Madison Square Garden Entertainment Corp. annual report, FY2023

Business context and reporting period

Madison Square Garden Entertainment Corp. (MSG Entertainment) filed this Form 10-K for the fiscal year ended June 30, 2023—not calendar 2022 Q4. It operates five venues, produces the Christmas Spectacular Starring the Radio City Rockettes, and books live entertainment and sporting events. The company became a standalone public company on April 21, 2023, following a distribution by Sphere Entertainment; results before that date are presented on a carve-out basis and include allocated costs, so historical periods may not be directly comparable.

Financial results and liquidity

Amounts below are in millions of dollars unless stated otherwise.

Revenue increased 30%. Operating margin was approximately 12.3%, versus negative 0.9% in FY2022; net margin attributable to stockholders was approximately 9.0%, versus negative 20.4%. AOI is a company-defined non-GAAP measure and should not be viewed as a substitute for GAAP results.

Revenue growth primarily reflected the recovery in event activity and Christmas Spectacular performances. The holiday show sold approximately 930,000 tickets across 181 performances; per-show revenue rose approximately 30% year over year. Fiscal 2022 had fewer events and a shortened Christmas Spectacular run. Other comparisons are affected by the December 2022 sale of the company’s Boston Calling interest and termination of its MSG Networks advertising sales representation agreement at year-end 2022.

At June 30, 2023, cash, cash equivalents and restricted cash were $84.4 million, including $76.1 million of unrestricted cash. Principal debt outstanding was $659.3 million; debt carrying value was approximately $646.4 million after deferred financing costs. The company had $74.5 million of available revolver capacity and $8.4 million of letters of credit outstanding. Debt bears floating interest; the stated rate was 7.70% at year-end. Current liabilities were $540.6 million, compared with current assets of $295.3 million. Operating cash flow improved year over year, and financing cash outflow fell to $144.2 million from $396.3 million, partly reflecting lower net transfers to Sphere Entertainment.

Material changes, outlook and risks

• Separation and comparability: Standalone public-company costs and operations began during the year; prior-period carve-out allocations may not represent future standalone costs. Management cited higher professional fees and employee compensation after separation.
• Portfolio changes and unusual items: The company sold its controlling interest in Boston Calling, recognizing a $4.4 million net gain on dispositions after the aircraft sale loss offset part of the gain. It recorded $10.2 million of restructuring charges. FY2022 included a $35.6 million debt-extinguishment loss. FY2023 other income included investment gains, including unrealized gains on DraftKings and Townsquare shares.
• Management outlook and seasonality: No quantified revenue or earnings guidance is provided. Management said available cash, revolver capacity and operating cash flows should fund operations and obligations for the foreseeable future. Results and cash flows are seasonal, with a disproportionate share of revenue and operating income generally in the second and third fiscal quarters.
• Debt and liquidity risks: Credit facilities require minimum liquidity, debt-service coverage and leverage covenant compliance; the company reported compliance at June 30, 2023. A hypothetical 200-basis-point rise in floating rates was estimated to increase annual interest expense by $13.2 million. $594.0 million of principal is scheduled in FY2027, when the facilities mature.
• Venue, labor and concentration risks: The Garden’s zoning special-permit renewal remained pending; the company was advised it could continue operating during review. Penn Station redevelopment proposals could entail significant contributions, property transfers or other effects. The Madison Square Garden Complex’s FY2023 real-estate-tax exemption was $42.4 million and could be changed or withdrawn. About 70% of employees were union-represented, with some collective bargaining agreements expired or due to expire by June 2024. Operations are concentrated in the New York area, and the Christmas Spectacular generated 15% of FY2023 revenue.
• Governance and related parties: The Dolan Family Group held approximately 62.2% of voting power at June 30, 2023. The company depends on commercial and service arrangements with MSG Sports and Sphere Entertainment; the filing also describes potential conflicts, tax-disaffiliation obligations, and possible share-sale pressure from Sphere Entertainment’s retained stake.
• Other risks: Economic weakness, inflation, changing consumer demand, event cancellations, public-health disruptions, cybersecurity incidents, litigation and regulatory requirements could adversely affect results. Management said existing lawsuits were not expected to have a material adverse effect. Disclosure controls were deemed effective; the 10-K did not include management’s ICFR assessment or auditor attestation due to the newly public-company transition and emerging-growth-company exemptions.

Important facts for investors to verify

• Review audited financial statements and the detailed AOI reconciliation; distinguish GAAP operating income from the company’s non-GAAP performance measure.
• Assess recurring standalone expenses after the separation and the effect of ending MSG Networks advertising commissions.
• Confirm debt covenant headroom, floating-rate exposure, refinancing options and the FY2027 maturity concentration.
• Track the Garden zoning-permit renewal and any Penn Station redevelopment requirements, as well as the status of the real-estate-tax exemption.
• Monitor labor negotiations, event bookings, Christmas Spectacular attendance and concentration in the New York market.
• Review related-party agreements, Sphere Entertainment share dispositions, and any resulting effects on governance, liquidity or the stock price.