998,250 | $ | 958,320 | ||||||||||||||||||
| National Properties Credit Facilities | 686,960 | 669,786 | 679,100 | 679,100 | ||||||||||||||||||||||
| Tao Senior Credit Facilities | 84,063 | 82,689 | 85,000 | 82,569 | ||||||||||||||||||||||
| Total Long-term debt | $ | 1,756,898 | $ | 1,713,703 | $ | 1,762,350 | $ | 1,719,989 | ||||||||||||||||||
__________________________
(a)The total carrying value of the Company’s financial instruments is equal to the Company’s audited combined financial statementscurrent and notes theretonon-current principal payments for the year ended June 30, 2019 included in the Company’s Information Statement for more information regarding the Company’s debt maturities for the Tao Senior Secured Credit Facilities.
The Company’s long-term debt is classified within Level II of the accompanying combined balance sheetsfair value hierarchy as it is valued using quoted indices of March 31, 2020 and June 30, 2019.similar instruments for which the inputs are readily observable.
| March 31, 2020 | ||||||||||||
| Tao Term Loan Facility | Deferred Financing Costs | Total | ||||||||||
| Current portion of long-term debt, net of deferred financing costs | $ | 5,000 | $ | (208 | ) | $ | 4,792 | |||||
Long-term debt, net of deferred financing costs (a) | 30,000 | (675 | ) | 29,325 | ||||||||
| Total | $ | 35,000 | $ | (883 | ) | $ | 34,117 | |||||
| June 30, 2019 | ||||||||||||
| Tao Term Loan Facility | Deferred Financing Costs | Total | ||||||||||
| Current portion of long-term debt, net of deferred financing costs | $ | 6,250 | $ | (208 | ) | $ | 6,042 | |||||
Long-term debt, net of deferred financing costs (a) | 33,750 | (831 | ) | 32,919 | ||||||||
| Total | $ | 40,000 | $ | (1,039 | ) | $ | 38,961 | |||||
| March 31, 2020 | June 30, 2019 | |||||||
| Other current assets | $ | 85 | $ | 85 | ||||
| Other assets | 269 | 333 | ||||||
Note 13.9. Pension Plans and Other Postretirement Benefit Plan
Defined Benefit Pension Plans and Postretirement Benefit PlanPlans
The following tables present components of net periodic benefit cost for the Pension Plans and Postretirement PlanPlans included in the accompanying combinedcondensed consolidated statements of operations for the three and nine months ended March 31, 2020September 30, 2022 and 2019.2021. Service cost is recognized in direct operating expenses and selling, general and administrative expenses. All other components of net periodic benefit cost are reported in Miscellaneous expense,Other income (expense), net.
| Pension Plans | Postretirement Plan | Pension Plans | Postretirement Plans | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| Service cost | $ | 24 | $ | 20 | $ | 18 | $ | 28 | Service cost | $ | 123 | $ | 118 | $ | 15 | $ | 16 | |||||||||||||||||||||||||
| Interest cost | 1,326 | 1,473 | 28 | 58 | Interest cost | 1,189 | 1,190 | 19 | 20 | |||||||||||||||||||||||||||||||||
| Expected return on plan assets | (1,330 | ) | (781 | ) | — | — | Expected return on plan assets | (1,719) | (1,719) | — | — | |||||||||||||||||||||||||||||||
| Recognized actuarial loss | 339 | 318 | 3 | 10 | Recognized actuarial loss | 501 | 501 | 9 | 9 | |||||||||||||||||||||||||||||||||
| Settlement loss recognized | 67 | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Amortization of unrecognized prior service credit | — | — | — | (1 | ) | |||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | 426 | $ | 1,030 | $ | 49 | $ | 95 | Net periodic benefit cost | $ | 94 | $ | 90 | $ | 43 | $ | 45 | |||||||||||||||||||||||||
Contributory charge to Madison Square Garden Sports Corp. for participation in the Shared Plans and allocation of costs related to the corporate employees (a) | (62 | ) | (171 | ) | (8 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||
| Net periodic benefit cost reported in combined statements of operations | $ | 364 | $ | 859 | $ | 41 | $ | 78 | ||||||||||||||||||||||||||||||||||
| Pension Plans | Postretirement Plan | |||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Service cost | $ | 72 | $ | 60 | $ | 53 | $ | 83 | ||||||||
| Interest cost | 3,982 | 4,419 | 83 | 173 | ||||||||||||
| Expected return on plan assets | (3,989 | ) | (2,344 | ) | — | — | ||||||||||
| Recognized actuarial loss | 1,019 | 954 | 8 | 30 | ||||||||||||
| Settlement loss recognized | 67 | — | — | — | ||||||||||||
| Amortization of unrecognized prior service credit | — | — | — | (4 | ) | |||||||||||
| Net periodic benefit cost | $ | 1,151 | $ | 3,089 | $ | 144 | $ | 282 | ||||||||
Contributory charge to Madison Square Garden Sports Corp. for participation in the Shared Plans and allocation of costs related to the corporate employees (a) | (164 | ) | (515 | ) | (25 | ) | (50 | ) | ||||||||
| Net periodic benefit cost reported in combined statements of operations | $ | 987 | $ | 2,574 | $ | 119 | $ | 232 | ||||||||
18
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company sponsors two non-contributory, qualified defined benefit pension plans covering certain of its union employees (the “UTT Plan” and the “Networks 1212 Plan,” collectively the “Union Plans”). During the three months ended September 30, 2022, the Company contributed $500 to the Networks 1212 Plan.
Defined Contribution Pension Plans
For the ninethree months ended March 31, 2020September 30, 2022 and 2019,2021, expenses related to the Savings Plans and Union Savings Plan included in the accompanying combinedcondensed consolidated statements of operations are as follows:
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Savings Plans | $ | 2,565 | $ | 2,019 | ||||||||||
| Union Savings Plan | $ | 18 | $ | 14 | ||||||||||
Savings Plans (a) | Union Savings Plan | |||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| $ | (1,307 | ) | $ | 1,854 | $ | 3,288 | $ | 5,945 | $ | 469 | $ | 450 | $ | 522 | $ | 498 | ||||||||||||||
Note 14.10. Share-based Compensation
The Company has three share-based compensation plans: the 2020 Employee Stock Plan, the 2020 Stock Plan for Non-Employee Directors and the MSG Networks Inc. 2010 Employee Stock Plan. See Note 1217, Share-based Compensation, to the Company’s auditedconsolidated and combined financial statements and notes thereto for the year ended June 30, 2019statement included in the Company’s Information Statement2022 Form 10-K for more information regarding Madison Square Garden Sports Corp.’s 2015 Employee Stock Plan (the “Madison Square Garden Sports Corp. Employee Stock Plan”).detail on these plans.
Share-based compensation expense was $8,836for the Company’s restricted stock units (“RSUs”), performance stock units (“PSUs”) and/or stock options arerecognized in the condensed consolidated statements of operations as a component of direct operating expenses or selling, general and $8,726administrative expenses.
The following table summarizes the Company’s share-based compensation expense:
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
Share-based compensation(a) | $ | 15,188 | $ | 19,528 | ||||||||||
Intrinsic value of awards vested(b) | $ | 32,132 | $ | 32,213 | ||||||||||
_________________
(a)Share-based compensation excludes costs that have been capitalized of $910 and $751 for the three months ended March 31, 2020September 30, 2022 and 2019, respectively, and $29,294 and $27,929 for the nine months ended March 31, 2020 and 2019,2021, respectively. In addition, capitalized share-based compensation expense was $1,308 and $3,790 for the three and nine months ended March 31, 2020, respectively, and $1,926 for the three and nine months ended March 31, 2019. These amounts reflect only the expenses for the awards provided to the Company’s direct employees, net of expenses related to the Company’s corporate employees who participate in the Madison Square Garden Sports Corp. Employee Stock Plan that were charged to Madison Square Garden Sports Corp.
| Number of | Weighted-Average Fair Value Per Share at Date of Grant | ||||||||
Nonperformance Based Vesting RSUs | Performance Based Vesting RSUs | ||||||||
| Unvested award balance, June 30, 2019 | 215 | 354 | $ | 252.51 | |||||
Granted (a) | 112 | 112 | $ | 246.51 | |||||
| Vested | (97 | ) | (119 | ) | $ | 212.66 | |||
| Forfeited | (10 | ) | (17 | ) | $ | 257.93 | |||
| Unvested award balance, March 31, 2020 | 220 | 330 | $ | 265.47 | |||||
the Company during the three months ended September 30, 2022, and 2021, respectively. The fairaggregate value of the RSUs that vestedand PSUs retained included $243 and $477 related to MSG Sports employees, during the ninethree months ended March 31, 2019September 30, 2022, and 2021, respectively.
As of September 30, 2022, there was $46,807. The weighted-average fair value per share at grant date$129,548 of RSUs granted during the nine months ended March 31, 2019 was $306.11.
For the three months ended September 30, 2022 and 2021, all RSUs, PSUs and stock options were excluded from the calculation of weighted-average anti-dilutive shares because the Company reported a net loss for the ninerespective periods presented and, therefore, their impact on reported loss per share would have been antidilutive.
19
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Award Activity
RSUs
During the three months ended September 30, 2022 and 2021, approximately 598 and 445 RSUs were granted and approximately 493 and 326 RSUs vested, respectively.
PSUs
During the three months ended September 30, 2022 and 2021, approximately 566 and 422 PSUs were granted and approximately 82 and 77 PSUs vested, respectively.
Note 11. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 15,000 shares of preferred stock, par value $0.01. As of September 30, 2022 and June 30, 2022, no shares of preferred stock were outstanding.
Stock Repurchase Program
On March 31, 2020:
Number of Time Vesting Options | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Term (In Years) | Aggregate Intrinsic Value | |||||||||
| Balance as of June 30, 2019 | 543 | $ | 325.47 | |||||||||
| Granted | — | $ | — | |||||||||
| Balance as of March 31, 2020 | 543 | $ | 325.47 | 6.31 | $ | 120 | ||||||
| Exercisable as of March 31, 2020 | 175 | $ | 299.67 | 6.62 | $ | 80 | ||||||
The following table details the components of accumulated other comprehensive loss:
| Three Months Ended March 31, 2020 | |||||||||||
Pension Plans and Postretirement Plan | Cumulative Translation Adjustments | Accumulated Other Comprehensive Loss | |||||||||
| Balance as of December 31, 2019 | $ | (41,395 | ) | $ | 8,325 | $ | (33,070 | ) | |||
| Other comprehensive loss before reclassifications | — | (19,946 | ) | (19,946 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 409 | — | 409 | ||||||||
| Other comprehensive income (loss) | 409 | (19,946 | ) | (19,537 | ) | ||||||
| Balance as of March 31, 2020 | $ | (40,986 | ) | $ | (11,621 | ) | $ | (52,607 | ) | ||
| Three Months Ended March 31, 2019 | |||||||||||
Pension Plans and Postretirement Plan | Cumulative Translation Adjustments | Accumulated Other Comprehensive Loss | |||||||||
| Balance as of December 31, 2018 | $ | (40,193 | ) | $ | (3,704 | ) | $ | (43,897 | ) | ||
| Other comprehensive income before reclassifications | — | 6,383 | 6,383 | ||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 327 | — | 327 | ||||||||
| Other comprehensive income | 327 | 6,383 | 6,710 | ||||||||
| Balance as of March 31, 2019 | $ | (39,866 | ) | $ | 2,679 | $ | (37,187 | ) | |||
| Three Months Ended | |||||||||||||||||
| September 30, 2022 | |||||||||||||||||
| Pension Plans and Postretirement Plans | Cumulative Translation Adjustments | Accumulated Other Comprehensive Loss | |||||||||||||||
| Balance as of June 30, 2022 | $ | (40,287) | $ | (8,068) | $ | (48,355) | |||||||||||
| Other comprehensive loss | — | (16,080) | (16,080) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 510 | — | 510 | ||||||||||||||
| Income tax benefit (expense) | (10) | 2,954 | 2,944 | ||||||||||||||
| Other comprehensive income (loss) | 500 | (13,126) | (12,626) | ||||||||||||||
| Balance as of September 30, 2022 | $ | (39,787) | $ | (21,194) | $ | (60,981) | |||||||||||
20
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Three Months Ended | |||||||||||||||||
| September 30, 2021 | |||||||||||||||||
| Pension Plans and Postretirement Plans | Cumulative Translation Adjustments | Accumulated Other Comprehensive Loss | |||||||||||||||
| Balance as of June 30, 2021 | $ | (45,425) | $ | 15,153 | $ | (30,272) | |||||||||||
| Other comprehensive loss | — | (6,418) | (6,418) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 510 | — | 510 | ||||||||||||||
| Income tax benefits (expense) | (94) | 1,214 | 1,120 | ||||||||||||||
| Other comprehensive income (loss) | 416 | (5,204) | (4,788) | ||||||||||||||
| Balance as of September 30, 2021 | $ | (45,009) | $ | 9,949 | $ | (35,060) | |||||||||||
| Nine Months Ended March 31, 2020 | |||||||||||
Pension Plans and Postretirement Plan | Cumulative Translation Adjustments | Accumulated Other Comprehensive Loss | |||||||||
| Balance as of June 30, 2019 | $ | (42,080 | ) | $ | (4,843 | ) | $ | (46,923 | ) | ||
| Other comprehensive loss before reclassifications | — | (6,778 | ) | (6,778 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 1,094 | — | 1,094 | ||||||||
| Other comprehensive income (loss) | 1,094 | (6,778 | ) | (5,684 | ) | ||||||
| Balance as of March 31, 2020 | $ | (40,986 | ) | $ | (11,621 | ) | $ | (52,607 | ) | ||
| Nine Months Ended March 31, 2019 | |||||||||||||||
Pension Plans and Postretirement Plan | Cumulative Translation Adjustments | Unrealized Gain (Loss) on Available-for-sale Securities (b) | Accumulated Other Comprehensive Loss | ||||||||||||
| Balance as of June 30, 2018 | $ | (40,846 | ) | $ | (502 | ) | $ | (5,570 | ) | $ | (46,918 | ) | |||
| Reclassification of unrealized loss on available-for-sale securities | — | — | 5,570 | 5,570 | |||||||||||
| Other comprehensive income before reclassifications | — | 3,181 | — | 3,181 | |||||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | 980 | — | — | 980 | |||||||||||
| Other comprehensive income | 980 | 3,181 | — | 4,161 | |||||||||||
| Balance as of March 31, 2019 | $ | (39,866 | ) | $ | 2,679 | $ | — | $ | (37,187 | ) | |||||
Note 17.12. Related Party Transactions
As of March 31, 2020,September 30, 2022, members of the Dolan family including trusts for memberthe benefit of members of the Dolan family (collectively, the “Dolan Family Group”), for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, collectively beneficially owned all100% of Madison Square Garden Sports Corp.’sthe Company’s outstanding Class B common stockCommon Stock and approximately 3.5%5.5% of Madison Square Garden Sports Corp.’sthe Company’s outstanding Class A common stockCommon Stock (inclusive of options exercisable within 60 days of the date hereof)September 30, 2022). Such shares of Madison Square Garden Sports Corp.’s Class A common stock and Class B common stock, collectively, represent approximately 70.9% of the aggregate voting power of Madison Square Garden Sports Corp.’s outstanding common stock. Pursuant to the Entertainment Distribution on April 17, 2020, one share of the Company’s Class A Common Stock was issued for every share of Madison Square Garden Sports Corp.’s Class A common stock held as of the Record Date, and one share of the Company’s Class B Common Stock, was issued for every share of Madison Square Garden Sports Corp.’s Class B common stock held ascollectively, represent approximately 72.4% of the Record Date.
