Business Context and Reporting Period
Madison Square Garden Entertainment Corp. filed this Form 10-K for the fiscal year ended June 30, 2022. The requested “2021 Q4” period does not match the filing’s reporting period; the filing includes quarterly data for the three months ended June 30, 2022 and comparative fiscal-year results for 2021 and 2020.
The Company operates three segments: Entertainment, MSG Networks, and Tao Group Hospitality. Fiscal 2022 includes a full year of Hakkasan operations following its April 2021 acquisition and the retrospectively consolidated MSG Networks business following the July 2021 merger.
Key Financial Metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Revenue | $1.725 billion | $814.2 million | Up 112% |
| Operating income (loss) | $(102.7) million | $(188.2) million | Improved $85.5 million |
| Net income (loss) | $(190.1) million | $(166.5) million | Worsened $23.6 million |
| Net loss attributable to shareholders | $(194.4) million | $(148.2) million | Worsened $46.2 million |
| Adjusted operating income | $133.6 million | $40.2 million | Improved $93.4 million |
| Cash flow from operations | $141.3 million | $(58.7) million | Improved $200.0 million |
| Capital expenditures, including capitalized interest | $805.2 million | $490.9 million | Higher by approximately $314.3 million |
Fiscal 2022 revenue growth primarily reflected the return of live events, full NBA and NHL telecast schedules, and the inclusion of a full year of Hakkasan operations. The Company remained loss-making under GAAP. Net loss was affected by $49.8 million of unrealized and realized investment losses, including losses on DraftKings and Townsquare Media, and a $35.8 million loss on debt extinguishment.
Segment results were:
- Entertainment: Revenue of $655.4 million, operating loss of $250.6 million, and adjusted operating loss of $118.4 million. Revenue increased $573.1 million as venues reopened, the Christmas Spectacular returned in shortened form, Boston Calling resumed, and Knicks and Rangers games were held without capacity restrictions.
- MSG Networks: Revenue of $608.2 million, operating income of $131.0 million, and adjusted operating income of $185.8 million. Revenue declined 6%, primarily because Comcast stopped carrying the networks on October 1, 2021 and subscriber counts declined approximately 7% excluding certain non-renewals.
- Tao Group Hospitality: Revenue of $484.9 million, operating income of $37.3 million, and adjusted operating income of $67.2 million, compared with an adjusted operating loss of $11.5 million in Fiscal 2021. Results benefited from Hakkasan and the recovery of venue operations.
At June 30, 2022, cash and cash equivalents were $828.5 million, or $846.0 million including restricted cash. Approximately $277 million of cash represented advance proceeds, primarily from tickets, suites, and sponsorships. Total assets were $5.52 billion, total liabilities were $3.36 billion, and redeemable noncontrolling interests were $184.2 million.
Debt consisted primarily of $998.3 million of MSG Networks debt, $679.1 million under the National Properties facilities, and $85.0 million under Tao facilities, for total principal debt of approximately $1.763 billion. Scheduled Fiscal 2023 principal repayments were $78.5 million. The Company stated that it was in compliance with applicable debt covenants at June 30, 2022.
Material Changes Versus the Prior Comparable Period
- Revenue more than doubled as live entertainment, sports, dining, and nightlife operations largely resumed following severe Fiscal 2021 restrictions.
- Entertainment revenue increased from $82.3 million to $655.4 million, but the segment still generated a $250.6 million operating loss.
- MSG Networks revenue declined $39.4 million. The Comcast non-carriage reduced MSG Networks subscribers by approximately 10% from October 1, 2021 and is expected to reduce revenue and segment profit for as long as the agreement remains unresolved.
- Tao Group Hospitality shifted from an operating loss of $29.4 million to operating income of $37.3 million, although the comparison is affected by Hakkasan’s inclusion for only approximately two months in Fiscal 2021 versus a full year in Fiscal 2022.
- Operating cash flow turned positive, but investing cash use increased to $804.2 million, mainly due to MSG Sphere construction.
- MSG Sphere construction costs incurred through June 30, 2022 were approximately $1.53 billion, net of $65 million received from The Venetian. The estimated total cost was approximately $2.0 billion, net of the full $75 million Venetian contribution.
- Interest expense increased to $22.9 million from $17.2 million, while $48.5 million of interest was capitalized into construction in progress.
- The Company identified and remediated a previously reported material weakness related to capitalization of MSG Sphere interest. Management and Deloitte concluded internal control over financial reporting was effective as of June 30, 2022.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected MSG Sphere at The Venetian to open in the second half of calendar 2023. The project is planned as a 17,500-seat venue, but its cost estimate and opening date remain subject to construction, supply-chain, labor, inflation, technology, and financing risks. The ground lease requires substantial completion by September 30, 2023, subject to permitted extensions, or The Venetian may have termination rights.
The Company believed existing cash and future operating cash flow would fund operations, debt service, and completion of the Las Vegas Sphere. It acknowledged that additional capital, including incremental debt, could be required if cash flow and cash on hand are insufficient.
On August 18, 2022, after year-end, the Board approved exploration of a potential tax-free spin-off. The proposed SpinCo would include the traditional live entertainment businesses and MSG Networks; RemainCo would include MSG Sphere, Tao Group Hospitality, and other assets. Completion would require, among other conditions, league approvals, a tax opinion, and final Board approval. The filing does not provide a definitive completion date or assurance that the transaction will occur.
- COVID-19 variants could again cause event cancellations, capacity restrictions, lower attendance, staffing issues, or reduced hospitality demand.
- MSG Networks faces distributor concentration, subscriber declines, Comcast non-carriage, changing media consumption, advertising volatility, and future media-rights renewal risk.
- The Company is highly leveraged, has floating-rate debt, and faces material refinancing and maturity exposure, including the MSG Networks term loan maturity in October 2024.
- MSG Sphere could require more capital than currently estimated and may not achieve its technical, artistic, commercial, or operating objectives.
- Labor relations remain a risk: approximately 38% of employees were union-represented, with approximately 44% of union employees subject to agreements expiring by June 30, 2023 if not extended.
- Two merger-related stockholder litigations remained pending. The Company could not estimate potential liability and recorded no accrual.
- The Madison Square Garden Complex benefited from a $41.9 million New York City real estate tax exemption in Fiscal 2022; repeal or modification could adversely affect results.
- The Company has approximately $3.90 billion of disclosed off-balance-sheet commitments, including broadcast rights, construction commitments, purchase commitments, and other obligations.
Most Important Facts for an Investor to Verify
- Confirm that the relevant reporting period is Fiscal 2022, ended June 30, 2022, rather than “2021 Q4.”
- Reconcile GAAP losses with adjusted operating income and review the exclusions used in the non-GAAP measure.
- Track MSG Sphere’s construction spending, updated cost estimate, completion deadline, opening date, and funding requirements.
- Monitor Comcast carriage negotiations, MSG Networks subscriber trends, affiliation revenue, and the October 2024 MSG Networks debt maturity.
- Assess whether positive operating cash flow can support Sphere construction, scheduled debt repayments, leases, broadcast rights, and other commitments.
- Review the proposed SpinCo/RemainCo separation, including tax, league approval, governance, capitalization, and allocation of cash and debt.
- Evaluate exposure to floating interest rates, labor negotiations, renewed pandemic restrictions, and unresolved merger-related litigation.
- Review related-party arrangements with MSG Sports, AMC Networks, and Dolan family entities, including media-rights fees, arena agreements, shared services, sponsorships, and aircraft arrangements.