What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-05-11 · 262 added, 582 removed, 140 unchanged (86% of the section changed)

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In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Sports Corp.

(formerly The Madison Square Garden Company) and its direct and indirect subsidiaries (collectively, “ we ,” “us,” “ our ,” or the “ Company ”), including luxury tax payments or receipts and the impact of COVID-19 on our future operations.

See additional information in this Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further discussion of the Entertainment Distribution.

and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”), including, with respect to the NBA and the NHL 2020-21 seasons, and the impact of COVID-19 on our future operations.

Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements.

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Factors that may cause such differences to occur include, but are not limited to:

the duration and severity of the coronavirus pandemic and our ability to effectively manage the impacts, including the government and league mandated suspension of our business operations;

• the duration and severity of the coronavirus pandemic and our ability to effectively manage the impacts, including the unavailability of The Garden and league decisions regarding the resumption of play;

• the impact of the possible suspension or cancellation, or a change in the duration, of the 2020-21 NBA and NHL seasons on our ability to recognize revenue from national media rights fees;

• the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams;

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• the level of our capital expenditures and other investments;

general economic conditions, especially in New York City;

• general economic conditions, especially in the New York City metropolitan area;

• the demand for sponsorship arrangements and for advertising;

competition, for example, from other teams, other venues and other sports and entertainment options;

changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements including the leagues’ respective collective bargaining agreements (each a “ CBA ”) with their players’ associations, salary caps, revenue sharing, NBA luxury tax thresholds and media rights or other regulations under which we operate;

any NBA or NHL work stoppage in addition to those related to COVID-19 impacts;

any economic actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;

seasonal fluctuations and other variations in our operating results and cash flow from period to period;

• competition, for example, from other teams, and other sports and entertainment options;

• changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues’ respective collective bargaining agreements (each a “CBA”) with their players’ associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate;

• any NBA, NHL or other work stoppage in addition to those related to COVID-19 impacts;

• any economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;

• seasonal fluctuations and other variation in our operating results and cash flow from period to period;

• the level of our expenses, including our corporate expenses;

• business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security;

activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and the Rangers are played;

• activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and Rangers are played;

• the evolution of the esports industry and its potential impact on our esports businesses;

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• the operating and financial performance of our strategic acquisitions and investments, including those we may not control;

the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire;

the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and Madison Square Garden Entertainment Corp.

to maintain necessary permits or licenses;

• the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and MSG Entertainment to maintain necessary permits or licenses;

• the impact of any government plans to redesign New York City’s Pennsylvania Station;

• a default by our subsidiaries under their respective credit facilities;

• business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings;

• financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;

• our ownership of professional sports franchises in the NBA and NHL and certain related transfer restrictions on our common stock;

the tax-free treatment of the 2015 Distribution and the Entertainment Distribution (defined below);

the performance by Madison Square Garden Entertainment Corp.

of its obligations under various agreements with the Company related to the Entertainment Distribution and ongoing commercial arrangements;

the factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2019 and this Quarterly Report on Form 10-Q under “ Part II — Item 1A.

Risk Factors .”

• the tax-free treatment of the MSGS Distribution and the MSGE Distribution;

• the performance by MSG Entertainment of its obligations under various agreements with the Company related to the MSGE Distribution and ongoing commercial arrangements;

• the factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2020.

We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.

All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.

Entertainment Distribution

On April 17, 2020, the Company distributed all of the outstanding common stock of Madison Square Garden Entertainment Corp.

to its stockholders.

Madison Square Garden Entertainment Corp.

owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment.

In the Entertainment Distribution, (a) each holder of the Company’s Class A common stock, par value $0.01 per share, received one share of Madison Square Garden Entertainment Corp.

Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on April 13, 2020, and (b) each holder of the Company’s Class B common stock, par value $0.01 per share, received one share of Madison Square Garden Entertainment Corp.

Class B common stock, par value $0.01 per share, for every share of the Registrant’s Class B common stock held of record as of the close of business, New York City time, on the Record Date.

The disclosures within this Management’s Discussion and Analysis of Financial Condition and Results of Operations that discuss the quarter ended March 31, 2020, including “— Results of Operations,” are on a consolidated Company basis, which means that they include the results of Madison Square Garden Entertainment Corp.

and do not take the Entertainment Distribution into account.

In future filings, beginning with our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, the historical results of Madison Square Garden Entertainment Corp.

will be presented as discontinued operations and our business will be reported in a single segment.