the Company’s outstanding common stock. Members of the Dolan family are also the controlling stockholders of the Company, Madison Square GardenMSG Sports Corp., MSG Networks and AMC Networks Inc. (“AMC Networks”).
From time to time the Company enters into arrangements with 605, LLC.LLC (“605”). James L. Dolan, the Company’s Executive Chairman, Chief Executive Officer and a director, and his spouse, Kristin A. Dolan (a director of the Company), own 50% of 605, LLC.605. Kristin A. Dolan is also the founder and Chief Executive Officer of 605. 605 LLC. 605, LLC provides audience measurement and data analytics services to the Company and its subsidiaries in the ordinary course of business. The Company’s Audit Committee approved the entry into one or more agreements with 605 to provide certain data analytics services to the Company for an aggregate amount of up to $1,000. In August 2022, a subsidiary of the Company entered into a three-year agreement with 605, valued at approximately $750, covering several customer analysis projects per year in connection with events held at our venues. The Company expects to engage 605 to provide additional data analytics services in the future. Pursuant to this arrangement, the Company recognized approximately $70 of expense for the three months ended September 30, 2022 and as of September 30, 2022 approximately $200 has been recognized in Prepaid expenses and other current assets.
As of March 31, 2020September 30, 2022 and June 30, 2019, BCE2022, the Company had $637$897 and $875, respectively, of notes payable duewith respect to a loan received by BCE from its noncontrolling interest holder. See Note 12 for further information.
The Company has also entered into certain commercial agreements with its equity method investment nonconsolidated affiliates in connection with MSG Sphere. For the ninethree months ended March 31, 2020,September 30, 2022 and 2021, the CompanyCompany recorded approximately $11,137$50,670 and $8,677, respectively, of capital expenditures in connection with services provided to the Company under these agreements. As of September 30, 2022 and June 30, 2022, accrued capital expenditures associated with related parties were $35,909 and $25,028, respectively, and are reported under Accounts payable, accrued and other current liabilities in the accompanying condensed consolidated balance sheets.
21
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Revenues and Operating Expenses (Credits)
The following table summarizes the composition and amounts of the transactions with the Company’s affiliates. These amounts are reflected in revenues and operating expenses in the accompanying combinedcondensed consolidated statements of operations for the three and nine months ended March 31, 2020September 30, 2022 and 2019:2021:
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Revenues | $ | 5,197 | $ | 4,368 | ||||||||||
| Operating expenses (credits): | ||||||||||||||
| Media rights fees | $ | 42,767 | $ | 40,445 | ||||||||||
| Revenue sharing expenses | 1,187 | 763 | ||||||||||||
| Reimbursement under Arena License Agreements | (493) | (377) | ||||||||||||
| Cost reimbursement from MSG Sports - per Transition services agreement | (9,517) | (9,216) | ||||||||||||
| Origination, master control and technical services | 1,232 | 1,208 | ||||||||||||
| Other operating expenses, net | 838 | 2,122 | ||||||||||||
Total operating expenses, net (a) | $ | 36,014 | $ | 34,945 | ||||||||||
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | $ | 6,333 | $ | 7,906 | $ | 13,792 | $ | 15,762 | ||||||||
| Operating expenses (credits): | ||||||||||||||||
| Revenue sharing expenses | $ | 42,878 | $ | 55,756 | $ | 108,380 | $ | 124,949 | ||||||||
| Allocation of charges for venue usage to Madison Square Garden Sports Corp. | (26,355 | ) | (21,694 | ) | (48,459 | ) | (44,447 | ) | ||||||||
| Corporate general and administrative expenses, net — Madison Square Garden Sports Corp. | (32,672 | ) | (30,716 | ) | (96,485 | ) | (85,196 | ) | ||||||||
| Corporate general and administrative expenses, net — MSG Networks | (2,672 | ) | (2,514 | ) | (7,876 | ) | (7,790 | ) | ||||||||
| Consulting fees | — | — | — | 1,792 | ||||||||||||
| Advertising expenses | 316 | 403 | 460 | 749 | ||||||||||||
| Other operating expenses, net | 174 | (49 | ) | 297 | (38 | ) | ||||||||||
Revenues
The company recorded $1,328 of revenues earned from sponsorship agreements that were entered into by Madison Square Garden Sports Corp. and include performance obligations satisfied by bothunder the Company and Madison Square Garden Sports Corp.
Arena License Agreements for the three months ended September 30, 2021. In addition, the Company recorded revenues under sponsorship sales and Tribeca Enterprises have a service agreement pursuant to whichrepresentation agreements of $2,348, and sublease revenue from related parties of $611 during the three months ended September 30, 2021.
Note 13. Segment Information
As of September 30, 2022, the Company provides marketing inventory, advertising saleswas comprised of three reportable segments: Entertainment, MSG Networks and consulting services to Tribeca Enterprises for a fee. On August 5, 2019, the Company sold its equity capital in Tribeca Enterprises. Accordingly, Tribeca Enterprises is no longer a related party of the Company, and thus the related party transactions disclosed herein that relate to Tribeca Enterprises were recognized prior to August 5, 2019.Tao Group Hospitality. The Company takes into account whether two or more operating segments can be aggregated together as one reportable segment as well as the type of discrete financial information that is available and regularly reviewed by its Chief Operating Decision Maker.
The Company incurs non-capitalizable content development and technology costs associated with the Company’s MSG Sphere initiative, which are reported in Entertainment. In addition to event-related operating expenses, Entertainment also a partyincludes other expenses such as (a) corporate and supporting department operating costs that are attributable to certain commercial arrangements with AMC NetworksMSG Sphere development and its subsidiaries.
22
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
(ii) depreciation, amortization and notes theretoimpairments of property and equipment, goodwill and intangible assets,
(iii) amortization for capitalized cloud computing arrangement costs,
(iv) share-based compensation expense,
(v) restructuring charges or credits,
(vi) merger and acquisition-related costs, including litigation expenses,
(vii) gains or losses on sales or dispositions of businesses and associated settlements,
(viii) the year ended June 30, 2019 included inimpact of purchase accounting adjustments related to business acquisitions, and
(ix) gains and losses related to the remeasurement of liabilities under the Company’s Information Statement for more information.Executive Deferred Compensation Plan (which was established in November 2021).
The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. 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 reduction of directsupplement to and not a substitute for operating expense in the accompanying combined statements of operations. See Note 2 to the Company’s audited combined financial statementsincome (loss), net income (loss), cash flows from operating activities, and notes thereto for the year ended June 30, 2019 included in the Company’s Information Statement for more information.
23
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO COMBINEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Information as to the operations of the Company’s reportable segments is set forth below.
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Entertainment | MSG Networks | Tao Group Hospitality | Purchase accounting adjustments | Inter-segment eliminations | Total | ||||||||||||||||||||||||||||||||||||
| Revenues | $ | 147,102 | $ | 122,479 | $ | 132,651 | $ | — | $ | (1,014) | $ | 401,218 | |||||||||||||||||||||||||||||
| Direct operating expenses | (101,765) | (75,420) | (76,577) | (586) | 447 | (253,901) | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (103,362) | (17,816) | (43,546) | — | 314 | (164,410) | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (19,283) | (1,618) | (6,630) | (2,224) | — | (29,755) | |||||||||||||||||||||||||||||||||||
| Impairment and other gains | 2,000 | — | — | — | — | 2,000 | |||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (75,308) | $ | 27,625 | $ | 5,898 | $ | (2,810) | $ | (253) | $ | (44,848) | |||||||||||||||||||||||||||||
| Interest income, net | 1,787 | ||||||||||||||||||||||||||||||||||||||||
| Other income, net | 1,525 | ||||||||||||||||||||||||||||||||||||||||
| Loss from operations before income taxes | $ | (41,536) | |||||||||||||||||||||||||||||||||||||||
| Reconciliation of operating (loss) income to adjusted operating (loss) income: | |||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (75,308) | $ | 27,625 | $ | 5,898 | $ | (2,810) | $ | (253) | $ | (44,848) | |||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||
| Non-cash portion of arena license fees from MSG Sports | (519) | — | — | — | — | (519) | |||||||||||||||||||||||||||||||||||
| Share-based compensation | 11,432 | 1,704 | 2,052 | — | — | 15,188 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 19,283 | 1,618 | 6,630 | 2,224 | — | 29,755 | |||||||||||||||||||||||||||||||||||
| Impairment and other gains | (2,000) | — | — | — | — | (2,000) | |||||||||||||||||||||||||||||||||||
| Merger and acquisition related costs | 2,749 | 1,901 | — | — | — | 4,650 | |||||||||||||||||||||||||||||||||||
| Amortization for capitalized cloud computing costs | 77 | 44 | — | — | — | 121 | |||||||||||||||||||||||||||||||||||
| Other purchase accounting adjustments | — | — | — | 586 | — | 586 | |||||||||||||||||||||||||||||||||||
| Remeasurement of deferred compensation plan liabilities | (154) | — | — | — | — | (154) | |||||||||||||||||||||||||||||||||||
| Adjusted operating (loss) income | $ | (44,440) | $ | 32,892 | $ | 14,580 | $ | — | $ | (253) | $ | 2,779 | |||||||||||||||||||||||||||||
| Other information: | |||||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | 265,092 | $ | 1,227 | $ | 5,769 | $ | — | $ | — | $ | 272,088 | |||||||||||||||||||||||||||||
24
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Entertainment | MSG Networks | Tao Group Hospitality | Purchase accounting adjustments | Inter-segment eliminations | Total | ||||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 34,239 | $ | 141,473 | $ | 119,464 | $ | — | $ | (666) | $ | 294,510 | |||||||||||||||||||||||||||||||||||
| Direct operating expenses | (36,302) | (68,423) | (61,093) | (85) | 142 | (165,761) | |||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (92,962) | (47,975) | (34,094) | — | 192 | (174,839) | |||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (19,656) | (1,797) | (6,378) | (1,599) | — | (29,430) | |||||||||||||||||||||||||||||||||||||||||
| Impairment and other losses | — | — | (7,818) | — | — | (7,818) | |||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (114,681) | $ | 23,278 | $ | 10,081 | $ | (1,684) | $ | (332) | $ | (83,338) | |||||||||||||||||||||||||||||||||||
| Interest expense, net | (8,473) | ||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (3,754) | ||||||||||||||||||||||||||||||||||||||||||||||
| Loss from operations before income taxes | $ | (95,565) | |||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of operating income (loss) to adjusted operating income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (114,681) | $ | 23,278 | $ | 10,081 | $ | (1,684) | $ | (332) | $ | (83,338) | |||||||||||||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash portion of arena license fees from MSG Sports | (543) | — | — | — | — | (543) | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 10,143 | 7,474 | 1,911 | — | — | 19,528 | |||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 19,656 | 1,797 | 6,378 | 1,599 | — | 29,430 | |||||||||||||||||||||||||||||||||||||||||
| Impairment and other losses | — | — | 7,818 | — | — | 7,818 | |||||||||||||||||||||||||||||||||||||||||
| Merger and acquisition related costs | 13,992 | 23,200 | — | — | — | 37,192 | |||||||||||||||||||||||||||||||||||||||||
| Amortization for capitalized cloud computing costs | 41 | 44 | — | — | — | 85 | |||||||||||||||||||||||||||||||||||||||||
| Other purchase accounting adjustments | — | — | — | 85 | — | 85 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted operating (loss) income | $ | (71,392) | $ | 55,793 | $ | 26,188 | $ | — | $ | (332) | $ | 10,257 | |||||||||||||||||||||||||||||||||||
| Other information: | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | 133,538 | $ | 1,449 | $ | 2,284 | $ | — | $ | — | $ | 137,271 | |||||||||||||||||||||||||||||||||||
| September 30, 2022 | June 30, 2022 | |||||||||||||
| Customer A | 13 | % | 14 | % | ||||||||||
| Customer B | 13 | % | 12 | % | ||||||||||
| Customer C | 11 | % | 10 | % | ||||||||||
25
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Revenues in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021 include amounts from the following individual customers, primarily derived from the MSG Networks segment, which accounted for the noted percentages of the total:
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Customer 1 | N/A | 15 | % | |||||||||||
| Customer 2 | N/A | 13 | % | |||||||||||
| Customer 3 | N/A | 10 | % | |||||||||||
For the three months ended September 30, 2022, the Company had no customers that accounted for 10% or more of the Company’s revenues.
