Madison Square Garden Sports Corp. — Form 10-Q Summary
Business Context and Reporting Period
Report for the quarter ended December 31, 2020, covering the second quarter and first six months of fiscal 2021. MSG Sports owns the New York Knicks, New York Rangers, development-league and esports teams, and related performance centers. The filing reflects the post-April 2020 distribution of MSG Entertainment; prior-period MSG Entertainment results are presented as discontinued operations.
Results were materially affected by COVID-19, delayed and shortened NBA and NHL seasons, government restrictions on in-arena attendance, and the absence of normal ticket, suite, sponsorship, food, beverage and merchandise revenue.
Key Financial Metrics
| ($ in thousands, except per-share data) | Three Months Ended Dec. 31, 2020 | Six Months Ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $28,771 | $85,809 |
| Operating loss | $(38,406) | $(65,810) |
| Operating margin | (133.5%) | (76.7%) |
| Loss from continuing operations | $(41,133) | $(70,148) |
| Net loss attributable to MSG Sports stockholders | $(40,625) | $(69,042) |
| Basic loss per share | $(1.68) | $(2.86) |
| Adjusted operating loss | $(19,016) | $(36,771) |
| Net cash used in operating activities | Not separately reported | $(21,633) |
Revenue mix for the quarter was media rights $22,306, sponsorship, signage and suite licenses $3,995, league distributions and other $2,470, and no event-related revenue. For the six-month period, media rights were $72,495, sponsorship, signage and suite licenses were $6,945, league distributions and other were $6,369, and event-related revenue was zero.
Cash and cash equivalents were $70,762 at December 31, 2020, with restricted cash of $9,500. Total assets were $1.292 billion. Total liabilities were $1.557 billion, including $380.0 million of long-term debt, $714.3 million of operating lease liabilities, and $232.3 million of deferred revenue. Stockholders’ equity was negative $268.0 million.
The Company reported $380.0 million of borrowings under revolving credit facilities: $220.0 million under the Knicks facility and $160.0 million under the Rangers facility. Available borrowing capacity under existing facilities was approximately $220.0 million. The Company stated that it had sufficient liquidity for operations and deferred-revenue obligations over the next 12 months.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined $264.0 million, or 90%, from $292.8 million; six-month revenue declined $256.8 million, or 75%, from $342.6 million.
- Quarterly operating loss increased from $0.2 million to $38.4 million; six-month operating loss increased from $59.6 million to $65.8 million.
- Quarterly net loss attributable to stockholders was $40.6 million compared with net income of $94.1 million in the prior year. Six-month net loss was $69.0 million compared with net income of $14.2 million.
- Prior-year results included $96.0 million and $55.5 million of income from discontinued operations for the quarter and six-month period, respectively, primarily associated with the businesses distributed to MSG Entertainment.
- Direct operating expenses decreased 92% for the quarter and 74% for the six-month period, while selling, general and administrative expenses decreased 46% and 48%, respectively. These reductions did not offset the revenue decline.
- Operating cash flow changed from $111.2 million provided in the prior-year six-month period to $21.6 million used in the current period. Investing cash use was only $0.1 million versus $143.9 million in the prior year, which included discontinued-operation investments and other transactions.
- Interest expense increased to $2.5 million for the quarter and $4.5 million for the six-month period, primarily due to borrowings under the Knicks and Rangers facilities.
Guidance, Outlook, Risks and Unusual Items
Management did not provide formal earnings guidance. It expected fiscal 2021 local media-rights revenue to be reduced by the shortened NHL season but anticipated higher second-half local media-rights revenue due to season timing, contractual rate increases and comparisons with the suspended prior-year seasons. Management also expected fiscal 2021 team personnel compensation to be lower than the prior fiscal year, although second-half expense was expected to be higher than the prior-year period because of season timing.
The Knicks resumed home games at Madison Square Garden on December 16, 2020, and the Rangers resumed home games on January 14, 2021. Fans were prohibited from attending at the reporting date. If games are played without fans or with limited attendance, applicable arena rent may be reduced by up to 80%; ticket, suite, sponsorship, food, beverage and merchandise revenue may remain materially depressed.
Deferred revenue was $232.3 million, including a $30.0 million advance league distribution from the NBA and $56.3 million related to local media rights with MSG Networks. Management stated that deferred-revenue obligations may require credits, make-goods or refunds, as applicable.
In November 2020, the Company increased the Knicks revolving facility to $275.0 million, the Rangers revolving facility to $250.0 million, and established a $75.0 million Knicks Holdings facility. The facilities mature in November 2023. The Company terminated previously available $200.0 million delayed-draw term loan facilities without borrowing under them. All reported debt covenants were satisfied at December 31, 2020.
Unusual items included approximately $7.4 million of previously unrecognized share-based compensation expense resulting from cancellation of an executive equity award following a derivative-action settlement. Six-month adjusted operating loss also included $1.6 million of restructuring charges. Annual impairment testing identified no goodwill or indefinite-lived intangible-asset impairment.
Principal risks include the duration and severity of COVID-19, continued attendance restrictions, shortened or disrupted seasons, lower discretionary spending, team performance and player costs, league rules and revenue sharing, interest-rate exposure, related-party dependence on MSG Entertainment and MSG Networks, debt covenant compliance, litigation, and the ability to satisfy deferred-revenue obligations.
Most Important Facts for Investors to Verify
- Whether and when fans return to Madison Square Garden, and the resulting effect on ticket, suite, sponsorship, concession and merchandise revenue.
- The timing and final length of the 2020-21 NBA and NHL seasons and the resulting media-rights and league-distribution revenue.
- Cash burn, available borrowing capacity, and compliance with the Knicks, Knicks Holdings and Rangers debt covenants.
- The composition, timing and potential refund, credit or make-good requirements associated with the $232.3 million deferred-revenue balance.
- The effect of the MSG Entertainment separation and continuing related-party agreements on revenue, rent, corporate costs and comparability with prior periods.
- Future share-based compensation, restructuring charges, player transactions and other unusual operating items.