In addition, the unaudited pro forma consolidated balance sheet of the Company as of December 31, 2019 and the unaudited pro forma condensed consolidated statements of operations of the Company for the six months ended December 31, 2019 and the years ended June 30, 2019, 2018 and 2017, in each case giving effect to the Entertainment Distribution, are set forth in Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 23, 2020.

As a result of the Entertainment Distribution, the accompanying unaudited condensed consolidated interim financial statements of the Company are not indicative of the Company’s future financial position, results of operations or cash flows.

See Part I, “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed on August 20, 2019, for certain risk factors relating to the Distribution.

This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended June 30, 2020, to help provide an understanding of our financial condition, changes in financial condition and results of operations.

Unless the context otherwise requires, all references to “we,” “us,” “our,” or the “Company” refer collectively to Madison Square Garden Sports Corp., a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are actually conducted.

The Company is comprised of two reportable segments:

MSG Entertainment and MSG Sports.

MSG Entertainment includes live entertainment events including concerts and other live events, such as family shows, performing arts and special events, which are presented or hosted in the Company’s diverse collection of venues along with live offerings through Tao Group Hospitality and BCE .

Tao Group Hospitality is a hospitality group with globally recognized entertainment, dining and nightlife brands including Tao, Marquee, Lavo, Avenue, Beauty & Essex and Cathédrale .

BCE owns and operates New England’s premier Boston Calling Music Festival.

MSG Entertainment also includes the Company’s original production — the Christmas Spectacular .

MSG Sports includes the Company’s professional sports franchises:

the Knicks of the NBA , the Rangers of the NHL , the Hartford Wolf Pack of the AHL , and the Westchester Knicks of the NBAGL .

For the three and nine months ended March 31, 2019 , MSG Sports also included the Liberty of the WNBA , which was sold in January 2019.

Our professional sports franchises are collectively referred to herein as our “sports teams”.

MSG Sports also includes CLG , a premier North American esports organization, and Knicks Gaming , the Company’s franchise that competes in the NBA 2K League.

CLG and Knicks Gaming are collectively referred to herein as our “esports teams,” and, together with our sports teams, our “teams.” In addition, our sports business also promotes, produces and/or presents a broad array of other live sporting events, including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, and college wrestling.

The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases.

The Company owns The Garden and Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA (See Note 3 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further discussion on the sale of the Forum in the fourth quarter of fiscal year 2020) and The Chicago Theatre in Chicago.

In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City.

Additionally, Tao Group Hospitality operates various restaurants, nightlife and hospitality venues under long-term leases and management contracts in New York, Las Vegas, Los Angeles, Chicago, Australia and Singapore.

Unless the context otherwise requires, all references to “we,” “us,” “our,” “MSG Sports,” or the “Company” refer collectively to Madison Square Garden Sports Corp., a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are conducted.

On April 17, 2020, the Company distributed all of the outstanding common stock of MSG Entertainment to its stockholders.

MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment.

In the MSGE Distribution, (a) each holder of the Company’s Class A common stock, received one share of MSG Entertainment Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on April 13, 2020, and (b) each holder of the Company’s Class B common stock, received one share of MSG Entertainment Class B common stock, par value $0.01 per share, for every share of the Registrant’s Class B common stock held of record as of the close of business, New York City time, on the Record Date.

Subsequent to the MSGE Distribution, the Company no longer consolidates the financial results of MSG Entertainment for purposes of its own financial reporting and the historical financial results of MSG Entertainment have been reflected in the Company’s consolidated financial statements as discontinued operations for all periods presented through the MSGE Distribution Date.

After giving effect to the MSGE Distribution, the Company operates and reports financial information in one segment.

Factors Affecting Results of Operations

MSGE Distribution

In connection with the MSGE Distribution, the Company and MSG Entertainment entered into a number of related party agreements under which both companies will continue sharing certain revenues and expenses.

See Note 15 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s related party transactions.

The terms of certain related party agreements impact the comparability of the results of operations, primarily the following revenues and expenses.

Suite License Fee Revenue

Prior to the MSGE Distribution, suite license fee revenue was recognized based on the allocations between the Company’s MSG Sports and MSG Entertainment segments and was dependent on the total number of events held at The Garden.

After the MSGE Distribution, the Company recognizes suite license fee revenue based on the Arena License Agreements and as games are played by the Knicks and Rangers.

In addition, pursuant to the Arena License Agreements, the Company’s aggregate share of the suite license fee is 67.5%, as compared to a higher percentage allocated to the Knicks and Rangers prior to the MSGE Distribution.

Venue Sponsorship and Signage

Prior to the MSGE Distribution, revenues from the sale of venue interior and exterior signage and sponsorship rights at The Garden that were not specific to our teams or entertainment events were allocated between the Company’s MSG Sports and MSG Entertainment segments and recognized over a fiscal year.

