Business context and reporting period
Madison Square Garden Entertainment Corp. filed this Form 10-K for the fiscal year ended June 30, 2021. The request references “2020 Q4,” but the source is an annual FY2021 filing, not a quarterly filing. FY2021 results reflect severe COVID-19 disruption and are not directly comparable with FY2020 because FY2020 included carve-out results before the April 17, 2020 Entertainment Distribution.
The Company operated two reportable segments at June 30, 2021: Entertainment, including Madison Square Garden, Radio City Music Hall, the Beacon Theatre, The Chicago Theatre, Christmas Spectacular, Boston Calling and MSG Sphere development; and Tao Group Hospitality, including the Hakkasan business acquired in April 2021. The MSG Networks merger closed on July 9, 2021 and therefore was not consolidated in FY2021 results.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $180.4 million | $762.9 million | Down 76% |
| Operating loss | $450.2 million | $59.8 million | Worsened by $390.4 million |
| Adjusted operating loss | $271.0 million | $43.3 million | Worsened by $227.7 million |
| Net loss | $430.5 million | $14.7 million | Worsened by $415.8 million |
| Net loss attributable to Company stockholders | $412.1 million | Net income of $17.2 million | Turned sharply negative |
| Basic and diluted loss per share | $17.39 | Income per share of $0.72 | Turned sharply negative |
| Cash flow from operations | $(289.5) million | $96.0 million | Declined by $385.5 million |
| Capital expenditures | $452.2 million | $452.4 million | Essentially unchanged |
Operating and net margins were deeply negative in FY2021: approximately negative 249.6% and negative 238.6%, respectively, based on reported revenue. Adjusted operating margin was approximately negative 150.2%.
- Entertainment: Revenue was $82.3 million, down 86%. Operating loss was $391.0 million versus operating income of $71.0 million in FY2020. Adjusted operating loss was $254.9 million versus $44.3 million.
- Tao Group Hospitality: Revenue was $100.2 million, down 44%. Operating loss improved to $29.4 million from $102.6 million, primarily because FY2020 included $94.9 million of impairment charges. Adjusted operating loss was $15.2 million versus adjusted operating income of $1.5 million.
- MSG Networks, reported separately for reference: FY2021 revenue was $647.5 million, down 6%; operating income was $262.0 million, down 11%. These figures were not included in the Company’s FY2021 consolidated results because the merger closed after year-end.
Liquidity, debt and cash flow
Cash, cash equivalents and restricted cash totaled $1.192 billion at June 30, 2021, including $1.169 billion of cash and cash equivalents and $23.0 million of restricted cash. Management stated that it believed available liquidity was sufficient to fund operations, debt service and MSG Sphere development for the following 12 months, although the Company was consuming cash from operations.
- Net cash used in operating activities was $289.5 million.
- Net cash used in investing activities was $84.4 million.
- Net cash provided by financing activities was $633.3 million, principally reflecting the new National Properties Term Loan Facility.
- Reported long-term debt, net of deferred financing costs, was $655.1 million, plus $5.7 million of current debt.
- The National Properties Term Loan Facility was $650 million, matured in November 2025, carried a 7.00% interest rate at year-end and had $646.8 million of principal outstanding before deferred financing costs.
- Tao debt included $22.5 million outstanding under the term loan and $15.0 million under the revolving facility. Tao’s amended credit agreement suspended certain financial covenants through December 31, 2021 and required minimum liquidity of $75 million under the Company guarantee structure.
- MSG Networks separately had $1.048 billion outstanding under its term loan and no revolving borrowings at June 30, 2021; this debt became relevant to the combined company after the July 2021 merger.
Material changes versus the prior comparable period
- COVID-19 caused venue closures, capacity restrictions, event cancellations and reduced demand for most of FY2021. The 2020 Christmas Spectacular and both the 2020 and 2021 Boston Calling festivals were canceled.
- Entertainment revenue declined by $502.9 million, including lower event revenue, the canceled Christmas Spectacular, reduced suite licensing, lower sponsorship and signage revenue, and the absence of Forum revenue following its May 2020 sale.
- Tao revenue declined by $80.0 million due to closures, capacity limits and permanent venue closures, partially offset by $27.6 million of revenue from Hakkasan after its April 2021 acquisition.
- The Company recorded $21.3 million of restructuring charges related primarily to workforce reductions of approximately 360 employees.
- FY2020 included a $105.8 million non-cash impairment charge and a $240.8 million gain on the Forum disposal; neither recurred in FY2021.
- MSG Sphere construction spending remained substantial. The estimated total cost increased approximately 10% to $1.865 billion as of June 2021, net of the $75 million Sands contribution. Approximately $850 million had been incurred through June 30, 2021, net of $65 million received from Sands.
- Hakkasan contributed $27.6 million of FY2021 revenue and $2.9 million of net income since acquisition; its purchase price allocation remained preliminary.
Guidance, outlook, commentary, risks and unusual items
Management expected live-event bookings to remain affected through calendar 2021 because touring acts require substantial lead time to schedule. The 2021 Christmas Spectacular was on sale with 163 planned performances versus 199 in 2019. Management expected MSG Sphere Las Vegas to open in calendar 2023, subject to construction, supply-chain, technology and financing risks.
Principal risks include renewed pandemic restrictions, weak attendance or discretionary spending, delays and cost overruns at MSG Sphere, the need for additional financing, floating-rate debt exposure, potential Tao covenant waivers or defaults, venue lease renewals, labor disputes, competition, cybersecurity incidents, dependence on MSG Sports and related-party arrangements, and integration of MSG Networks.
Merger-related stockholder litigation remained outstanding after the July 2021 transaction. The Company stated that it could not estimate potential liability and recorded no accrual. The filing also disclosed that approximately 33% of employees were union-represented, with a significant portion covered by expired or expiring collective bargaining agreements.
Important facts for investors to verify
- Whether venue attendance, touring schedules, Christmas Spectacular performances and Tao operating capacity recovered as projected after FY2021.
- The final cost, financing plan, construction progress and opening date for MSG Sphere Las Vegas.
- Post-merger combined results, including MSG Networks revenue, cash flow, debt and potential synergies.
- Tao Group Hospitality’s compliance with credit covenants and any required waivers or additional Company funding.
- Actual cash burn, available liquidity and scheduled debt repayments, including the large National Properties maturity in November 2025.
- The final purchase accounting for Hakkasan and potential obligations associated with redeemable noncontrolling-interest put rights.
- Resolution and financial exposure from merger-related litigation and other contingencies.