Business Context and Reporting Period
Madison Square Garden Sports Corp. owns and operates the New York Knicks, New York Rangers, development-league teams, and esports businesses, including a controlling interest in Counter Logic Gaming. The Company reports one operating segment. This unaudited Form 10-Q covers the quarter and nine months ended March 31, 2022, compared with the comparable periods ended March 31, 2021. Although the request identifies “2021 Q3,” the filing is for fiscal 2022 third quarter.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Nine Months Ended March 31, 2022 | Nine Months Ended March 31, 2021 |
|---|---|---|---|---|
| Revenue | $337.8 million | $183.0 million | $646.1 million | $268.8 million |
| Operating income (loss) | $61.4 million | $8.1 million | $62.4 million | $(57.7) million |
| Net income (loss) | $23.9 million | $5.1 million | $22.2 million | $(65.1) million |
| Net income (loss) attributable to MSG Sports stockholders | $24.5 million | $5.5 million | $23.9 million | $(63.6) million |
| Diluted EPS | $1.00 | $0.22 | $0.98 | $(2.64) |
| Adjusted operating income | $81.5 million | $30.0 million | $109.0 million | $(6.7) million |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $64.2 million | $(54.4) million |
Third-quarter operating margin was approximately 18.2%, compared with 4.4% in the prior-year quarter. Nine-month operating margin was approximately 9.7%, compared with negative 21.5% in the prior-year period. Adjusted operating income is a non-GAAP measure.
Revenue Composition
| Revenue Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Nine Months Ended March 31, 2022 | Nine Months Ended March 31, 2021 |
|---|---|---|---|---|
| Event-related | $119.7 million | $4.6 million | $232.7 million | $4.6 million |
| Media rights | $124.8 million | $140.0 million | $243.7 million | $212.5 million |
| Sponsorship, signage and suite licenses | $76.7 million | $25.4 million | $138.4 million | $32.3 million |
| League distributions and other | $16.5 million | $13.1 million | $31.4 million | $19.5 million |
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $49.2 million at March 31, 2022, versus $64.9 million at June 30, 2021. Cash, cash equivalents and restricted cash totaled $50.2 million.
- Management reported approximately $240.0 million of additional borrowing capacity under existing credit facilities and believes liquidity is sufficient to fund operations and obligations for the foreseeable future.
- Total debt was $315.0 million, consisting of $220.0 million outstanding under the Knicks revolving facility, $65.0 million under the Rangers revolving facility, and a $30.0 million NHL advance. The balance sheet classified $285.0 million as long-term debt and $30.0 million as current debt.
- The Knicks and Rangers revolving facilities were amended and extended to December 14, 2026, with maximum commitments of $275.0 million and $250.0 million, respectively. Both subsidiaries were in compliance with their 1.5:1.0 debt-service covenants at March 31, 2022.
- The Company repaid $70.0 million under the Rangers facility during the nine months and an additional $15.0 million on April 27, 2022.
- Operating lease liabilities totaled $747.1 million, including substantial long-term obligations associated with The Garden and office facilities. Remaining undiscounted operating lease payments totaled $2.3 billion.
- Total equity was negative $177.9 million at March 31, 2022, improving from negative $201.9 million at June 30, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue increased 85% in the third quarter, primarily because the prior-year period was affected by government-mandated attendance restrictions at The Garden. The Knicks and Rangers operated under substantially greater attendance restrictions in the prior-year period.
- Nine-month revenue increased by $377.3 million. The largest increases were in ticket-related revenue, suite licenses, sponsorship and signage, and food, beverage and merchandise sales.
- Direct operating expenses increased 63% in the quarter and were driven by higher league revenue-sharing and NBA luxury-tax provisions, higher team operating expenses, increased arena lease costs, and higher event-related costs.
- Selling, general and administrative expense increased 47% in the quarter and 24% for the nine-month period, primarily due to higher employee compensation, marketing, sponsorship commissions, and transition-service costs.
- The Company moved from a nine-month operating loss of $57.7 million to operating income of $62.4 million and from a nine-month net loss attributable to stockholders of $63.6 million to net income of $23.9 million.
- Operating cash flow improved to $64.2 million from cash usage of $54.4 million, while financing activities used $85.0 million compared with providing $42.2 million in the prior-year period, principally because of debt repayments and the absence of prior-year borrowings and the NHL advance.
- Income tax expense increased materially to $35.0 million for the quarter and $30.9 million for the nine months. Reported effective tax rates were approximately 59% and 58%, respectively.
Guidance, Outlook, Commentary and Risks
- The Knicks and Rangers completed full 82-game regular seasons in April 2022; the Rangers were competing in the playoffs as of the filing date. No quantitative full-year revenue or earnings guidance was provided.
- New York City and New York State had lifted applicable capacity and vaccination restrictions for indoor venues by the filing date. Management nevertheless noted that attendance remained affected by COVID-19 variants and reduced tourism.
- Renewed COVID-19 concerns, governmental or league restrictions, reduced attendance, economic weakness, and lower discretionary spending could materially affect ticketing, sponsorships, media rights, suite licenses, and in-venue sales.
- Results are seasonal, with a disproportionate share of revenue generally recognized in the second and third fiscal quarters. Comparability with fiscal 2021 is affected by delayed and shortened prior-year NBA and NHL schedules and the recognition of certain previously deferred revenues.
- Other key risks include team performance and popularity, player compensation and injuries, league revenue sharing and luxury-tax outcomes, work stoppages, interest-rate exposure, related-party dependence, litigation, cybersecurity, regulatory changes, and the ability of MSG Entertainment to perform under shared agreements.
- A hypothetical 100-basis-point increase in floating interest rates, sustained for a full year, would increase annual interest expense by approximately $2.9 million based on March 31, 2022 borrowings.
- Annual impairment testing identified no impairment of goodwill or indefinite-lived intangible assets. Management stated that pending litigation was not expected to have a material adverse effect, although outcomes cannot be predicted with certainty.
Most Important Facts for Investors to Verify
- Whether post-pandemic attendance, tourism and event demand normalize and support continued ticket, suite, sponsorship and venue-sales growth.
- The sustainability of the sharp year-over-year improvement, given unusually weak COVID-affected comparison periods and substantial seasonal variability.
- Debt repayment plans, available borrowing capacity, floating-rate exposure and compliance with the Knicks and Rangers credit covenants.
- The cash-flow impact of deferred revenue obligations, related-party receivables and payments to MSG Entertainment under arena, media, sponsorship, lease and transition-service arrangements.
- The magnitude of future league revenue-sharing, escrow, luxury-tax and player-compensation adjustments, which may differ from current estimates.
- The Company’s negative equity position and long-term operating lease commitments, including approximately $2.3 billion of undiscounted lease payments.
- Future tax rates and valuation allowances, as the reported effective tax rate was substantially above the statutory federal rate.