Subsequent to the MSGE Distribution, pursuant to the Arena License Agreements, the Company no longer recognizes revenue related to exterior signage at The Garden, but rather only from the sale of venue interior signage space and sponsorship rights, which is now recognized over the Knicks and Rangers seasons.

In addition, prior to the MSGE Distribution, costs associated with sponsorship and signage sales were allocated between the Company’s MSG Sports and MSG Entertainment segments.

Subsequent to the MSGE Distribution, the Company pays sales commission fees along with the fixed fee pursuant to the sponsorship sales and service and representation agreements.

Food, Beverage and Merchandise Sales

Prior to the MSGE Distribution, the Knicks and Rangers reported revenues earned from food and beverage sales as gross revenue.

The costs of food and beverage sales were reported in direct operating expenses.

Pursuant to the Arena License Agreements, the Knicks and Rangers receive 50% of net profits from the sales of food and beverages during their games at The Garden.

As such, the Company no longer recognizes costs of sales during the periods after the MSGE Distribution, and reports revenues earned from food and beverage sales as net revenues.

In addition, pursuant to the Arena License Agreements, the Knicks and Rangers recognize sales of their merchandise at The Garden net of 30% commission paid to MSG Entertainment.

Corporate Costs

Results from continuing operations for the periods prior to the MSGE Distribution include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations.

See “— Results of Operations — Comparison of the three months ended September 30, 2020 versus the three months ended September 30, 2019” and Note 3 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for more information.

Impact of COVID-19 on Our Business

Our operations and operating results have been, and continue to be, materially impacted by the COVID-19 pandemic and government and league actions taken in response.

As of the date of this Quarterly Report on Form 10-Q, virtually all of the business operations of the Company and Madison Square Garden Entertainment Corp.

have been suspended and it is not clear when those operations will resume.

Effects on MSG Entertainment

As a result of government mandated assembly limitations and closures, no events are currently permitted to be held at any of Madison Square Garden Entertainment Corp.

’s venues and it is unclear whether and to what extent those events will be rescheduled.

We did not recognize any revenue from canceled events during the three months ended March 31, 2020.

Additionally, public officials have imposed mandates limiting restaurants and bars to only take-out and delivery service and requiring that nightlife venues close in the cities in which Tao Group Hospitality operates.

As a result, virtually all Tao Group Hospitality venues are closed, which has materially impacted business.

It is unclear how long these restrictions will be in effect.

Additionally, as a result of operating disruptions due to COVID-19, the Company’s projected cash flows were directly impacted.

This disruption along with the macroeconomic industry and market conditions, were considered a “triggering event” for one of the Company’s reporting units, which required the Company to assess the carrying value of its goodwill for that reporting unit for impairment.

Based on this evaluation, the Company recorded a non-cash goodwill impairment charge of $80,698 during the three and nine months ended March 31, 2020 associated with Tao Group Hospitality .

In addition, during the three and nine months ended March 31, 2020, the Company recorded non-cash impairment charges of $11,573 , $6,399 and $3,541 , for Right-of-use assets, Property and equipment assets, and certain intangible assets associated with one venue within the Tao Group Hospitality , respectively.

No other goodwill or intangible asset balance was impaired as of March 31, 2020 based on the assessment.

However, the duration and impact of the COVID-19 pandemic may result in additional future impairment charges that management will evaluate as facts and circumstances evolve through time.

See Notes 1 , 10 and 11 to the consolidated financial statements included in “Part I - Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further details.

Madison Square Garden Entertainment Corp.

is currently building a state-of-the-art venue in Las Vegas, called MSG Sphere.

This is a complex construction project with cutting-edge technology that relies on subcontractors obtaining components from a variety of sources around the world.

The widespread global effects of COVID-19 have resulted in significant impediments to construction that are beyond Madison Square Garden Entertainment Corp.

’s control, including disruptions to its supply chain.

As a result, in April 2020, Madison Square Garden Entertainment Corp.

implemented a temporary suspension of construction and expects to incur additional expenses related to stopping and re-starting construction.

At this time, Madison Square Garden Entertainment Corp.

is unable to determine the full impact of coronavirus-related disruptions, however they may impact Madison Square Garden Entertainment Corp.

’s cost estimates.

Madison Square Garden Entertainment Corp.

remains committed to building a state-of-the-art venue in Las Vegas and looks forward to quickly and efficiently resuming construction as soon as practicable.

As a result of this delay, Madison Square Garden Entertainment Corp.

does not expect to achieve its goal of opening the venue in calendar year 2021.

