Business Context and Reporting Period
Madison Square Garden Sports Corp. owns 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, 2021, not a standalone 2020 fourth-quarter filing. Fiscal 2021 results reflect the continuing sports business after the April 17, 2020 distribution of MSG Entertainment. Historical MSG Entertainment results are presented as discontinued operations, limiting comparability with prior periods.
Key Financial Metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $415.7 million | $603.3 million | Down 31% |
| Operating loss | $78.4 million | $93.9 million | Improved 16% |
| Adjusted operating loss | $12.5 million | $27.5 million | Improved 54% |
| Loss from continuing operations | $15.9 million | $118.6 million | Improved $102.7 million |
| Net loss attributable to MSG Sports stockholders | $14.0 million | $182.4 million | Improved 92% |
| Basic and diluted loss per share | $0.58 | $7.62 | Improved |
| Net cash used in operating activities | $35.3 million | $3.6 million provided | Deteriorated |
Revenue mix was $285.1 million from media rights, $52.9 million from sponsorship, signage and suite licenses, $49.2 million from league distributions and other revenue, and $28.5 million from event-related activities. The approximate operating margin was negative 18.9%, compared with negative 15.5% in FY2020. The adjusted operating margin was approximately negative 3.0%, compared with negative 4.6%.
FY2021 income tax benefit was $73.4 million, primarily due to a $52.1 million reduction in the deferred tax valuation allowance. This benefit substantially reduced the reported net loss and is not indicative of operating profitability.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $64.9 million at June 30, 2021; cash, cash equivalents and restricted cash totaled $72.0 million.
- Available borrowing capacity under existing facilities was approximately $245 million, according to management.
- Outstanding debt included $220 million under the Knicks revolving credit facility, $135 million under the Rangers revolving credit facility and a $30 million NHL advance payable on demand, for total debt of approximately $385 million.
- The Knicks and Rangers revolving facilities mature in November 2023. The facilities carry floating rates; a hypothetical 100-basis-point increase in rates would increase annual interest expense by approximately $3.6 million.
- Operating lease liabilities totaled $733.1 million, principally related to the Garden license agreements, which run through 2055. Total undiscounted operating lease payments were $2.34 billion.
- Management stated that available cash and borrowing capacity were sufficient to fund operations and satisfy obligations over the following 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue declined $187.6 million, primarily because games were played without fans or at limited capacity, reducing ticket, suite, food, beverage, merchandise, sponsorship and signage revenue.
- Ticket-related revenue decreased $192.4 million, suite license revenue decreased $67.4 million, and food, beverage and merchandise revenue decreased $35.6 million.
- League distributions increased $98.3 million, including a $21.0 million NHL expansion fee and recognition of league revenue delayed from FY2020. Local media rights revenue increased $7.1 million.
- Direct operating expenses declined 22% to $281.9 million, while selling, general and administrative expenses declined 35% to $206.7 million, partly reflecting post-distribution cost reductions and lower corporate overhead.
- Team personnel transaction costs increased to $44.2 million from $33.7 million, including $21.0 million of waiver and contract termination costs and $2.6 million of player trade costs.
- Operating cash flow shifted from $3.6 million provided in FY2020 to $35.3 million used in FY2021.
- The Knicks returned to the playoffs, while the Rangers did not. The Knicks played three home playoff games with attendance of approximately 15,000 to 16,500 per game.
- No shares were repurchased during FY2021. Approximately $259.6 million remained under the $525 million repurchase authorization, and no cash dividends were paid.
Outlook, Risks and Unusual Items
The filing provides no formal quantitative revenue or earnings guidance. Management’s outlook depends heavily on the continued availability of the Garden, unrestricted or substantially unrestricted attendance, the number of games played, team popularity and competitive performance, media rights agreements and discretionary consumer and corporate spending.
- COVID-19 remained the principal uncertainty. The 2020-21 NBA and NHL regular seasons were shortened to 72 and 56 games, respectively, versus the traditional 82-game schedules. Local media rights revenue was reduced by approximately $16 million and league-wide media rights revenue by approximately $1 million due to fewer games.
- Future variants, government restrictions, vaccination requirements, league protocols or renewed capacity limits could materially reduce revenue and could trigger debt covenant issues or repayment requirements.
- The company does not own the Garden and depends on MSG Entertainment under arena, media, sponsorship, transition services and other related-party agreements. Related-party revenue was $147.0 million, or approximately 35% of FY2021 revenue.
- The Knicks and Rangers are substantially dependent on league decisions, collective bargaining agreements, player health, salary rules, revenue sharing and potential work stoppages. NBA and NHL CBAs contain salary floors and other mechanisms that limit cost flexibility.
- The Dolan Family Group controlled approximately 70.7% of total voting power and can control or block significant corporate actions, including changes in control.
- Management identified no goodwill or indefinite-lived intangible asset impairment as of June 30, 2021, but warned that prolonged COVID-19 effects could result in future impairment charges.
- The company recorded $30.4 million of share-based compensation, including approximately $7.4 million related to cancellation of a one-time equity award following a shareholder derivative settlement.
- The 2021 tax benefit included reversal of the deferred tax valuation allowance. Future tax expense could increase if deferred tax assets are no longer considered realizable.
Important Facts for Investors to Verify
- Reconcile continuing-operations results with the post-MSG Entertainment distribution capital structure and related-party arrangements before comparing with FY2020 or FY2019.
- Confirm the availability, maturity dates, covenants and collateral supporting the Knicks and Rangers credit facilities, including the $30 million NHL advance payable on demand.
- Monitor attendance restrictions, vaccination policies, game schedules, playoff participation and any renewed COVID-19 or league disruptions.
- Review the economic terms and revenue allocations under the Garden license, media rights, sponsorship and transition services agreements with MSG Entertainment.
- Assess whether operating cash flow can return to positive levels while funding player obligations, lease payments, debt service and deferred revenue obligations of approximately $146.3 million.
- Evaluate the sustainability of earnings excluding the $73.4 million FY2021 income tax benefit and other noncash adjustments included in adjusted operating loss.
- Review concentration risk: MSG Networks accounted for approximately 35% of FY2021 revenue, while one other non-affiliated customer accounted for approximately 32%.