Business Context and Reporting Period
Madison Square Garden Sports Corp. owns and operates the New York Knicks, New York Rangers, Hartford Wolf Pack and Westchester Knicks, with the Knicks and Rangers playing at Madison Square Garden. The Company reports one operating segment. This unaudited Form 10-Q covers the quarter and six months ended December 31, 2023, representing fiscal second-quarter 2024; results are seasonal, with revenues concentrated in the second and third fiscal quarters.
Key Financial Metrics
| Metric | Three months ended Dec. 31, 2023 | Year-over-year change | Six months ended Dec. 31, 2023 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $326.9 million | Down 8% | $369.9 million | Down 2% |
| Operating income | $28.8 million | Down 44% | $14.0 million | Down 10% |
| Operating margin | 8.8% | Down from 14.6% | 3.8% | Down from 4.1% |
| Adjusted operating income | $37.0 million | Down 43% | $27.0 million | Down 26% |
| Net income attributable to MSG Sports | $14.2 million | Down 37% | $(4.6) million | Compared with $4.7 million income |
| EPS, diluted | $0.59 | Down from $0.84 | $(0.19) | Compared with $0.11 |
| Cash flow from operations | Not separately reported for the quarter | — | $(20.3) million | Compared with $31.6 million provided |
Quarterly net income margin was approximately 4.4%; the six-month period produced a net loss margin of approximately 1.2%. Six-month revenue included $128.3 million of event-related revenue, $129.8 million of media rights revenue, $74.6 million of sponsorship, signage and suite-license revenue, and $37.3 million of league distributions and other revenue.
At December 31, 2023, cash and cash equivalents were $37.9 million, restricted cash was $3.4 million, and total cash, cash equivalents and restricted cash were $41.2 million. Total debt was $360.0 million, consisting of $330.0 million under revolving credit facilities and a $30.0 million NHL advance. Operating lease liabilities totaled $791.7 million. Management reported approximately $195.0 million of additional borrowing capacity and stated that liquidity was sufficient for foreseeable needs.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because the Knicks and Rangers played fewer home games at The Garden. Ticket-related revenue decreased $19.0 million in the quarter and $18.7 million for the six-month period; suite revenue and sponsorship and signage revenue also declined.
- Higher local media rights fees and league distributions partially offset the event-related revenue declines.
- Direct operating expenses increased 3% in both the quarter and six-month period, mainly from higher team personnel compensation and league revenue-sharing and NBA luxury-tax provisions. These increases were partly offset by lower arena lease costs resulting from fewer home games.
- Selling, general and administrative expenses decreased 14% in the quarter and 9% for six months, primarily because the prior-year periods included higher executive management transition costs and other compensation expenses.
- Net interest expense increased 23% in the quarter and 57% for six months because of higher average interest rates and borrowings.
- Miscellaneous income was $3.0 million in the quarter, helped by unrealized gains on Xtract One investments and warrants. For six months, miscellaneous expense was $9.7 million, primarily reflecting unrealized losses on those investments and warrants.
- Operating cash flow moved from $31.6 million provided in the prior-year six-month period to $20.3 million used, driven by lower earnings and unfavorable working-capital movements, including employee compensation, league revenue-sharing and tax payments.
Outlook, Risks, Contingencies and Unusual Items
The filing does not provide quantitative full-year revenue or earnings guidance. Management expects seasonality to continue, with a disproportionate share of revenue generated when the teams play most of their games. Remaining performance obligations totaled $389.4 million as of December 31, 2023, including $112.9 million expected in the remainder of fiscal 2024.
- Key risks include team popularity and competitiveness, player injuries and compensation, NBA and NHL rules and collective bargaining agreements, luxury-tax and revenue-sharing obligations, economic conditions, sponsorship demand, work stoppages, public-health events, security incidents, litigation, affiliate performance and interest-rate increases.
- The Knicks and Rangers revolving facilities mature December 14, 2026. Their December 31, 2023 outstanding balances were $275.0 million and $55.0 million, with stated interest rates of 6.71% and 7.21%, respectively. Both subsidiaries were in compliance with their 1.5-to-1.0 debt-service covenants.
- A hypothetical 100-basis-point increase in floating rates would increase annual interest expense by approximately $3.3 million based on borrowings outstanding at December 31, 2023.
- The Company had no material changes in contractual obligations other than ordinary-course activity. It is party to various lawsuits, but management does not expect their resolution to have a material adverse effect.
- Annual impairment testing identified no impairment of goodwill or indefinite-lived intangible assets. The Company also completed a New York City tax audit with no material changes.
- The Company made no share repurchases during the quarter and had approximately $184.6 million remaining under its repurchase authorization.
Important Facts for Investors to Verify
- Whether home-game attendance, per-game pricing and premium hospitality revenue offset the impact of fewer scheduled home games in subsequent quarters.
- The sustainability of higher team personnel costs, league revenue-sharing provisions and interest expense.
- Actual operating cash generation and working-capital requirements during the seasonally stronger second half of fiscal 2024.
- Available capacity and covenant headroom under the Knicks and Rangers revolving credit facilities, particularly if floating interest rates remain elevated.
- The valuation volatility and potential future gains or losses associated with Xtract One shares and warrants and the Company’s NRG investment.
- The terms and economics of related-party arrangements with MSG Entertainment, Sphere Entertainment and MSG Networks, which generated $86.5 million of related-party revenue during the six-month period.