Effects on MSG Sports

On March 11 and 12, 2020, respectively, the NBA and NHL suspended (but did not cancel) their 2019-20 seasons.

No Knicks or Rangers games are currently being played, and there is no certainty as to whether the seasons will resume.

The disruptions caused by COVID-19 have materially impacted our revenues and we are not recognizing any revenue while games are not played, including for ticket sales, media rights fees, our share of suite licenses, sponsorships, signage and in-venue advertising at The Garden or food, beverage and merchandise sales for home games played at The Garden.

In addition, as a result of government mandated assembly limitations and closures, no events are currently permitted to be held at The Garden where the Knicks and Rangers play their home games, and some or all of these mandated restrictions may remain in effect even after the NBA and/or NHL resume their games.

While we currently have the ability to reduce certain operating expenses as a result of the disruptions caused by COVID-19, including (i) rent payments to Madison Square Garden Entertainment Corp.

under the Arena License Agreements (defined

below) while The Garden remains closed, (ii) day-of-game expenses for Knicks and Rangers games and (iii) certain other SG&A and discretionary expenses, those expense reduction opportunities will not fully offset revenue losses.

Subsidiaries of the Company are parties to arena license agreements (the “Arena License Agreements”) with a subsidiary of Madison Square Garden Entertainment Corp.

that requires the Knicks and the Rangers to play their home games at The Garden.

Under the Arena License Agreements, the Knicks and the Rangers will pay an annual license fee in connection with their respective use of The Garden.

For each, the license fee for the initial contract year ending June 30, 2020 will be prorated based on the number of games scheduled to be played at The Garden between the date of the Entertainment Distribution and the end of that contract year.

The license fee for the first full contract year ending June 30, 2021 will be approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees will be 103% of the license fees for the immediately preceding contract year.

If, due to a force majeure event (including the government mandated suspension of events at The Garden as a result of the disruptions caused by COVID-19), capacity at The Garden is limited to 1,000 or fewer attendees, the teams may schedule and play home games at The Garden with amounts payable under the Arena License Agreements reduced by up to 80% .

The teams are not required to pay the license fee during a period in which The Garden is unavailable for home games due to a force majeure event.

As a result, we have not been required to make any rent payments under the Arena License Agreements and will continue not to be required to make any rent payments during the government mandated suspension of events at The Garden as a result of the disruptions caused by COVID-19.

However, once The Garden becomes available following a force majeure event, future rent payments due under the Arena License Agreements will be payable by the Knicks and the Rangers to Madison Square Garden Entertainment Corp.

even if the NBA or NHL seasons do not resume simultaneously or at all.

For more information about the risks to the Company as a result of the COVID-19 pandemic and its impact on our operating results, see “Part II — Item 1A.

Risk Factors — Our Operations and Operating Results Have Been, and Continue to be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response .”

Obscura’s Operating Results

The results of operations of the Company for the three and nine months ended March 31, 2019 included Obscura’s results of operations from its third party production business.

The Company made a decision in the fiscal year 2019 to wind down Obscura’s third party production business to focus on MSG Sphere development.

New York Liberty

For the three and nine months ended March 31, 2019 , MSG Sports also included the Liberty of the WNBA, which was sold in January 2019.

Renewal of a Ticketing Agreement

The Company’s consolidated and segment operating results for the three and nine months ended March 31, 2019 were impacted by the recognition of additional revenues for events that took place during previous periods as the result of the renewal of the agreement with the Company’s ticketing platform provider during the quarter ended March 31, 2019.

The following table presents the impact on the Company’s consolidated revenues, operating income and adjusted operating income for the three and nine months ended March 31, 2019 from events in the prior periods as a result of the ticketing agreement renewal.

Three Months Ended March 31, 2019

Nine Months Ended March 31, 2019

MSG Entertainment segment

MSG Sports segment

As a result of government-mandated assembly limitations and closures due to the COVID-19 pandemic, no events are currently permitted to be held at The Garden where the Knicks and Rangers play their home games, and some or all of these mandated restrictions may remain in effect even after the NBA and/or NHL resume for the 2020-21 seasons.

No assurances can be made that games will be played at The Garden or will be played with any in-arena audiences or without limited-capacity in-arena audiences.

COVID-19 disruptions have materially impacted the Company’s revenues and we are recognizing materially less revenues, or in some cases no revenues, across a number of areas.

Those areas include:

ticket sales;

our share of suite licenses;

sponsorships;

signage and in-venue advertising at The Garden;

and food, beverage and merchandise sales.