Note 14. Additional Financial Information
The following table provides a centralized approach tosummary of the amounts recorded as cash, managementcash equivalents and financing of operations.restricted cash.
| September 30, 2022 | June 30, 2022 | |||||||||||||
| Cash and cash equivalents | $ | 441,350 | $ | 828,540 | ||||||||||
| Restricted cash | 17,543 | 17,470 | ||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 458,893 | $ | 846,010 | ||||||||||
The Company’s restricted cash includes cash deposited in escrow accounts. The Company has deposited cash in an interest-bearing escrow account related to credit support, debt facilities, and collateral to its workers compensation and general liability insurance obligations.
Prepaid expenses and other Madison Square Garden Sports Corp. or Madison Square Garden Sports Corp. subsidiaries’ cash was available for use and was regularly “swept” historically. Transfers of cash both to and from Madison Square Garden Sports Corp. are included as componentscurrent assets consisted of the Madison Square Garden Sports Corp. investment on the combined statementsfollowing:
| September 30, 2022 | June 30, 2022 | ||||||||||||||||||||||
| Prepaid expenses | $ | 95,184 | $ | 86,022 | |||||||||||||||||||
| Related party receivables | 36,898 | 32,541 | |||||||||||||||||||||
Inventory (a) | 14,383 | 13,511 | |||||||||||||||||||||
| Notes and other receivables | 9,811 | 2,726 | |||||||||||||||||||||
| Other | 23,439 | 21,194 | |||||||||||||||||||||
| Total prepaid expenses and other current assets | $ | 179,715 | $ | 155,994 | |||||||||||||||||||
_________________
(a)Inventory is mostly comprised of divisional equityfood and redeemable noncontrolling interests. The main componentsliquor for performance venues and Tao Group Hospitality.
Intangible assets, net consisted of the net transfers (to)/from Madison Square Garden Sports Corp. are cash pooling/general financing activities, various expense allocations to/from Madison Square Garden Sports Corp.,following:
| September 30, 2022 | June 30, 2022 | |||||||||||||
| Amortizable intangible assets, net | $ | 158,204 | $ | 164,084 | ||||||||||
| Indefinite-lived intangible assets | 63,801 | 63,801 | ||||||||||||
| Intangible assets, net | $ | 222,005 | $ | 227,885 | ||||||||||
26
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Accounts payable, accrued and receivables/payables from/to Madison Square Garden Sports Corp. deemed to be effectively settled upon the distributionother current liabilities consisted of the Company by Madison Square Garden Sports Corp.following:
| September 30, 2022 | June 30, 2022 | ||||||||||||||||||||||
| Accounts payable | $ | 42,492 | $ | 31,980 | |||||||||||||||||||
| Related party payables | 27,318 | 38,576 | |||||||||||||||||||||
| Accrued payroll and employee related liabilities | 82,951 | 154,134 | |||||||||||||||||||||
| Cash due to promoters | 36,445 | 78,428 | |||||||||||||||||||||
| Capital expenditure accruals | 235,847 | 206,462 | |||||||||||||||||||||
| Accrued expenses | 92,212 | 79,666 | |||||||||||||||||||||
| Total accounts payable, accrued and other current liabilities | $ | 517,265 | $ | 589,246 | |||||||||||||||||||
| Three Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Loss on equity method investments | $ | (2,128) | $ | (1,207) | ||||||||||
| Gains from shares sold — DraftKings | 1,489 | — | ||||||||||||
| Net unrealized loss on equity investments with readily determinable fair value | (659) | (2,460) | ||||||||||||
| Unrealized gain on equity investments without readily determinable fair value | 1,969 | — | ||||||||||||
| Other | 854 | (87) | ||||||||||||
| Total Other income (expense), net | $ | 1,525 | $ | (3,754) | ||||||||||
Income Taxes
During the three months ended September 30, 2022 and transactions among2021, the Company received income tax refunds, net of payments, of $508 and Madison Square Garden Sports Corp.$9,143, respectively.
Note 15. Subsequent Events
The Company recently announced that it confidentially submitted an initial Form 10 Registration Statement with the SEC for the proposed spin-off of its traditional live entertainment and its subsidiaries, which include allocations of corporate general and administrative expenses, share-based compensation expense and other historical intercompany activities, are recorded as components of Divisional Equity. As the books and recordsMSG Networks businesses. Completion of the Company were not kept on a separate basis from Madison Square Garden Sports Corp., the determination of the average net balance duetransaction remains subject to or from Madison Square Garden Sports Corp. is not practicable.
Item 2. 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 Madison Square Garden Entertainment Corp.(formerly MSG Entertainment Spinco, Inc.) and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Entertainment,” or the “Company”), including the impact of the COVID-19 pandemic and COVID-19 variants on our future operations, the potential for future impairment charges, the timing and costs of new venue construction and the development of related content, our plans to pursue additional debt financing and negotiate amendmentsor to refinance our existing debt, our expansion plan for Tao Group Hospitality’s credit facility, increased investment in personnel, contentHospitality, and technology for the MSG Spheres,ability to successfully implement cost reductions and increased expenses of being a standalone public company.reduce or defer certain discretionary capital projects. 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:
•our ability to effectively manage theany impacts of the COVID-19 pandemic (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable;
•the effect of any postponements or cancellations by third-parties or the Company as a result of the COVID-19 pandemic due to operational challenges and other health and safety concerns (such as the partial cancellation of the 2021 production of the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”));
•the extent to which attendance at our venues may be impacted by government actions, continuing health concerns by potential attendees and reduced tourism;
•the substantial amount of debt we have incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under their respective credit facilities, and our ability to obtain additional financing, to the extent required;
•the impact on the payments we receive under the Arena License Agreements as a result of government-mandated capacity restrictions, league restrictions and/or social-distancing or vaccination requirements, if any, at games of the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the government mandated suspensionNew York Rangers (the “Rangers”) of the National Hockey League (the “NHL”);
•our ability to successfully implement cost reductions and reduce or defer certain discretionary capital projects;
•the level of our business operations;expenses and our operational cash burn rate, including our corporate expenses;
•our ability to successfully design, construct, finance and operate new entertainment venues in Las Vegas London and other markets, and the investments, costs and timing associated with those efforts, including the impact of the current temporary suspension of construction and inflation and any other unexpected construction delays and/or cost overruns;
•the level of our revenues, which depends in part on the popularity of the Christmas Spectacular, the sports teams whose games are played at The Garden and broadcast on our networks, the appeal of our Tao Group Hospitality branded locations, and other events which are presented in our venues or broadcast on our networks; •the demand for MSG Networks programming among cable, satellite, fiber-optic and other platforms that distribute its networks (“Distributors”) and the subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, or to do so on favorable terms, as well as the impact of consolidation among Distributors; •our ability to develop and successfully execute MSG Networks’ strategy for a direct-to-consumer offering; •the ability of our Distributors to maintain, or minimize declines in, subscriber levels; •the impact of subscribers selecting Distributors’ packages that do not include our networks or distributors that do not carry our networks at all; •the security of our MSG Networks program signal and electronic data; •the on-ice and on-court performance of the professional sports teams whose games we broadcast on our networks and host in our venues; • |
the level of our capital expenditures and other investments;
28
•general economic conditions, especially in the New York City, Las Vegas, Chicago and London metropolitan areas where we have (or plan to have) significant business activities;
•the demand for sponsorship arrangements and advertising and viewer ratings for advertising;our networks;
•competition, for example, from other venues and other sports and entertainment and nightlife options and other regional sports and entertainment networks, including the construction of new competing venues;
•the relocation or insolvency of professional sports teams with which we have a media rights agreement;
•our ability to maintain, obtain or produce content, together with the cost of such content;
•MSG Networks’ ability to renew or replace our media rights agreements with professional sports teams;
•changes in laws, guidelines, bulletins, directives, policies and agreements, orand regulations under which we operate;
•any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage due to COVID-19 or otherwise;
•seasonal fluctuations and other variations in our operating results and cash flow from period to period;
•the successful development of new live productions or attractions, 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;Sphere;
•business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, disruption of our MSG Networks business or disclosure of confidential information or other breaches of our information security;
•activities or other developments (including COVID-19)(such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues;
•the continued popularity and success of Tao Group Hospitality entertainment dining and nightlife venues, as well as its existing brands, and the ability to successfully open and operate new entertainment dining and nightlife venues;branded locations;
•the ability of BCE to profitably operate its future festivals andto attract attendees and performers to its future festivals;
•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;
•our internal control environment and our ability to identify any future material weaknesses;
•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;acquire, including those related to the Company’s acquisition of MSG Networks Inc. (the “Merger”);
•the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted, andas well as 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;
•financial community and rating agency perceptions of our business, operations, financial condition and the industryindustries in which we operate;
•the ability of our investees and others to repay loans and advances we have extended to them;
•the tax-free treatment of the Entertainment Distribution (as defined below);
•our ability to achieve the intended benefits of the Entertainment Distribution;
•the performance by Madison Square GardenMSG Sports Corp. of its obligations under various agreements with the Company related to the Entertainment Distribution and ongoing commercial arrangements;arrangements, including the Arena License Agreements; and
29
•the additional factors described under “Risk Factors” in the Company’s Information Statement, and this QuarterlyAnnual Report on Form 10-Q under “Part II - Item 1A. Risk Factors.”10-K for the year ended June 30, 2022 filed on August 19, 2022 (the “2022 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.
Introduction
This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s audited combined annual financial statements and footnotes thereto included in the Company’s Information StatementForm 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations.
The Company has three reportable segments (Entertainment, Tao Group Hospitality, and MSG Networks).
(“The Company is a leader in live experiences comprised of iconic venues; marquee entertainment content; popular dining and nightlife offerings; and a premier music festival that, together, entertain millions of guests each year. Utilizing our powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. The Company’s portfolio of venues includes: The Garden,Garden”), Hulu Theater at Madison Square Garden (“Hulu Theater”), Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. In addition, the Company is constructing ahas unveiled its vision for state-of-the-art venue,venues, called MSG Sphere, and is currently building its first such venue in Las Vegas and plans to build a second MSG Sphere in London.Vegas. The CompanyEntertainment segment also includes the original production, theChristmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”), as well as BCE,Boston Calling Events, LLC (“BCE”), the entertainment production company that owns and operates the Boston Calling Music Festival,Festival. This segment also includes our bookings business, which features a variety of live entertainment and sports experiences.
The MSG Networks segment is comprised of the Company’s regional sports and entertainment networks, MSG Network and MSG+, a companion streaming app, MSG GO, and other digital properties. MSG Networks serves the New York Designated Market Area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including live local games and other programming of the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the New York Rangers (the “Rangers”), New York Islanders (the “Islanders”), New Jersey Devils (the “Devils”) and Buffalo Sabres (the “Sabres”) of the National Hockey League (the “NHL”), as well as significant coverage of the New York Giants (the “Giants”) and Buffalo Bills (the “Bills”) of the National Football League (the “NFL”).
The Tao Group Hospitality segment features the Company’s controlling interest in TAO Group Holdings LLC (“Tao Group Hospitality”), a hospitality group with globally-recognized entertainment dining and nightlife brands.
brands including: Tao, Marquee, Lavo, Beauty & Essex, Cathédrale, Hakkasan and Omnia. Tao Group Hospitality’s Operating ResultsHospitality operates over 70 entertainment dining and nightlife branded locations within 60 venues in over 20 markets across five continents.
