Business Context and Reporting Period
Madison Square Garden Sports Corp. owns and operates the New York Knicks, New York Rangers, Hartford Wolf Pack, Westchester Knicks, Knicks Gaming, and a controlling interest in Counter Logic Gaming. The Knicks and Rangers play at Madison Square Garden under long-term arena license agreements with MSG Entertainment. The filing is the Form 10-K for the fiscal year ended June 30, 2022, not a 2021 fourth-quarter filing. The Company reports one operating segment.
Fiscal 2022 reflected a substantial recovery from COVID-19-related restrictions in fiscal 2021. The Knicks and Rangers completed full 82-game regular seasons, and the Rangers played 10 home playoff games.
Financial Highlights
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $821.4 million | $415.7 million | 98% |
| Operating income (loss) | $86.1 million | $(78.4) million | Improved $164.5 million |
| Net income (loss) | $48.9 million | $(15.9) million | Improved $64.8 million |
| Net income attributable to MSG Sports stockholders | $51.1 million | $(14.0) million | Improved $65.1 million |
| Diluted EPS | $2.10 | $(0.58) | Improved $2.68 |
| Adjusted operating income | $142.2 million | $(12.5) million | Improved $154.7 million |
| Net cash provided by operating activities | $178.1 million | $(35.3) million | Improved $213.4 million |
Reported operating margin was approximately 10.5%, compared with negative 18.9% in fiscal 2021. Adjusted operating margin was approximately 17.3%, compared with negative 3.0% in fiscal 2021. The filing does not present a comparable quarterly or 2021 Q4 metric.
- Revenue composition included event-related revenue of $331.8 million, media rights revenue of $275.6 million, sponsorship, signage and suite license revenue of $172.8 million, and league distributions and other revenue of $41.1 million.
- Direct operating expenses increased 78% to $500.6 million, primarily because games and attendance returned to more normal levels, arena license fees resumed at full contractual amounts, and league revenue-sharing expenses increased.
- Selling, general and administrative expenses increased 11% to $229.7 million.
- League revenue-sharing and NBA luxury-tax-related net provisions increased to $57.8 million from a $37.7 million net credit in the prior year. Separately, disclosed fiscal 2022 NBA and NHL revenue-sharing expenses were approximately $34.2 million and $48.2 million, respectively.
- Cash and cash equivalents were $91.0 million at June 30, 2022, versus $64.9 million at June 30, 2021; restricted cash declined to zero from $7.1 million.
- Total debt was $250.0 million: $220.0 million outstanding under the Knicks revolving credit facility and a $30.0 million NHL advance. No amount was outstanding under the Rangers revolving facility.
- The Company reported $305.0 million of additional available borrowing capacity under existing credit facilities and stated that available liquidity was sufficient to fund operations for the foreseeable future.
- Total operating lease liabilities were $743.3 million, including long-term commitments associated with the Garden license agreements extending through 2055.
- Stockholders’ equity was negative $147.1 million, and total equity including noncontrolling interests was negative $145.4 million at year-end.
Material Changes Versus the Prior Comparable Period
- Revenue increased $405.6 million, driven by higher attendance and ticket-related revenue, increased suite license revenue, Rangers playoff activity, higher sponsorship and signage revenue, stronger food, beverage and merchandise sales, and increased local media rights fees.
- Event-related revenue increased to $331.8 million from $28.5 million, while sponsorship, signage and suite license revenue increased to $172.8 million from $52.9 million.
- Media rights revenue declined to $275.6 million from $285.1 million because fiscal 2021 included certain delayed prior-season league distributions and an NHL expansion fee, partially offset by contractual rate increases and more games.
- The Rangers’ 10 home playoff games in fiscal 2022 compared with three Knicks home playoff games in fiscal 2021 materially benefited playoff revenue and expenses.
- Operating results benefited from the removal of most government-mandated capacity restrictions, but attendance remained affected by reduced tourism and periodic COVID-19 case increases.
- Financing cash outflows were $156.1 million, primarily reflecting $135.0 million of Rangers facility repayments and financing costs. No share repurchases were made during fiscal 2022.
- The Company began paying full contractual Garden license fees effective July 1, 2021, whereas payments had been substantially reduced during the prior year’s restricted operations.
Guidance, Outlook, Commentary and Risks
The filing does not provide quantitative fiscal 2023 revenue or earnings guidance. Management’s outlook depends on continued attendance, team popularity and competitive performance, sponsorship demand, media rights, consumer spending, and the availability of the Garden.
- COVID-19 remains a material contingency. Renewed variants, government restrictions, league actions, reduced tourism, or consumer reluctance to attend could reduce ticket, premium seating, sponsorship, food, beverage, merchandise and media-rights revenue.
- The NBA collective bargaining agreement may be terminated after the 2022-23 season and otherwise expires after the 2023-24 season. The NHL agreement expires after the 2025-26 season, subject to a possible extension. Strikes, lockouts or other labor disputes could interrupt games.
- Floating-rate debt creates interest-rate exposure. A hypothetical 100-basis-point increase in floating rates was estimated to increase annual interest expense by approximately $2.2 million.
- Debt facilities contain financial covenants and potential mandatory repayment provisions tied to qualified revenues and media-rights revenue. A shortened or cancelled season could create covenant or liquidity pressure.
- The Company does not own the Garden. Its arena license agreements expire in 2055, and the business is exposed to MSG Entertainment’s performance, venue regulations, permits, operating condition and related-party terms.
- The Company is exposed to substantial player compensation, salary floors and caps, revenue sharing, luxury-tax rules, player injuries, contract terminations and competitive decisions that can produce volatile expenses.
- The Garden benefits from a New York City real estate tax exemption valued at $41.9 million for fiscal 2022. Repeal or modification could materially increase costs.
- Related-party arrangements are significant. Revenue from MSG Networks was $163.0 million, or 20% of fiscal 2022 revenue, and the Company incurred substantial charges under arena, services and sponsorship agreements with MSG Entertainment.
- The Dolan Family Group held approximately 70.6% of aggregate voting power at June 30, 2022, limiting change-of-control potential and creating governance and related-party conflict considerations.
- Goodwill of $227.0 million and indefinite-lived intangible assets of $112.1 million had no impairment in fiscal 2022, but future impairment testing depends on projected cash flows, valuations and market conditions.
Most Important Facts for Investors to Verify
- Confirm the reporting period: this is a fiscal-year 2022 Form 10-K filed August 18, 2022, rather than a 2021 Q4 report.
- Reconcile the recovery in revenue and profitability against normalized attendance, ticket pricing, playoff frequency and the absence of COVID-19 restrictions.
- Review the sustainability of $178.1 million of operating cash flow, including the impact of deferred revenue and working-capital movements.
- Verify debt maturities, covenant compliance, floating-rate exposure and the $30.0 million NHL advance payable on demand.
- Assess the long-term economic burden of the Garden license agreements, including $2.29 billion of undiscounted lease payments and annual 3% license-fee escalators.
- Evaluate dependence on MSG Entertainment and MSG Networks, including the related-party revenue and expense allocations.
- Monitor NBA and NHL labor negotiations, COVID-19 developments, team performance, attendance trends and media-rights arrangements.
- Consider negative stockholders’ equity, the absence of dividends, the remaining $259.6 million repurchase authorization, and the Company’s controlled-company governance structure.