While we currently have the ability to reduce certain operating expenses as a result of the disruptions caused by COVID-19, including (i) rent payments to MSG Entertainment under the Arena License Agreements while The Garden remains closed, (ii) NBA league assessments and day-of-game expenses for the Knicks and Rangers games, (iii) league revenue sharing expense, and (iv) certain other selling, general and administrative and discretionary expenses, those expense reduction opportunities will not fully offset revenue losses.

In August 2020, the Company implemented cost-reduction measures, which included workforce reductions, limits on third-party vendor use and additional cuts to discretionary spending.

Subsidiaries of the Company are parties to the Arena License Agreements with a subsidiary of MSG Entertainment that requires the Knicks and Rangers to play their home games at The Garden.

Under the Arena License Agreements, the Knicks and Rangers will pay an annual license fee in connection with their respective use of The Garden.

The license fee for the first full contract year ending June 30, 2021 is approximately $22,500 for the Knicks and approximately $16,700 for the Rangers, and then for each subsequent year, the license fees will be 103% of the license fees for the immediately preceding contract year.

The Garden, however, is currently closed due to the COVID-19 pandemic and monthly rent is not required to be paid by the Knicks or Rangers.

If The Garden reopens without capacity limitations, future monthly rent payments due under the Arena License Agreements will be payable by the Knicks and Rangers, even if the NBA or NHL seasons do not resume simultaneously or at all.

If the Knicks or Rangers play games at The Garden subject to government mandated capacity constraints due to COVID-19, the applicable rent for such periods will be reduced by up to 80% depending on the size of the capacity constraint.

This MD&A is organized as follows:

Results of Operations.

This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019 on a consolidated and segment basis.

This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Liquidity and Capital Resources.

This section focuses primarily on (i) the liquidity and capital resources of the Company following the Entertainment Distribution, (ii) an analysis of the Company’s cash flows for the nine months ended March 31, 2020 compared to the nine months ended March 31, 2019 , and (iii) certain contractual obligations of the Company both as of March 31, 2020 and subsequent to the Entertainment Distribution.

This section focuses primarily on (i) the liquidity and capital resources of the Company, (ii) an analysis of the Company’s cash flows for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and (iii) certain contractual obligations.

Seasonality of Our Business.

This section discusses the seasonal performance of our segments .

This section discusses the seasonal performance of our business .

Recently Issued Accounting Pronouncements and Critical Accounting Policies.

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Results of Operations

Comparison of the three and nine months ended March 31, 2020 versus the three and nine months ended March 31, 2019

Consolidated Results of Operations

The tables below set forth, for the periods presented, certain historical financial information.

Comparison of the three months ended September 30, 2020 versus the three months ended September 30, 2019

The table below sets forth, for the periods presented, certain historical financial information.

Three Months Ended

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Impairment of intangibles, long-lived assets and goodwill

Operating income (loss)

Other income (expense):

Loss in equity method investments

Interest income, net

Miscellaneous income (expense), net

Income (loss) from operations before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss attributable to redeemable noncontrolling interests

Net loss attributable to nonredeemable noncontrolling interests

Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders

Nine Months Ended

September 30, Change (a)

2020 2019 Amount Percentage

Revenues $ 57,038 $ 49,850 $ 7,188 14 %

Direct operating expenses 39,786 18,419 21,367 116 %

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Depreciation and amortization 1,660 4,845 (3,185) (66) %

Impairment of intangibles, long-lived assets and goodwill

Operating income (loss)

Other income (expense):

Earnings (loss) in equity method investments

Interest income, net

Operating loss (27,404) (59,324) 31,920 54 %

Other expense:

Interest expense, net (1,989) (284) (1,705) NM

Miscellaneous expense, net (120) (86) (34) (40) %

Income (loss) from operations before income taxes

Income tax benefit (expense)

Net income (loss)

Net loss attributable to redeemable noncontrolling interests

Net loss attributable to nonredeemable noncontrolling interests

Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders

Loss from continuing operations before income taxes (29,513) (59,694) 30,181 51 %

Income tax benefit 498 19,503 (19,005) (97) %

Loss from continuing operations (29,015) (40,191) 11,176 28 %

Loss from discontinued operations, net of taxes — (40,475) 40,475 NM

Net loss (29,015) (80,666) 51,651 64 %

Net loss attributable to nonredeemable noncontrolling interests from continued operations (598) (450) (148) (33) %

Net loss attributable to redeemable noncontrolling interests from discontinued operations — (163) 163 NM

Net loss attributable to nonredeemable noncontrolling interests from discontinued operations — (72) 72 NM

Net loss attributable to Madison Square Garden Sports Corp.’s stockholders $ (28,417) $ (79,981) $ 51,564 64 %

_________________

NM — Percentage is not meaningful

The Company’s operating results were materially impacted during the three and nine months ended March 31, 2020 by the coronavirus pandemic and government actions taken in response.