The Company completed the Tao Group Hospitality acquisition on January 31, 2017. Tao Group Hospitality’s financial statements are not available within the time constraints the Company requires to ensure the financial accuracyconducts a significant portion of the operating results. Therefore, the Company records Tao Group Hospitality’s operating results in its combined statements of operations on a three-month lag basis. As a result, the Company’s results for the three months ended March 31, 2020 and 2019 include Tao Group Hospitality’s operating results from September 30, 2019 to December 29, 2019 and from October 1, 2018 to December 30, 2018, respectively, and the Company’s results for the nine months ended March 31, 2020 and 2019 include Tao Group Hospitality’s operating results from April 1, 2019 to December 29, 2019 and from April 2, 2018 to December 30, 2018, respectively. With the exception of the balances and activities pertaining to Tao Group Hospitality’s credit agreements entered into in May 2019, which are recorded as of March 31, 2020 and June 30, 2019 and for the period ended March 31, 2020, as well as cash distributions, impairment charges, and change in ownership as discussed below, all disclosures related to Tao Group Hospitality’s financial position are reported as of December 29, 2019 and March 31, 2019, as applicable.
| Three Months Ended March 31, 2019 | Nine Months Ended March 31, 2019 | |||||||
| Renewal of a Ticketing Agreement | $ | 4,000 | $ | 2,000 | ||||
Results of Operations. This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2020September 30, 2022 and 2019.2021 on both a (i) consolidated basis and (ii) segment basis.
Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the ninethree months ended March 31, 2020September 30, 2022 and 2019,2021, as well as certain contractual obligations and off balanceoff-balance sheet arrangements.
Seasonality of Our Business. This section discusses the seasonal performance of our Christmas Spectacular production Entertainment and Tao Group Hospitality.MSG Networks segments.
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, recently issued accounting pronouncements not yet adopted by the Company, as well as the results of the Company’s annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2020 and interim impairment testing of goodwill performed
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Critical Accounting Policies” and in the notes to the combinedcondensed consolidated financial statements (“financial statements”) of the Company’s audited combined financial statements and notes thereto for the fiscal year ended June 30, 2019Company included in the Information Statement.therein.
Impact of the COVID-19 Pandemic on Our Business
The Company’s operations and operating results were not materially impacted by the COVID-19 pandemic during the three months ended September 30, 2022, as compared to the prior year period, which was impacted by (i) fewer ticketed events at our performance venues due to the lead-time required to book touring acts and artists, (ii) a residual impact of reductions in MSG Networks media rights fees related to the shortened 2020-21 NHL season and (iii) certain regulatory requirements, including vaccination/mask requirements for our performance, entertainment dining and nightlife venues, which contributed to certain Tao Group Hospitality branded locations remaining closed during the period. See Note 1, Impact of the COVID-19 Pandemic, to the consolidated and combined financial statements included in the 2022 Form 10-K for more information regarding the impact of the COVID-19 pandemic on our business.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in new government or league-mandated capacity or other restrictions or vaccination/mask requirements or impact the use of and/or demand for our performance, entertainment dining and nightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations.
In addition to the above, the operating results of our segments are largely dependent on our ability to attract concerts and other events to our venues, as well as customers to our entertainment and nightlife offerings, revenues under various agreements entered into with MSG Sports, the continuing popularity of the Christmas Spectacular, the affiliation agreements MSG Networks negotiates with Distributors, the number of Distributor subscribers that receive our networks, and the advertising rates we charge advertisers. Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we broadcast on our networks and host in our venues.
Our Company’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 and programming content, suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, lower levels of sponsorship and venue signage and decrease advertising revenues. 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.
Due largely to our media rights agreements with the NBA and NHL teams appearing on our networks and the generally recurring nature of our affiliation fee revenue, the MSG Networks segment has consistently produced operating profits for a number of years. Advertising revenues are less predictable and can vary based upon a number of factors, including general economic conditions and team performance.
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.
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Consolidated Results of Operations
Comparison of the Three and Nine Months EndedMarch 31, 2020 September 30, 2022 versus the Three and Nine Months EndedMarch 31, 2019 September 30, 2021
The tabletables below setsset forth, for the periods presented, certain historical financial information.
| Three Months Ended | ||||||||||||
| March 31, | Change (a) | |||||||||||
| 2020 | 2019 | Amount | Percentage | |||||||||
| Revenues | 199,861 | 250,018 | (50,157 | ) | (20 | )% | ||||||
| Direct operating expenses | 132,809 | 158,710 | (25,901 | ) | (16 | )% | ||||||
| Selling, general and administrative expenses | 84,186 | 83,159 | 1,027 | 1 | % | |||||||
| Depreciation and amortization | 26,196 | 26,768 | (572 | ) | (2 | )% | ||||||
| Impairment of intangibles, long-lived assets and goodwill | 102,211 | — | 102,211 | NM | ||||||||
| Operating loss | (145,541 | ) | (18,619 | ) | (126,922 | ) | NM | |||||
| Other income (expense): | ||||||||||||
| Loss in equity method investments | (1,096 | ) | (2,881 | ) | 1,785 | 62 | % | |||||
| Interest income, net | 3,054 | 4,740 | (1,686 | ) | (36 | )% | ||||||
| Miscellaneous income (expense), net | (17,381 | ) | 4,613 | (21,994 | ) | NM | ||||||
| Loss from operations before income taxes | (160,964 | ) | (12,147 | ) | (148,817 | ) | NM | |||||
| Income tax benefit (expense) | 10,126 | (469 | ) | 10,595 | NM | |||||||
| Net loss | (150,838 | ) | (12,616 | ) | (138,222 | ) | NM | |||||
| Less: Net loss attributable to redeemable noncontrolling interests | (22,447 | ) | (7 | ) | (22,440 | ) | NM | |||||
| Less: Net income (loss) attributable to nonredeemable noncontrolling interests | 195 | (680 | ) | 875 | NM | |||||||
| Net loss attributable to the Company | (128,586 | ) | (11,929 | ) | (116,657 | ) | NM | |||||
| Nine Months Ended | |||||||||||||||
| March 31, | Change (a) | ||||||||||||||
| 2020 | 2019 | Amount | Percentage | ||||||||||||
| Revenues | $ | 767,038 | $ | 832,384 | $ | (65,346 | ) | (8 | )% | ||||||
| Direct operating expenses | 472,582 | 507,249 | (34,667 | ) | (7 | )% | |||||||||
| Selling, general and administrative expenses | 257,970 | 231,038 | 26,932 | 12 | % | ||||||||||
| Depreciation and amortization | 80,271 | 81,606 | (1,335 | ) | (2 | )% | |||||||||
| Impairment of intangibles, long-lived assets and goodwill | 102,211 | — | 102,211 | NM | |||||||||||
| Operating income (loss) | (145,996 | ) | 12,491 | (158,487 | ) | NM | |||||||||
| Other income (expense): | |||||||||||||||
| Earnings (loss) in equity method investments | (3,739 | ) | 17,131 | (20,870 | ) | NM | |||||||||
| Interest income, net | 15,388 | 11,944 | 3,444 | 29 | % | ||||||||||
| Miscellaneous expense, net | (2,893 | ) | (4,118 | ) | 1,225 | 30 | % | ||||||||
| Income (loss) from operations before income taxes | (137,240 | ) | 37,448 | (174,688 | ) | NM | |||||||||
| Income tax benefit (expense) | 8,686 | (1,253 | ) | 9,939 | NM | ||||||||||
| Net income (loss) | (128,554 | ) | 36,195 | (164,749 | ) | NM | |||||||||
| Less: Net loss attributable to redeemable noncontrolling interests | (23,851 | ) | (3,662 | ) | (20,189 | ) | NM | ||||||||
| Less: Net income (loss) attributable to nonredeemable noncontrolling interests | 38 | (3,121 | ) | 3,159 | NM | ||||||||||
| Net income (loss) attributable to the Company | $ | (104,741 | ) | $ | 42,978 | $ | (147,719 | ) | NM | ||||||
| Three Months Ended | ||||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | Amount | Percentage | |||||||||||||||||||||||
| Revenues | $ | 401,218 | $ | 294,510 | $ | 106,708 | 36 | % | ||||||||||||||||||
| Direct operating expenses | (253,901) | (165,761) | (88,140) | 53 | % | |||||||||||||||||||||
| Selling, general and administrative expenses | (164,410) | (174,839) | 10,429 | (6) | % | |||||||||||||||||||||
| Depreciation and amortization | (29,755) | (29,430) | (325) | 1 | % | |||||||||||||||||||||
| Impairment and other gains (losses), net | 2,000 | (7,818) | 9,818 | NM | ||||||||||||||||||||||
| Operating loss | (44,848) | (83,338) | 38,490 | 46 | % | |||||||||||||||||||||
| Interest income | 3,954 | 775 | 3,179 | NM | ||||||||||||||||||||||
| Interest expense | (2,167) | (9,248) | 7,081 | 77 | % | |||||||||||||||||||||
| Other income (expense), net | 1,525 | (3,754) | 5,279 | 141 | % | |||||||||||||||||||||
| Loss from operations before income taxes | (41,536) | (95,565) | 54,029 | 57 | % | |||||||||||||||||||||
| Income tax (expense) benefit | (2,507) | 18,910 | (21,417) | (113) | % | |||||||||||||||||||||
| Net loss | (44,043) | (76,655) | 32,612 | 43 | % | |||||||||||||||||||||
| Less: Net income attributable to redeemable noncontrolling interests | 1,124 | 2,212 | (1,088) | (49) | % | |||||||||||||||||||||
| Less: Net (loss) income attributable to nonredeemable noncontrolling interests | (410) | 365 | (775) | NM | ||||||||||||||||||||||
| Net income (loss) attributable to Madison Square Garden Entertainment Corp.’s stockholders | $ | (44,757) | $ | (79,232) | $ | 34,475 | 44 | % | ||||||||||||||||||
_________________
NM — Percentage isAbsolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningfulmeaningful.
| Three | Nine | |||||||
| Months | Months | |||||||
| Decrease in event-related revenues from concerts | $ | (17,694 | ) | $ | (22,600 | ) | ||
| Decrease in suite license fee revenues | (9,464 | ) | (9,617 | ) | ||||
| Decrease in venue-related signage and sponsorship revenues | (6,296 | ) | (11,049 | ) | ||||
| Decrease in event-related revenues from other live sporting events | (5,204 | ) | (8,704 | ) | ||||
(Decrease) increase in revenues associated with entertainment dining and nightlife offerings (a) | (5,037 | ) | 1,503 | |||||
| Decrease in event-related revenues from other live entertainment events | (3,889 | ) | (2,068 | ) | ||||
| Decrease in revenues from Obscura due to the decision to wind down its third-party production business to focus on the development of MSG Sphere | (1,049 | ) | (9,178 | ) | ||||
| Decrease in ad sales commission due to lower sales in advertising availabilities of MSG Networks | (793 | ) | (552 | ) | ||||
| Decrease in revenues associated with the expiration of the Wang Theatre booking agreement in February 2019 | (632 | ) | (3,883 | ) | ||||
Increase in revenues from the presentation of the Christmas Spectacular | 275 | 2,044 | ||||||
| Other net decreases | (374 | ) | (1,242 | ) | ||||
| $ | (50,157 | ) | $ | (65,346 | ) | |||
The following is a resultsummary of changes in our segments’ operating results for the ticketing agreement renewal during the third quarter of fiscal year 2019. For the ninethree months ended March 31, 2020, the decrease in event-related revenues from concerts was primarily due to (i) lower per-event revenues prior to the temporary closure of venues on March 12, 2020 September 30, 2022 as compared to the prior year period, (ii)which are discussed below under “Business Segment Results.”
| Changes attributable to | Revenues | Direct operating expenses | Selling, general and administrative expenses | Depreciation and amortization | Impairment and other gains (losses), net | Operating income (loss) | ||||||||||||||||||||||||||||||||||||||
| Entertainment segment | $ | 112,863 | $ | (65,463) | $ | (10,400) | $ | 373 | 2,000 | $ | 39,373 | |||||||||||||||||||||||||||||||||
| MSG Networks segment | (18,994) | (6,997) | 30,159 | 179 | — | 4,347 | ||||||||||||||||||||||||||||||||||||||
Tao Group Hospitality segment (a) | 13,187 | (15,484) | (9,452) | (252) | 7,818 | (4,183) | ||||||||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | — | (501) | — | (625) | — | (1,126) | ||||||||||||||||||||||||||||||||||||||
| Inter-segment eliminations | (348) | 305 | 122 | — | — | 79 | ||||||||||||||||||||||||||||||||||||||
| $ | 106,708 | $ | (88,140) | $ | 10,429 | $ | (325) | $ | 9,818 | $ | 38,490 | |||||||||||||||||||||||||||||||||
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Impairment and other gains (losses), net
Impairment and other gains (losses), netfor the impact of the temporary closure of venues since March 12, 2020 duethree months ended September 30, 2022, increased $9,818, to COVID-19, (iii) the impact of the recognition of additional revenue during the prior year period as a result of the ticketing agreement renewal during the third quarter of fiscal year 2019, partially offset by additional events held at the Company’s venues prior to the temporary closure of venues on March 12, 2020$2,000 as compared to the prior year period.
Interest income
| Three | Nine | ||||||
| Months | Months | ||||||
| Decrease in event-related direct operating expenses associated with concerts primarily due to the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 | $ | (6,883 | ) | $ | (6,958 | ) | |
| Decrease in direct operating expenses associated with suite licenses primarily due to lower revenue sharing expenses associated with suite license fee revenue decreases | (6,112 | ) | (6,793 | ) | |||
| Decrease in direct operating expenses associated with the venue-related signage and sponsorship primarily due to lower revenue sharing expenses associated with venue-related signage and sponsorship revenue decreases | (6,014 | ) | (9,686 | ) | |||
| Decrease in direct operating expenses associated with entertainment dining and nightlife offerings | (2,880 | ) | (427 | ) | |||
| Decrease in event-related expenses associated with live sporting events | (1,863 | ) | (3,529 | ) | |||
| Decrease in direct operating expenses associated with Obscura due to the decision to wind down its third-party production business to focus on the development of MSG Sphere | (1,822 | ) | (8,314 | ) | |||
| Decrease in event-related direct operating expenses associated with other live entertainment events | (1,115 | ) | (2,384 | ) | |||
| Decrease in direct operating expenses associated with the expiration of the Wang Theatre booking agreement in February 2019 | (927 | ) | (2,621 | ) | |||
(Decrease) increase in direct operating expenses associated with the presentation of the Christmas Spectacular | (85 | ) | 231 | ||||
| Increase in venue operating costs, net of recovery charges from Madison Square Garden Sports Corp. | 3,578 | 6,809 | |||||
| Other net decreases | (1,778 | ) | (995 | ) | |||
| $ | (25,901 | ) | $ | (34,667 | ) | ||
Other income (expense), netfor the ninethree months ended March 31, 2020September 30, 2022, increased $3,444,$5,279, or 29%141%, to $15,388$1,525 as compared to the prior year period, primarily due to lower interest expensean increase in net unrealized and realized gains of approximately $3,300 associated with Tao Group Hospitality, partially offset by lower interest income as a resultthe Company’s investments in DraftKings Inc. and Townsquare Media, Inc., and an unrealized gain of (i) lower interest rates, (ii) a change inapproximately $2,000 associated with an equity investment mix, and (iii) lower interest earned on loans extended to AMSGE and Tribeca Enterprises.
Income tax expense for the three months ended March 31, 2020 was $17,381 as comparedSeptember 30, 2022 of $2,507 differs from the income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) tax expense of $4,984 related to share-based payment awards, (ii) tax expense of $1,961 resulting from a change in the estimated applicable tax rate used to measure deferred taxes and (iii) tax expense of $1,065 related to nondeductible officers’ compensation, partially offset by a tax benefit of $2,071 related to a net miscellaneousfederal income tax refund and a tax benefit of $4,613$1,905 resulting from a decrease in the prior year period. Net miscellaneous expensevaluation allowance.
Income tax benefit for the ninethree months ended March 31, 2020 decreased $1,225, or 30%,September 30, 2021 of $18,910 differs from the income tax benefit derived from applying the statutory federal rate of 21% to $2,893the pretax loss primarily due to (i) tax expense of $9,823 to write off the deferred tax for certain transaction costs associated with the Merger and (ii) tax expense of $2,859 related to nondeductible officers’ compensation, partially offset by (i) state income tax benefit of $8,174 and (ii) tax benefit of $1,711 resulting from a change in the estimated applicable tax rate used to measure deferred taxes.
Adjusted operating income (loss) (“AOI”)
The following is a reconciliation of operating loss to adjusted operating income for the three months ended September 30, 2022 as compared to the prior year period. The changeperiod:
| Three Months Ended | ||||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | Amount | Percentage | |||||||||||||||||||||||
| Operating loss | $ | (44,848) | $ | (83,338) | $ | 38,490 | 46 | % | ||||||||||||||||||
| Non-cash portion of arena license fees from MSG Sports | (519) | (543) | 24 | 4 | % | |||||||||||||||||||||
| Share-based compensation | 15,188 | 19,528 | (4,340) | (22) | % | |||||||||||||||||||||
Depreciation and amortization (a) | 29,755 | 29,430 | 325 | 1 | % | |||||||||||||||||||||
| Impairment and other (gains) losses, net | (2,000) | 7,818 | (9,818) | NM | ||||||||||||||||||||||
| Merger and acquisition related costs | 4,650 | 37,192 | (32,542) | (87) | % | |||||||||||||||||||||
| Amortization for capitalized cloud computing costs | 121 | 85 | 36 | 42 | % | |||||||||||||||||||||
| Other purchase accounting adjustments | 586 | 85 | 501 | NM | ||||||||||||||||||||||
| Remeasurement of deferred compensation plan liabilities | (154) | — | (154) | NM | ||||||||||||||||||||||
| Adjusted operating income | $ | 2,779 | $ | 10,257 | $ | (7,478) | (73) | % | ||||||||||||||||||
(a) Depreciation and amortization includes purchase accounting adjustments of $2,224 and $1,599 for the three months ended March 31, 2020 was primarily due to the unrealized loss of $17,196 related to the Company’s investment in Townsquare in the current year period as compared to an unrealized gain of $5,261 in the prior year period. See Note 6September 30, 2022 and Note 11 to the combined financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information related to the investment in Townsquare. For the nine months ended March 31, 2020, the decrease in net miscellaneous expense was primarily due to lower pension and postretirement benefit cost related to the non-service components in accordance with ASU No. 2017-07.
| Three Months Ended | ||||||||||||||
| March 31, | Change | |||||||||||||
| 2020 | 2019 | Amount | Percentage | |||||||||||
| Operating loss | $ | (145,541 | ) | $ | (18,619 | ) | $ | (126,922 | ) | NM | ||||
| Share-based compensation | 8,836 | 8,726 | ||||||||||||
Depreciation and amortization (a) | 26,196 | 26,768 | ||||||||||||
Impairment of intangibles, long-lived assets and goodwill (b) | 102,211 | — | ||||||||||||
| Other purchase accounting adjustments | 1,068 | 1,069 | ||||||||||||
| Adjusted operating income (loss) | $ | (7,230 | ) | $ | 17,944 | $ | (25,174 | ) | NM | |||||
| Nine Months Ended | |||||||||||||||
| March 31, | Change | ||||||||||||||
| 2020 | 2019 | Amount | Percentage | ||||||||||||
| Operating income (loss) | $ | (145,996 | ) | $ | 12,491 | $ | (158,487 | ) | NM | ||||||
| Share-based compensation | 29,294 | 27,929 | |||||||||||||
Depreciation and amortization (a) | 80,271 | 81,606 | |||||||||||||
Impairment of intangibles, long-lived assets and goodwill (b) | 102,211 | — | |||||||||||||
| Other purchase accounting adjustments | 4,464 | 3,717 | |||||||||||||
| Adjusted operating income | $ | 70,244 | $ | 125,743 | $ | (55,499 | ) | (44 | )% | ||||||
NM — Percentage isAbsolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningfulmeaningful.
33 |
Adjusted operating lossincome for the three months ended March 31, 2020 was $7,230 as comparedSeptember 30, 2022 decreased $7,478, to adjusted operating income of $17,944 in the prior year period. Adjusted operating income for the nine months ended March 31, 2020 decreased $55,499, or 44%, to $70,244 as compared to the prior year period.$2,779. The decreasesnet decrease in adjusted operating income were lower than the increases in operating losses primarily duewas attributable to the impairment of intangibles, long-lived assets and goodwill.following:
| Three Months Ended | ||||||||
| Changes attributable to | September 30, 2022 | |||||||
| Entertainment segment | $ | 26,952 | ||||||
| MSG Networks segments | (22,901) | |||||||
| Tao Group Hospitality segment | (11,608) | |||||||
| Inter-segment eliminations | 79 | |||||||
| $ | (7,478) | |||||||
Net income (loss) attributable to redeemable and nonredeemable noncontrolling interests
For the three months ended March 31, 2020,September 30, 2022, the Company recorded $22,447$1,124 of net lossincome attributable to redeemable noncontrolling interests including a proportional share of expenses related to impairment charges of $22,997 and purchase accounting adjustments (“PPA Expenses”), which total $22,257 and $195$410 of net loss attributable to nonredeemable noncontrolling interests including $57 of PPA Expenses as compared to $7$2,212 of net lossincome attributable to redeemable noncontrolling interests including $1,595 of PPA Expenses and $680$365 of net lossincome attributable to nonredeemable noncontrolling interests including $87 of PPA Expenses for the three months ended March 31, 2019.
September 30, 2021. These amounts represent the share of net lossincome (loss) from the Company’s investments in Tao Group Hospitality and BCE that are not attributable to the Company.
Business Segment Results
Entertainment
The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating loss for the Company’s Entertainment segment.
| Three Months Ended | ||||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | Amount | Percentage | |||||||||||||||||||||||
| Revenues | $ | 147,102 | $ | 34,239 | $ | 112,863 | NM | |||||||||||||||||||
| Direct operating expenses | (101,765) | (36,302) | (65,463) | 180 | % | |||||||||||||||||||||
| Selling, general and administrative expenses | (103,362) | (92,962) | (10,400) | 11 | % | |||||||||||||||||||||
| Depreciation and amortization | (19,283) | (19,656) | 373 | (2) | % | |||||||||||||||||||||
| Impairment and other gains | 2,000 | — | 2,000 | NM | ||||||||||||||||||||||
| Operating loss | $ | (75,308) | $ | (114,681) | $ | 39,373 | 34 | % | ||||||||||||||||||
| Reconciliation to adjusted operating loss: | ||||||||||||||||||||||||||
| Non-cash portion of arena license fees from MSG Sports | (519) | (543) | 24 | (4) | % | |||||||||||||||||||||
| Share-based compensation | 11,432 | 10,143 | 1,289 | 13 | % | |||||||||||||||||||||
| Amortization for capitalized cloud computing arrangement costs | 77 | 41 | 36 | 88 | % | |||||||||||||||||||||
| Merger and acquisition related costs | 2,749 | 13,992 | (11,243) | (80) | % | |||||||||||||||||||||
| Depreciation and amortization | 19,283 | 19,656 | (373) | (2) | % | |||||||||||||||||||||
| Impairment and other gains | (2,000) | — | (2,000) | NM | ||||||||||||||||||||||
| Remeasurement of deferred compensation plan liabilities | (154) | — | (154) | NM | ||||||||||||||||||||||
| Adjusted operating loss | $ | (44,440) | $ | (71,392) | $ | 26,952 | 38 | % | ||||||||||||||||||
_________________
NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.
Factors Affecting Results of Operations
For the three months ended September 30, 2021, the Entertainment segment operations and operating results have been, and continue to be,were materially impacted by the COVID-19 pandemic, including as a result of the lead-time required to book touring acts and actions takenartists, which is the majority of our Entertainment business. As of this date, live events are permitted to be held at all of our performance venues without capacity restrictions and we are continuing to host and book new events. See “— Introduction — Factors Affecting Results of Operations — Impact of the COVID-19 Pandemic on Our Business” for more information.
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Revenues
Revenues for the three months ended September 30, 2022 increased $112,863 to $147,102 as compared to the prior year period. The net increases were attributable to the following:
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Increase in event-related revenues, as discussed below | $ | 80,633 | ||||||
| Increase in revenues from signage, suites licenses, and sales of food, beverage and merchandise subject to revenue or profit sharing with MSG Sports pursuant to the Arena License Agreements, as discussed below | 18,329 | |||||||
| Increase in suite license fee revenues, due to the return of live events at the Company’s venues during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic | 8,438 | |||||||
| Increase in venue-related signage and sponsorship revenues primarily due to the return of live events at the Company’s venues during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic | 3,726 | |||||||
| Other net increases | 1,737 | |||||||
| $ | 112,863 | |||||||
For the three months ended September 30, 2022, the increase in responseevent-related revenues reflects (i) higher revenues from concerts of $80,200, and (ii) higher revenues from other sporting and live entertainment events of $433, primarily due to the return of events to the Company’s venues during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic. See “— Introduction — Factors Affecting Results of Operations — Impact of the COVID-19 Pandemic on Our Business” for more information.
For both of the three months ended September 30, 2022 and September 30, 2021, respectively, the Rangers hosted two preseason home games. The increase in revenues from signage, suites licenses, and sales of food, beverage and merchandise subject to revenue or profit sharing with MSG Sports pursuant to the Arena Licenses Agreements primarily reflects an increase in suite license fee revenues due to the return of live events at The Garden during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic.
Direct operating expenses
Direct operating expenses for the three months ended September 30, 2022 increased $65,463 to $101,765 as compared to the prior year period. The net increases were attributable to the following:
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Increase in event-related direct operating expenses, as discussed below | $ | 42,041 | ||||||
| Increase in direct operating expenses associated with revenue or profit sharing expense from signage, suites licenses and sales of food, beverage and merchandise with MSG Sports pursuant to the Arena License Agreements, as discussed below | 17,716 | |||||||
| Increase in direct operating expenses associated with venue operating costs inclusive of higher variable expenses due to the return of events to the Company’s venues during the current year period as compared to limited live events held in the prior year period as a result of the COVID-19 pandemic | 4,496 | |||||||
| Other net increases | 1,210 | |||||||
| $ | 65,463 | |||||||
For the three months ended September 30, 2022, the increase in event-related direct operating expenses reflects (i) higher direct operating expenses from concerts of $41,507, and (ii) higher direct operating expenses from other sporting and live entertainment events of $534, primarily due to the return of events to the Company’s venues during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic.