Please see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business ” for more information.

The following tables summarize the changes in our segments’ operating results for the three and nine months ended March 31, 2020 as compared to the prior year periods.

For the Three Months Ended March 31, 2020

Changes attributable to

administrative

Depreciation and amortization

Impairment of intangibles, long-lived assets and goodwill

Operating income (loss)

MSG Entertainment (a)

MSG Sports (a)

Corporate and Other

Purchase accounting adjustments

Inter-segment eliminations

For the Nine Months Ended March 31, 2020

Changes attributable to

administrative

Depreciation and amortization

Impairment of intangibles, long-lived assets and goodwill

Operating income (loss)

MSG Entertainment (a)

MSG Sports (a)

Corporate and Other

Purchase accounting adjustments

Inter-segment eliminations

For the three months ended September 30, 2019, the reported financial results of the Company reflect the results of the MSG Entertainment business segment and the sports booking business, previously owned and operated by the Company through its MSG Sports business segment, as discontinued operations.

In addition, results from continuing operations for the same period include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations.

The reported financial results of the Company for the three months ended September 30, 2020 reflect the Company’s results on a standalone basis, including the Company’s actual corporate overhead.

Revenues increased $7,188 to $57,038 for the three months ended September 30, 2020 as compared to the prior year period.

The net increase was attributable to the following:

Increase in revenues from league distributions $ 30,341

Increase in local media rights fees from MSG Networks 2,139

Decrease in suite license fee revenue (14,002)

Decrease in pre/regular season ticket-related revenues (6,302)

Decrease in sponsorship and signage revenues (2,890)

Decrease in pre/regular season food, beverage and merchandise sales (1,291)

Other net decreases (807)

The increase in revenues from league distributions was primarily due to the recognition of the remainder of national media rights fees related to the 2019-20 NBA and NHL seasons during the three months ended September 30, 2020, that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.

After suspending the 2019-20 seasons in March 2020 due to COVID-19, the NHL and NBA subsequently restarted their seasons, which were completed in September and October 2020, respectively.

This increase related to national media rights fees was partially offset by decreases in other league distributions.

The increase in local media rights fees from MSG Networks was primarily due to the recognition of local media rights fees associated with the Rangers’ participation in the Stanley Cup Qualifiers during the three months ended September 30, 2020.

The decrease in suite license fee revenue was primarily due to the impact of the MSGE Distribution.

See “— Factors Affecting Results of Operations — MSGE Distribution — Suite License Fee Revenue” for more information.

In addition, the decrease reflects the absence of Rangers preseason home games during the current year period.

We will not recognize suite license fee revenue until the Knicks and Rangers resume playing home games at The Garden with fans in attendance.

The decrease in pre/regular season ticket-related revenues was due to the absence of Rangers preseason home games during the current year period as compared to three preseason home games during the prior year period.

We will not recognize pre/regular season ticket revenues until the Knicks and Rangers resume playing home games at The Garden with fans in attendance.

The decrease in sponsorship and signage revenues was primarily due to the impact of the MSGE Distribution.

See “— Factors Affecting Results of Operations — MSGE Distribution — Venue Sponsorship and Signage” for more information.

In addition, the decrease reflects the absence of Rangers preseason home games during the current year period.

We will continue recognizing significantly lower sponsorship and signage revenues until the Knicks and Rangers resume playing home games at The Garden with fans in attendance.

The decrease in pre/regular season food, beverage and merchandise sales was primarily due to the absence of Rangers preseason home games in the current year period as compared to three home games during the prior year period.

We will not recognize revenues from pre/regular season food and beverage sales and minimal revenues from merchandise sales until the Knicks and Rangers resume playing home games at The Garden with fans in attendance.

Direct operating expenses

Direct operating expenses increased $21,367, or 116%, to $39,786 for the three months ended September 30, 2020 as compared to the prior year period.

The net increase was attributable to the following:

Increase in team personnel compensation $ 13,410

Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax 11,633

Increase in other team operating expenses not discussed elsewhere in this table primarily due to higher league assessments 1,275

Increase in net provisions for certain team personnel transactions 630

Decrease in pre/regular season expense associated with food, beverage and merchandise sales (655)

Other net decreases, including expenses that did not meet the criteria for inclusion in discontinued operations in the prior year period (4,926)

The increase in team personnel compensation was primarily due to the recognition of player compensation expense in the current year period that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020 as a result of the NBA completing the 2019-20 season in October 2020.

Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax were as follows:

Three Months Ended

September 30,

2020 2019 Increase

Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 10,337 $ (1,296) $ 11,633

The increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) was due to adjustments to revenue sharing expense for the 2019-20 NBA and NHL seasons.

Based on the completion of the 2019-20 NBA and NHL seasons, the Company recognized during the three months ended September 30,2020 a portion of revenue sharing expense (net of escrow) related to those seasons that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.

Net provisions for certain team personnel transactions were as follows:

Three Months Ended

September 30,

2020 2019 Increase

Net provisions for certain team personnel transactions

$ 10,873 $ 10,243 $ 630

See “Business Segment Results” for a more detailed discussion relating to the operating results of our segments.

Selling, general and administrative expenses - Corporate and Other

Selling, general and administrative expenses in Corporate and Other for the three months ended March 31, 2020 increased $8,027 , or 24% , to $40,869 as compared to the prior year period.

For the nine months ended March 31, 2020 , selling, general and administrative expenses in Corporate and Other increased $35,928 , or 41% , to $123,367 as compared to the prior year period.

For the three and nine months ended March 31, 2020 , the increase s were primarily due to (i) higher expenses related to the Company’s MSG Sphere initiative of $13,013 and $31,655 , respectively, which include increases in personnel, content development and technology costs, and (ii) higher professional fees of $4,213 and $6,520 , respectively, associated with the spin-off of the Company’s Entertainment business .

The increase s were partially offset by lower employee compensation and related benefits in Corporate of $8,779 and $5,815 for the three and nine months ended March 31, 2020 , respectively.

In connection with its MSG Sphere initiative, the Company expects to continue increasing its investment in personnel, content and technology.

Based on the timing of these efforts, the Company expects higher expenses for the fourth quarter of fiscal year 2020.

Team personnel transactions for the three months ended September 30, 2020 reflect provisions for waivers/contract terminations of $8,373 and a player trade of $2,500.

Team personnel transactions for the three months ended September 30, 2019 include a net expense for waiver/contract termination costs.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended September 30, 2020 decreased $42,914, or 50%, to $42,996 as compared to the prior year period primarily due to lower corporate overhead costs, which in the prior year period included certain corporate expenses that the Company did not incur during the current year period and does not expect to incur in future periods, but which did not meet the criteria for inclusion in discontinued operations.

This decrease was partially offset by an increase in employee compensation and related benefits, primarily as a result of restructuring charges, and fees related to the Company’s sponsorship sales and service representation agreements with MSG Entertainment.

Depreciation & amortization

Depreciation and amortization for the three months ended March 31, 2020 increased $731 , or 3% , to $29,667 as compared to the prior year period.

For the nine months ended March 31, 2020 , depreciation and amortization increased $1,923 , or 2% , to $86,869 as compared to the prior year period.

For the nine months ended March 31, 2020 , the decrease was primarily due to certain assets and purchase accounting adjustments being fully depreciated and amortized, partially offset by depreciation and amortization related to a new entertainment dining and nightlife venue .

Impairment of intangibles, long-lived assets and goodwill

The disruptions caused by COVID-19 directly impacted the Company’s projected cash flows resulting in operating disruptions.

This disruption along with the macroeconomic deteriorating conditions and industry/market considerations, were considered a “triggering event” for one of the Company’s reporting units, which required the Company to assess the carrying value of its goodwill for that reporting unit for impairment.

In connection with the goodwill impairment test, the Company also evaluated the intangibles and long-lived asset for that reporting unit for impairment.

Based on this evaluation, the Company recorded a non-cash impairment charge of $102,211 for the three and nine months ended March 31, 2020 , which included impairment charges associated with one venue within the Tao Group Hospitality of $3,541 and $17,972 , related to a tradename and certain long-lived assets, respectively, and an impairment charge of $80,698 related to goodwill associated with the Tao Group Hospitality reporting unit.

Operating loss - Corporate and Other

Operating loss in Corporate and Other for the three months ended March 31, 2020 increased $8,219 , or 16% , to $59,521 as compared to the prior year period.

For the nine months ended March 31, 2020 , operating loss in Corporate and Other increased $35,339 , or 25% , to $179,514 as compared to the prior year period.

For the three and nine months ended March 31, 2020 , the increases were primarily due to higher selling, general and administrative expenses, as discussed above.

See Note 21 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for discussion of depreciation and amortization under Corporate and Other .

Loss in equity method investments

For the three months ended March 31, 2020 , the loss in equity method investments decreased $1,785 to $1,096 as compared to the prior year period.

For the nine months ended March 31, 2020 , the earnings in equity method investments decreased $20,870 to a loss of $3,739 as compared to the prior year period.