The increase in direct operating expenses associated with revenue or profit sharing expense from signage, suites licenses, and sales of food, beverage and merchandise with MSG Sports pursuant to the Arena Licenses Agreements primarily reflects an increase in suite license fee revenues subject to revenue sharing due to the return of live events at The Garden during the current year period as compared to limited live events held in the prior year period due to the COVID-19 pandemic.
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Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2022 increased $10,400, or 11% to $103,362 as compared to the prior year period. The increase primarily reflects higher employee compensation and related benefits of $10,361, primarily due to Company’s MSG Sphere initiative, and higher other general administrative expenses of $5,946, partially offset by lower professional fees of $5,908.
Impairment and other gains
For the three months ended September 30, 2022, the Company recorded net gains of $2,000 from the receipt of insurance proceeds related to the Company’s creative studio in Burbank, CA.
Operating loss
Operating loss for the three months ended September 30, 2022, was $75,308 as compared to a loss of $114,681 in the prior year period, an improvement of $39,373, or 34%. The improvement in operating loss was primarily due to an increase in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses, as discussed above.
Adjusted operating loss
Adjusted operating loss for the three months ended September 30, 2022 was $44,440 as compared to adjusted operating loss of $71,392 in the prior year period, an improvement of $26,952, or 38%. The improvement in adjusted operating loss was primarily due to an increase in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses.
MSG Networks
The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Networks segment.
| Three Months Ended | ||||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | Amount | Percentage | |||||||||||||||||||||||
| Revenues | $ | 122,479 | $ | 141,473 | $ | (18,994) | (13) | % | ||||||||||||||||||
| Direct operating expenses | (75,420) | (68,423) | (6,997) | 10 | % | |||||||||||||||||||||
| Selling, general and administrative expenses | (17,816) | (47,975) | 30,159 | (63) | % | |||||||||||||||||||||
| Depreciation and amortization | (1,618) | (1,797) | 179 | (10) | % | |||||||||||||||||||||
| Operating income | $ | 27,625 | $ | 23,278 | $ | 4,347 | 19 | % | ||||||||||||||||||
| Reconciliation to adjusted operating income: | ||||||||||||||||||||||||||
| Share-based compensation | 1,704 | 7,474 | (5,770) | (77) | % | |||||||||||||||||||||
| Depreciation and amortization | 1,618 | 1,797 | (179) | (10) | % | |||||||||||||||||||||
| Amortization for capitalized cloud computing arrangement costs | 44 | 44 | — | — | % | |||||||||||||||||||||
| Merger and acquisition related costs | 1,901 | 23,200 | (21,299) | (92) | % | |||||||||||||||||||||
| Adjusted operating income | $ | 32,892 | $ | 55,793 | $ | (22,901) | (41) | % | ||||||||||||||||||
NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.
Factors Affecting Results of Operations
Due to the COVID-19 pandemic, the 2020-21 season was shortened and resulted in reductions in media rights fees which had a residual impact reflected in the three months ended September 30, 2021. See “— Introduction — Factors Affecting Results of Operations — Impact of the COVID-19 Pandemic on Our Business” for more information.
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Revenues
For the three months ended September 30, 2022, MSG Networks generated total revenues of $122,479, a decrease of $18,994, or 13%, as compared to the prior year quarter. The changes in revenues were attributable to the following:
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Decrease in affiliation fee revenue | $ | (18,962) | ||||||
| Decrease in advertising revenue | (89) | |||||||
| Other net increases | 57 | |||||||
| $ | (18,994) | |||||||
For the three months ended September 30, 2022, affiliation fee revenue decreased $18,962, primarily due to the impact of the non-renewal of MSG Networks’ carriage agreement with Comcast Corporation (“Comcast”) as of October 1, 2021, and a decrease in subscribers of approximately 9% (excluding the impact of the non-renewal with Comcast). These decreases were partially offset by the governmentabsence of net unfavorable affiliate adjustments of approximately $6,200 recorded in the prior year quarter and the impact of higher affiliation rates.
Effective October 1, 2021, Comcast’s license to carry MSG Networks expired and MSG Networks has not been carried by Comcast since that date. Comcast’s non-carriage has reduced MSG Networks’ subscribers by approximately 10% and has reduced MSG Networks’ revenue by a comparable percentage. In addition, MSG Networks’ segment operating income and AOI have been reduced by an amount that is approximately equal to the dollar amount of the reduced revenue.
Direct operating expenses
Direct operating expenses for the three months ended September 30, 2022 increased $6,997 to $75,420 as compared to the prior year period. The increases were attributable to the following:
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Increase due to higher rights fees expense primarily due to the absence of reductions in media rights fees related to the shortened 2020-21 NHL season recorded in the prior year quarter and the impact of annual contractual rate increases in the current year period | $ | 5,933 | ||||||
| Increase in other programming and productions costs | 1,064 | |||||||
| $ | 6,997 | |||||||
Selling, general and administrative expenses
For the three months ended September 30, 2022, selling, general and administrative expenses of $17,816 decreased $30,159 as compared to the prior year quarter. This primarily reflects a decrease of $23,000 in expenses related to the acquisition of MSG Networks by MSG Entertainment in July 2021, as well as lower advertising and marketing expenses of $3,489 and lower employee compensation and related benefits of $3,223.
Operating income
For the three months ended September 30, 2022, operating income of $27,625 increased $4,347, or 19%, as compared to the prior year quarter, primarily due to the decrease in selling, general and administrative expenses (including the impact of lower acquisition-related costs), partially offset by the decrease in revenues and the increase in direct operating expenses.
Adjusted operating income
For the three months ended September 30, 2022, adjusted operating income of $32,892 decreased $22,901, or 41%, as compared to the prior year quarter, primarily due to the decrease in revenues and higher direct operating expenses, partially offset by lower selling, general and administrative expenses.
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Tao Group Hospitality
The tables below set forth, for the periods presented, certain professional sports leagues.historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s Tao Group Hospitality segment.
| Three Months Ended | ||||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||||
| 2022 | 2021 | Amount | Percentage | |||||||||||||||||||||||
| Revenues | $ | 132,651 | $ | 119,464 | $ | 13,187 | 11 | % | ||||||||||||||||||
| Direct operating expenses | (76,577) | (61,093) | (15,484) | 25 | % | |||||||||||||||||||||
| Selling, general and administrative expenses | (43,546) | (34,094) | (9,452) | 28 | % | |||||||||||||||||||||
| Depreciation and amortization | (6,630) | (6,378) | (252) | 4 | % | |||||||||||||||||||||
| Impairment and other losses | — | (7,818) | 7,818 | NM | ||||||||||||||||||||||
| Operating income | $ | 5,898 | $ | 10,081 | $ | (4,183) | (41) | % | ||||||||||||||||||
| Reconciliation to adjusted operating income: | ||||||||||||||||||||||||||
| Share-based compensation | 2,052 | 1,911 | 141 | 7 | % | |||||||||||||||||||||
| Depreciation and amortization | 6,630 | 6,378 | 252 | 4 | % | |||||||||||||||||||||
| Impairment and other losses | — | 7,818 | (7,818) | NM | ||||||||||||||||||||||
| Adjusted operating income | $ | 14,580 | $ | 26,188 | $ | (11,608) | (44) | % | ||||||||||||||||||
NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.
Factors Affecting Results of Operations
For the three months ended September 30, 2021, Tao Group Hospitality’s operations and operating results were impacted by the COVID-19 pandemic, including as a result certain regulatory requirements, including and vaccination/mask requirements, which contributed to certain branded locations remaining closed during the period. As of September 30, 2022 and as of the date of this Quarterly Report on Form 10-Q, nearly allfiling, Tao Group Hospitality’s domestic venues no longer require guests to provide proof of our business operations have been suspendedCOVID19 vaccination before entering, and it is not clear when those operations will resume. As a result of government mandated assembly limitations and closures, virtually all of our scheduled events at The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre and The Chicago Theatre are postponed or cancelled through June, the 2020 Boston Calling music festival, which had been slated for Memorial Day weekend, has also been cancelled, and virtually all Tao Group Hospitality venues are currently closed. The NBA andis operating without capacity restrictions in all markets. See “— Introduction —Factors Affecting Results of Operations — Impact of the NHL suspended their 2019-20 seasonsCOVID-19 Pandemic on March 11 and 12, 2020, respectively. No KnicksOur Business” for more information.
Revenues
Revenues for the three months ended September 30, 2022 increased $13,187, or Rangers games are currently being played, and it is uncertain if the current seasons will resume. For more information about the impacts and risks11%, to $132,651 as compared to the Companyprior year period. The net increases were attributable to the following:
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Increase in revenues associated with new venue openings | $ | 7,536 | ||||||
| Increase in revenues associated with venues that were temporarily closed in the prior year as a result of the COVID-19 pandemic | 3,604 | |||||||
| Increase in revenues for comparable venues that opened more than 15 months ago | 1,477 | |||||||
| Other net increases | 570 | |||||||
| $ | 13,187 | |||||||
The increase in revenues associated with new venue openings of $7,536 was primarily due to the opening of Lavo Ristorante in Los Angeles, a venue that first opened in March 2022; Lavo San Diego which first opened in June 2022 following the rebranding of a legacy Hakkasan venue; and Tao Beach in Las Vegas which reopened in April 2022 following a multi-year renovation.
The increase in revenues associated with venues that were temporarily closed in the prior year as a result of the COVID-19 see “— Impactpandemic of COVID-19 on Our Business”$3,604 was due to Avenue and “Item 1A. Risk Factors — Marquee Singapore which reopened in April and July 2022, respectively, Herringbone Waikiki which reopened in November 2021, and Marquee Sydney which reopened in December 2021.
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Direct operating expenses
Direct operating expenses for the three months ended September 30, 2022 increased $15,484, or 25%, to $76,577 as compared to the prior year period. The net increases were attributable to the following:Our Operations
| Three Months Ended | ||||||||
| September 30, 2022 | ||||||||
| Increase in employee compensation and related benefits reflecting the impact of increased staffing as the business returns to normal operations and new venue openings | $ | 7,934 | ||||||
| Increase in the costs of food and beverage due to the impact of inflation, new venue openings, and higher comparable venue revenues | 4,090 | |||||||
| Increase in rent expense | 2,034 | |||||||
| Other net increases, including higher venue entertainment costs | 1,426 | |||||||
| $ | 15,484 | |||||||
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2022 increased $9,452, or 28%, to $43,546 as compared to the prior year period. For the three months ended September 30, 2022, the net increases were primarily due to (i) higher employee compensation and related benefits of $6,629 reflecting the impact of increased staffing as the business returns to normal operations and (ii) a net increase of $1,896 in restaurant expenses, as well as supplies, utilities, general liability insurance, pre-opening expenses, and repairs and maintenance, and marketing expenses.
Impairment and other losses
For the three months ended September 30, 2022, the Company recorded no impairment and other losses as compared to an impairment of $7,818 related to the extinguishment of right-of-use assets and a leasehold improvement in connection with operations at certain Hakkasan venues in the prior year period.
Operating Results Have Been,income
Operating income for the three months ended September 30, 2022 was $5,898 as compared to $10,081 in the prior year period, a decrease of $4,183, or 41%. This decrease was primarily due to an increase in direct operations and Continueselling, general and administrative expenses partially offset by increased revenues and the absence of impairment and other losses.
Adjusted operating income
Adjusted operating income for the three months ended September 30, 2022 was $14,580 as compared to be, Materially Impacted$26,188 in the prior year period, a decrease of $11,608, or 44%. The decrease in adjusted operating income for the three months ended September 30, 2022 was due to higher direct operating and selling, general and administrative expenses partially offset by increased revenues.
Liquidity and Capital Resources
Overview
The Company’s operations and operating results were not materially impacted by the COVID-19 pandemic during the three months ended September 30, 2022, as compared to the prior year period, which was impacted by (i) fewer ticketed events at our performance venues due to the lead-time required to book touring acts and artists, (ii) a residual impact of reductions in MSG Networks media rights fees related to the shortened 2020-21 NHL season and (iii) certain regulatory requirements, including vaccination/mask requirements for our performance, entertainment dining and nightlife venues, which contributed to certain Tao Group Hospitality branded locations remaining closed during the period. See Note 1, Impact of the COVID-19 Pandemic, to the consolidated and Government Actions Takencombined financial statements included in Response.the 2022 Form 10-K for more information regarding the impact of the COVID-19 pandemic on our business.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in new government or league-mandated capacity or other restrictions or vaccination/mask requirements or impact the use of and/or demand for our performance, entertainment dining and nightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations.
40
Sources and Uses of Liquidity
Our primary sources of liquidity are cash and cash equivalents, and cash flows from the operations of our businesses. businesses and available borrowing capacity under our credit facilities. Our principal uses of cash include working capital-related items (including funding our operations), capital spending (including our planned construction of large-scale venuesMSG Sphere at The Venetian in Las Vegas and London)related original content, as described below), borrowings by Madison Square Garden Sports Corp. under the DDTL Facilities,debt service, investments and related loans and advances that we may fund from time to time, repayment of debt, and mandatory purchases from prior acquisitions. We may also use cash to repurchase our common stock. Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent that we desire to access alternative sources of funding through the capital and credit markets, challenging U.S. and global economic and market conditions could adversely impact our ability to do so at that time.
We regularly monitor and assess our ability to meet our net funding and investing requirements.requirements, including the construction of MSG Sphere at The Venetian. As of September 30, 2022, the Company’s unrestricted cash and cash equivalents balance, inclusive of approximately $235,000 in advance cash proceeds primarily related to tickets, suites and sponsorships, was $441,350, as compared to $828,540 as of June 30, 2022. The principal balance of the Company’s total debt outstanding as of September 30, 2022 was $1,756,898. We believe we have sufficient liquidity including approximately $1,004,000 infrom cash and cash equivalents, available borrowing capacity under our credit facilities, and $331,000 of short-term investments as of March 31, 2020,cash flows from operations (including from MSG Sphere at the Venetian) to over the next 12 months, fund our operations, make committed funds availableand service the credit facilities for the foreseeable future, as well as complete the construction of MSG Sphere at The Venetian. This includes the Company’s plans to Madison Square Garden Sports Corp. underimplement a cost reduction program across its businesses and reduce or defer certain discretionary capital projects. It also includes the DDTL Facilities, and pursueCompany’s expectation that it will utilize cash on hand to pay down a portion of MSG Networks’ term loan upon the refinancing of the loan prior to its maturity in October 2024. In addition, the Company is pursuing financing to fund the development of original content, which is expected to generate significant revenue for MSG Sphere. There is no assurance that the new venues discussed below. Cash and cash equivalents as of March 31, 2020 includes unrestricted cash and cash equivalents of $100,000 which was retained by Madison Square Garden Sports Corp. at the time of the Madison Square Garden Entertainment Corp. spin-off.Company will be able to obtain such capital. See Note 118, Credit Facilities to the combinedcondensed consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the MSG Networks Credit Facilities, the National Properties Credit Facilities and the Tao Credit Facilities.
For additional information regarding the Company’s short-term investments. Our cash and cash equivalents include approximately $223,000in advance cash proceeds — primarilycapital expenditures, including those related to tickets, suites and sponsorships — all of which would be addressed,MSG Sphere, see Note 22, Segment Information to the extent necessary, through refunds, credits, make-goods and/or rescheduled dates.
On March 31, 2020, the Company’s Board of Directors authorized, effective following the Entertainment Distribution, a share repurchase program to repurchase up to $350 million$350,000 of the Company’s Class A Common Stock. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. No shares have been repurchased to date.
MSG Spheres
The Company has made significant progress on MSG Sphere at The Venetian, its state-of-the-art entertainment venue under construction in Las Vegas.
See “Part I — Item 1. Our Business — Our Performance Venues — MSG Sphere” in the Company’s Annual Report on Form 10-K. The Company expects the venue to have a number of significant revenue streams, including a wide variety of content such as attractions, concert residencies and corporate and select sporting events, as well as sponsorship and premium hospitality opportunities. As a result, we anticipate that MSG Sphere at The Venetian will generate substantial revenue and adjusted operating income on an annual basis.
41
As of September 30, 2022, our cost estimate, inclusive of core technology and soft costs, for MSG Sphere at The Venetian iswas approximately $1,660,000.$2,175,000. This cost estimate iswas net of $75,000 that the Las Vegas Sands Corp.Venetian has agreed to pay to defray certain construction costs and also excludes significant capitalized and non-capitalized costs for items such as content creation, internal labor, capitalized interest, and furniture and equipment. Relative to our current cost estimate above, our actual construction costs for MSG Sphere at The Venetian incurred through March 31, 2020September 30, 2022 were approximately $349,000,$1,780,000, which is net of $65,000 received from Las Vegas Sands Corp. during the nine months ended March 31, 2020.Venetian. In addition, the amount of construction costs incurred as of March 31, 2020September 30, 2022 includes approximately $67,600$226,000 of accrued expenses that were not yet paid as of that date. As with any major construction project, the construction of MSG Sphere is subject to potential unexpected delays, costs or other complications.
With regard to MSG Sphere at The Venetian, the Company plans to finance the construction of the venue from cash-on-hand and cash flows from operations as well as additional debt financing.(inclusive of the impact of the Company’s plans to implement a cost reduction program across its businesses and reduce or defer certain discretionary capital projects). The Company expectsalso continues to incur $400,000 of new long-term financing by a subsidiary of the Company that indirectly owns an interest inhave revolver capacity available under its venues, which is expected to be comprised of a term loan of $225,000 and a revolving credit facility with $175,000 of borrowing capacity.facilities, if needed. If the Company’s cash-on-hand, available revolver capacity and cash flows from operations are not sufficient to finance the remaining construction costs of MSG Sphere at The Venetian, the Company would need to completeaccess additional debt financing.capital, including potential incremental debt. There is no assurance that the Company will be able to obtain such capital.
While the Company plans to self-fund the construction of MSG Sphere at The Venetian, under the right terms it would consider third-party financing alternatives. The Company’s intention for any future venues is to explore otherutilize several options, includingsuch as non-recourse debt financing, joint ventures, equity partners and a managed venue model.
Financing Agreements
MSGN Holdings, L.P. (“MSGN L.P.”), MSGN Eden, LLC, an indirect subsidiary of the Company and the general partner of MSGN L.P., Regional MSGN Holdings LLC, an indirect subsidiary of the Company and the limited partner of MSGN L.P. (collectively with MSGN Eden, LLC, the “MSGN Holdings Entities”), and certain subsidiaries of MSGN L.P. have senior secured credit facilities pursuant to a credit agreement (as amended and restated on October 11, 2019, the “MSGN Credit Agreement”) consisting of: (i) an initial $1,100,000 term loan facility (the “MSGN Term Loan Facility”) and (ii) a $250,000 revolving credit facility (the “MSGN Revolving Credit Facility” and, together with the MSGN Term Loan Facility, the “MSG Networks Credit Facilities”), each with a term of five years. As of September 30, 2022, there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility.
The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date of October 11, 2024. MSGN L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including MSGN Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.
The MSGN Credit Agreement generally requires the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis to comply with a maximum total leverage ratio of 5.50:1.00, subject, at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, the MSGN Credit Agreement requires a minimum interest coverage ratio of 2.00:1.00 for the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis. As of September 30, 2022, the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the covenants.
National Properties Credit Facilities
On June 30, 2022, MSG National Properties, LLC (“MSG National Properties”) an indirect, wholly-owned subsidiary of the Company, MSG Entertainment Group, LLC (“MSG Entertainment Group”) and certain subsidiaries of MSG National
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Properties entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and L/C issuers party thereto (the “National Properties Credit Agreement”), providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $100,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Credit Facilities”).
Up to $25,000 of the National Properties Revolving Credit Facility is available for the issuance of letters of credit. As of September 30, 2022, outstanding letters of credit were $7,860 and the remaining balance available under the National Properties Revolving Credit Facility was $63,040.
The principal obligations under the National Properties Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2023 through March 31, 2027, with the balance due at the maturity of the facility on June 30, 2027. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facility. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions.
The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Credit Facilities. The debt service coverage ratio covenant begins testing in the fiscal quarter ending December 31, 2022, and is set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ending September 30, 2024. The leverage ratio covenant begins testing in the fiscal quarter ending June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, stepping down to 5.5:1 in the fiscal quarter ending June 30, 2024 and 4.5:1 in the fiscal quarter ending June 30, 2026. As of September 30, 2022, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement.
Tao Credit Facilities
On June 9, 2022, TAO Group Intermediate Holdings LLC (“TAOIH” or “Intermediate Holdings”) and TAO Group Operating LLC (“TAOG” or “Senior Borrower”) entered into an amended and restated credit agreement (the “Restated Tao Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., as agent, and the lenders party thereto. The Restated Tao Senior Credit Agreement provides TAOG with senior secured credit facilities (the “Tao Credit Facilities”) consisting of: (i) an initial $75,000 term loan facility with a term of five years (the “Tao Term Loan Facility”) and (ii) a $60,000 revolving credit facility with a term of five years (the “Tao Revolving Credit Facility”). Up to $5,000 of the Tao Revolving Credit Facility is available for the issuance of letters of credit. As of September 30, 2022, outstanding letters of credit were $750 and the remaining borrowing available under the Tao Revolving Credit Facility was $49,250.
The Tao Term Loan Facility amortizes quarterly in accordance with its terms from June 9, 2022 through the maturity date on June 9, 2027. TAOG is required to make mandatory prepayments of the Tao Term Loan Facility from the net cash proceeds of certain sales of assets (including Tao Collateral) or casualty insurance and/or condemnation recoveries (in each case, subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.
The Restated Tao Senior Credit Agreement requires TAOIH to comply with a maximum total leverage ratio of 3.50:1.00, a maximum senior leverage ratio of 2.50:1.00 and a minimum fixed charge coverage ratio of 1.25:1.00. The Restated Tao Senior Credit Agreement, among other things, (i) increased the minimum liquidity for TAOG to $20,000 and maximum capital expenditures to $30,000, with a one year carry forward of $20,000, (ii) increased the basket for the maximum amount of the incremental revolving credit facility to $50,000; and (iii) amended certain other financial covenants regarding leverage to allow up to $10,000 of cash netting. As of September 30, 2022, TAOG, TAOIH and the restricted subsidiaries were in compliance with the covenants of the Restated Tao Senior Credit Agreement.
Letters of Credit Lines
The Company has established bilateral credit lines with a bank to issueuses letters of credit into support of the Company’sits 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 March 31, 2020,September 30, 2022, the Company had $11,079a total of $9,476 of letters of credit outstanding, pursuant to which fees were credited against a note investment, which included two letters of credit for an aggregate of $750 pertaining toissued under the Tao Group Hospitality asRevolving Credit Facility and two outstanding letters of December 29, 2019.
Contractual Obligations
The Company adopted ASU No. 2016-02, Leases (Topic 842), on July 1, 2019. As a result, the contractual obligations related to future lease payments, which were historically reported as off-balance sheet commitments, are now reflected on the combined balance sheet as lease liabilities as of March 31, 2020. See Note 8 to the combined financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for more details about the lease liabilities. Except as described above with respect to lease accounting, the Company did not have any material changes in its contractual obligations since the end of fiscal year 2019Fiscal Year 2022 other than activities in the ordinary course of business. See Note 7, Commitments and Contingencies,to the financial statements included in “— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for further details on the timing and amount of payments under various media rights agreements.
Cash Flow Discussion
As of March 31, 2020,September 30, 2022, cash, cash equivalents and restricted cash totaled $1,021,848,$458,893, as compared to $1,092,065$846,010 as of June 30, 2019.2022. The following table summarizes the Company’s cash flow activities for the ninethree months ended March 31, 2020September 30, 2022 and 2019:2021:
| Three Months Ended | ||||||||||||||||||||||
| Nine Months Ended March 31, | September 30, | |||||||||||||||||||||
| 2020 | 2019 | 2022 | 2021 | |||||||||||||||||||
| Net income (loss) | $ | (128,554 | ) | $ | 36,195 | |||||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | 218,068 | 102,134 | ||||||||||||||||||||
| Net loss | Net loss | $ | (44,043) | $ | (76,655) | |||||||||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities | Adjustments to reconcile net loss to net cash provided by operating activities | 54,099 | 49,433 | |||||||||||||||||||
| Subtotal | $ | 89,514 | $ | 138,329 | Subtotal | $ | 10,056 | $ | (27,222) | |||||||||||||
| Changes in working capital assets and liabilities | 47,437 | (93,363 | ) | Changes in working capital assets and liabilities | (91,239) | 34,210 | ||||||||||||||||
| Net cash provided by operating activities | $ | 136,951 | $ | 44,966 | ||||||||||||||||||
| Net cash (used in) provided by operating activities | Net cash (used in) provided by operating activities | $ | (81,183) | $ | 6,988 | |||||||||||||||||
| Net cash used in investing activities | (477,984 | ) | (156,851 | ) | Net cash used in investing activities | (285,218) | (146,302) | |||||||||||||||
| Net cash provided by financing activities | 266,900 | 32,578 | ||||||||||||||||||||
| Net cash used in financing activities | Net cash used in financing activities | (20,023) | (44,797) | |||||||||||||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | 3,916 | 6,440 | Effect of exchange rates on cash, cash equivalents and restricted cash | (693) | (386) | |||||||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (70,217 | ) | $ | (72,867 | ) | Net decrease in cash, cash equivalents and restricted cash | $ | (387,117) | $ | (184,497) | |||||||||||
Operating Activities
Net cash provided byused in operating activities for the ninethree months ended March 31, 2020 improvedSeptember 30, 2022 increased by $91,985$88,171 to $136,951$81,183 as compared to the prior year period, primarily due to changes in working capital assets and liabilities, which includeincluded (i) higher increasecash payments to promoters, (ii) a decrease in accrued and other liabilities primarily due to funds received from Las Vegas Sands Corp. in connectiondeferred revenue associated with the ground lease in Las Vegas, (ii) lower increase in accounts receivable as a result of the temporary closure of venues due to COVID-19,customers’ advanced payments, and (iii) higher collections due to promoters as events were postponed as a result of the temporary closure of venues due to COVID-19. The increase in cash provided by the changes in working capital discussed above wasprepaid revenue share for suite licenses, partially offset by the decrease froma lower net incomeloss in the current year period adjusted for non-cash items.period.
Investing Activities
Net cash used in investing activities for the ninethree months ended March 31, 2020September 30, 2022 increased by $321,133$138,916 to $477,984$285,218 as compared to the prior year period primarily due to (i) an increase in purchase of short-term investments in the current year period as compared to the prior year period, (ii) higher capital expenditures inmainly for the current year period as compared to the prior year period, of which substantially all are related to the Company’s planned MSG SpheresSphere in Las Vegas and London, and (iii) lower proceeds received from the sale of the Company’s 50% interest in AMSGE in the prior year period compared to the sale of the Company’s 50% interest in Tribeca in the current year period. This increase was partially offset by (i) proceeds from maturity of short-term investments, (ii) a loan repayment received from subordinated note, (iii) lower investments made in nonconsolidated affiliates in the current year period as compared to the prior year period, and (iv) acquisition of notes receivable during the prior year period as compared to none during the current year period.
Financing Activities
Net cash provided byused in financing activities for the ninethree months ended March 31, 2020 increasedSeptember 30, 2022 decreased by $234,322$24,774 to $266,900$20,023 as compared to the prior year period primarily due to net transfers to Madison Square Garden Sports Corp. and Madison Square Garden Sports Corp.’s subsidiaries and slightly offset by athe repayment onof the Tao Revolving Credit Facility.Facility in the prior year period and proceeds received from the National Properties Revolving Credit Facility in the current year period.
Seasonality of Our Business
The dependence on revenues the Company earns from the Christmas Spectacularand arena license fees from MSG Sports in connection with the Knicks’ and Rangers’ use of The Garden generally means that the CompanyEntertainment segment earns a disproportionate share of its revenues and operating income 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 first and third calendar quarters are seasonally lighter quarters for Tao Group Hospitality as compared to its second and fourth calendar quarters. As the Company reports Tao Group Hospitality results of operations on a three-month lag basis, the seasonally lighter quarters for Tao Group Hospitality are reflected in the second and fourth quarters of the Company’s fiscal year. See Note 2 toyear with the combined financial statements includedfirst fiscal quarter being disproportionally lower. Similarly, MSG Networks’ advertising revenue is largely derived from the sale of inventory in “Part I — Item 1. Financial Statements”its live professional sports programming, and as such, a disproportionate share of this Quarterly Report on Form 10-Q for more information regardingrevenue has historically been earned in the consolidation onsecond and third fiscal quarters.
As a three-month lag basisresult of Tao Group Hospitality.the foregoing, the Company’s revenue and operating income are disproportionally higher in the fiscal second and third quarter of the fiscal year and lower in the first quarter of the fiscal year.
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Recently Issued Accounting Pronouncements and Critical Accounting PoliciesEstimates
Recently Issued and Adopted Accounting Pronouncements
See Note 2, Accounting Policies, to the combined financial statements included in “Part I —“— Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements.
Critical Accounting PoliciesEstimates
Form 10-K. The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2020 and our interim impairment testingFiscal Year 2023.
Impairment of goodwill and long-lived assets during the quarter ended March 31, 2020. In addition, the Company elected to adopt ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment in the third quarter of fiscal year 2020 in connection with its interim goodwill impairment test performed as of March 31, 2020, as discussed further below. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Goodwill is tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level, which is one level below the operating segment level. As of March 31, 2020.September 30, 2022, the Company had onethree operating and reportable segmentsegments consistent with the process the Company’s management followed in making decisions and allocating resources to the business.
For purposes of evaluating goodwill for impairment, the Company has twothree reporting units: Entertainment, MSG Networks and Tao Group Hospitality. Tao Group Hospitality was acquired after the annual goodwill impairment test for fiscal year 2017 and represents a separate reporting unit within the Company for goodwill impairment testing.
The goodwill balance reported on the Company’s combinedcondensed consolidated balance sheet as of March 31, 2020September 30, 2022 by reporting unit was as follows:
| Entertainment | $ | 74,111 | |
| Tao Group Hospitality | 7,885 | ||
| $ | 81,996 | ||
| Entertainment | $ | 74,309 | |||
| MSG Networks | 424,508 | ||||
| Tao Group Hospitality | 1,364 | ||||
| $ | 500,181 | ||||
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 a 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 thea quantitative 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.transactions or other acceptable valuation techniques, including the cost approach. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, cost-based assumptions, 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. Subsequent to the adoption of ASU No. 2017-04 in the third quarter of fiscal year 2020, theThe 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 exceeded its fair value, the second step of the goodwill impairment test was performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compared 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 exceeded the implied fair value of that goodwill, an impairment loss was recognized in an amount equal to that excess. The implied fair value of goodwill was 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 bothall of the Company’s reporting units for the fiscal year 2020Fiscal Year 2023 annual impairment tests.test. These assessments considered factors such as:
•macroeconomic conditions;
•industry and market considerations;
•cost factors;
•overall financial performance of the reporting units;
•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.
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During the first quarter of fiscal year 2020,Fiscal Year 2023, the Company performed its most recent annual impairment testtests of goodwill and determined that there were no impairments of goodwill identified for any of its reporting units as of the impairment test date. Based on these impairment tests, the Company’s Entertainment and Tao Group Hospitality reporting units had sufficient safety margins, representing the excess of the estimated fair value of each reporting unit, derived from the most recent quantitative assessments, less its respective carrying value (including goodwill allocated to each respective reporting unit). The most recent quantitative assessments were used in making this determination and due to the proximity of the acquisition date for Tao Group Hospitality to the goodwill impairment test date, the initial purchase price was assumed to be the fair value of the Tao Group Hospitality reporting unit for purposes of the goodwill impairment test. The Company believes that if the fair value of the 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 combinedcondensed consolidated balance sheet as of March 31, 2020:September 30, 2022:
| Trademarks | $ | 61,881 | |
| Photographic related rights | 3,000 | ||
| $ | 64,881 | ||
| Trademarks | $ | 61,881 | |||
| Photographic related rights | 1,920 | ||||
| $ | 63,801 | ||||
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 the qualitative assessment of impairment for the photographic related rights and the majority of the trademarks. These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair valuevalues of the intangible asset.assets. 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.
During the first quarter of fiscal year 2020,Fiscal Year 2023, the Company performed its most recent annual impairment test of the identifiable indefinite-lived intangible assets and determined that there were no impairments identified. Based on these impairment tests, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Potential Interest Rate Risk Exposure:Exposure
The Company, through its subsidiaries, MSG National Properties and MSG Networks, and the consolidation of Tao Group Hospitality, hasis subject to potential interest rate risk exposure related to borrowings incurred under the Tao Senior Secured Credit Facilities.their respective credit facilities. Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under the Tao Senior Secured Credit Facilities.
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Foreign Currency Exchange Rate Exposure:Exposure
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 of land in London in the second quarter of fiscal year 2018 for future MSG Sphere development and through cash and invested funds which will be deployed in the construction of our London venue. We may evaluate and decide, to the extent reasonable and practical, to reduce the translation risk of foreign currency fluctuations by entering into foreign currency forward exchange contracts with financial institutions. If we were to enter into such hedging transactions, the market risk resulting from foreign currency fluctuations is unlikely to be entirely eliminated. We do not plan to enter into derivative financial instrument transactions for foreign currency speculative purposes. During the past 12twelve months ended March 31, 2020,September 30, 2022, the GBP/USD exchange rate ranged from 1.33571.0695 to 1.14911.3967 as compared to GBP/USD exchange rate of 1.24491.3548 as of March 31, 2020,September 30, 2022, a fluctuation range of approximately 7-8%3.09%. As of March 31, 2020,September 30, 2022, a uniform hypothetical 8%14.88% fluctuation in the GBP/USD exchange rate would have resulted in a change of approximately $23,700$27,000 in the Company’s net asset value.
Item 4. Controls and Procedures
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) ofunder the Securities Exchange Act of 1934) during the fiscal quarter ended March 31, 2020September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Fifteen complaints were filed in connection with the Company’s acquisition of MSG Networks Inc. (the “Merger”) by purported stockholders of the Company and MSG Networks Inc.
Nine of these complaints involved allegations of materially incomplete and misleading information set forth in the joint proxy statement/prospectus filed by the Company and MSG Networks Inc. in connection with the Merger. As a result of supplemental disclosures made by the Company and MSG Networks Inc. on July 1, 2021, all of the disclosure actions were voluntarily dismissed with prejudice prior to or shortly following the consummation of the Merger.
Six complaints involved allegations of fiduciary breaches in connection with the negotiation and approval of the Merger and have since been consolidated into two remaining litigations.
On March 29, 2019, a purported stockholder of Madison Square Garden Sports Corp. filed a complaint inSeptember 10, 2021, the Court of Chancery entered an order consolidating two derivative complaints filed by purported Company stockholders. The consolidated action is captioned: In re Madison Square Garden Entertainment Corp. Stockholders Litigation, C.A. No. 2021-0468-KSJM. The consolidated plaintiffs filed their Verified Consolidated Derivative Complaint on October 11, 2021. The complaint, which names the Company as only a nominal defendant, retains all of the Statederivative claims and alleges that the members of the board of directors and controlling stockholders violated their fiduciary duties in the course of negotiating and approving the Merger. Plaintiffs seek, among other relief, an award of damages to the Company including interest, and plaintiffs’ attorneys’ fees. The Company and other defendants filed answers to the complaint on December 30, 2021. The Company substantially completed its production of documents responsive to plaintiffs’ requests on June 24, 2022, and continues to be engaged in responding to plaintiffs’ additional discovery requests. Pursuant to the indemnity rights in its bylaws and Delaware derivativelylaw, the Company is advancing the costs incurred by defendants in this action, and defendants may assert indemnification rights in respect of any adverse judgment or settlement of the action.
On September 27, 2021, the Court of Chancery entered an order consolidating four complaints filed by purported stockholders of MSG Networks Inc. The consolidated action is captioned: In re MSG Networks Inc. Stockholder Class Action Litigation, C.A. No. 2021-0575-KSJM. The consolidated plaintiffs filed their Verified Consolidated Stockholder Class Action Complaint on October 29, 2021. The complaint asserts claims on behalf of Madison Square Garden Sports Corp.,a putative class of former MSG Networks Inc. stockholders against certaineach member of the board of directors of Madison Square Garden Sports Corp. who are members ofMSG Networks Inc. and the Dolan family group and againstcontrolling stockholders prior to the directors of Madison Square Garden Sports Corp. who are members of the Compensation Committee (collectively, the “Director Defendants”). Madison Square Garden Sports Corp. is also named as a nominal defendant in the complaint. The complaint allegesMerger. Plaintiffs allege that the Director DefendantsMSG Networks Inc. board of directors and controlling stockholders breached their fiduciary duties to Madison Square Garden Sports Corp. stockholders in negotiating and approving the compensation packages for James L. Dolan in his capacityMerger. The Company is not named as a defendant but has been subpoenaed to produce documents and testimony related to the Executive Chairman and Chief Executive Officer of Madison Square Garden Sports Corp. The complaint seeksMerger. Plaintiffs seek, among other relief, monetary damages for the putative class and plaintiffs’ attorneys’ fees. Defendants to the MSG Networks Inc. consolidated action filed answers to the complaint on December 30, 2021. The Company substantially completed its production of documents responsive to plaintiffs’ requests on June 24, 2022, and continues to be engaged in an unspecified amount fromresponding to plaintiffs’ additional discovery requests.Pursuant to the Director Defendantsindemnity rights in favor of Madison Square Garden Sports Corp.; rescission of Mr. Dolan’s employment agreements; restitutionits bylaws and disgorgementDelaware law, the Company is advancing the costs incurred by Mr. Dolandefendants in this action, and defendants may assert indemnification rights in respect of his compensation; and costs and disbursementsany adverse judgment or settlement of the action.
On September 19, 2022, the Court of Chancery approved a case schedule, governing the two consolidated actions, which set tentative trial dates for the plaintiff. On June 5, 2019, Madison Square Garden Sports Corp.’s Board of Directors formed a Special Litigation Committee to investigate the claims made by the plaintiff andApril 2023.
We are currently unable to determine Madison Square Garden Sports Corp.’s response thereto. The litigationa range of potential liability, if any, with respect to these Merger-related claims. Accordingly, no accrual for these matters has been stayed while the Special Litigation Committee’s work is ongoing.made in our financial statements.
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty (including the extent of available insurance)insurance, if any), management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
Item 1A.2. Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
(a)Index to Exhibits
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended | ||||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 159th day of May 2020.November 2022.
| Madison Square Garden Entertainment Corp. | ||||||||
| By: | /S/ | |||||||
| Name: | ||||||||
| Title: | Executive Vice President and Chief Financial Officer | |||||||
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