The decreases were due to the absence of earnings or losses in equity method investments from AMSGE and Tribeca Enterprises as the Company sold these investments in December 2018 and August 2019, respectively.

For the three and nine months ended March 31, 2019 , the Company reported a net loss in equity method investments of $1,571 and net earnings in equity method investments of $20,415 , respectively, from those investments.

Interest income, net

Net interest income for the three months ended March 31, 2020 decreased $1,805 , or 50% , to $1,778 as compared to the prior year period.

For the nine months ended March 31, 2020 , net interest income increased $3,360 , or 40% , to $11,807 as compared to the prior year period.

The decrease in net interest income for the three months ended March 31, 2020 was primarily due to lower interest income as a result of (i) lower interest rates, (ii) a change in investment mix, and (iii) the absence of interest income earned on loans extended to AMSGE and Tribeca Enterprises as compared to the prior year period since these loans were fully repaid during the first and second quarters of fiscal year 2020, respectively.

The decrease in interest income was partially offset by lower interest expense associated with the Tao Group Hospitality, as a result of the refinancing of its credit facility in May 2019, which resulted in a reduction of the outstanding balance payable to the third parties by entering into an intercompany subordinated credit agreement with the Company, as well as lower variable interest rates under the Tao Senior Credit Agreement in the current year period as compared to the previous credit facility in the prior year period.

For the nine months ended March 31, 2020 , the increase in net interest income was primarily due to lower interest expense associated with the Tao Group Hospitality, partially offset by lower interest income as a result of (i) lower interest rates, (ii) a change in investment mix, and (iii) lower interest earned on loans extended to AMSGE and Tribeca Enterprises .

See Note 14 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further details of the Tao Senior Credit Agreement .

Miscellaneous income (expense), net

Net miscellaneous income for the three months ended March 31, 2020 decreased $23,649 to net miscellaneous expense of $17,448 as compared to net miscellaneous income of $6,201 in the prior year period.

For the nine months ended March 31, 2020 , net miscellaneous expense increased $176 , or 6% , to $3,071 .

The decrease in net miscellaneous income for the three months ended March 31, 2020 was primarily due to the unrealized losses of $17,196 related to the Company’s investment in Townsquare for the three months ended March 31, 2020 as compared to an unrealized gain of $5,261 for prior year period.

See Note 8 and Note 13 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for additional information related to the investment in Townsquare.

Depreciation and amortization for the three months ended September 30, 2020 decreased $3,185, or 66%, to $1,660 as compared to the prior year period primarily due to depreciation in the prior year period that do not meet the criteria for inclusion in discontinued operations and, to a lesser extent, certain asset being fully amortized.

The decrease was partially offset by higher depreciation on assets placed into service during the third quarter of fiscal year 2020.

Operating loss

Operating loss for the three months ended September 30, 2020 decreased $31,920, or 54%, to $27,404 as compared to the prior year period primarily due to a decrease in selling, general and administrative expenses and, to a lesser extent, higher revenue, partially offset by higher direct operating expenses.

Interest expense, net

Net interest expense for the three months ended September 30, 2020 increased $1,705 to $1,989 as compared to the prior year period primarily due to the Knicks and Rangers revolving credit facilities, which were drawn on in March 2020.

See Note 16 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s income taxes.

Adjusted operating income

The following are the reconciliations of operating income (loss) to adjusted operating income for the three and nine months ended March 31, 2020 as compared to the prior year periods:

Adjusted operating loss

The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) excluding (i) deferred rent expense under the Arena License Agreements with MSG Entertainment, (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, and (vi) the impact of purchase accounting adjustments related to business acquisitions, which is referred to as adjusted operating income (loss), a non-GAAP measure.

Management believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash.

In addition, management believes that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance.

The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company.

Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance.

The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.

Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance

Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss).

The following are the reconciliations of operating loss to adjusted operating loss for the three months ended September 30, 2020 as compared to the prior year period:

Three Months Ended

Operating income (loss)

Share-based compensation

Depreciation and amortization (a)

Impairment of intangibles, long-lived assets and goodwill (b)

Other purchase accounting adjustments

Adjusted operating income

Nine Months Ended

Operating income (loss)

September 30, Change

2020 2019 Amount Percentage

Operating loss $ (27,404) $ (59,324) $ 31,920 54 %

Share-based compensation 6,345 13,796

Depreciation and amortization (a)

Impairment of intangibles, long-lived assets and goodwill (b)

Restructuring charges 1,644 —

Other purchase accounting adjustments — 50

Adjusted operating income

_________________

NM — Percentage is not meaningful

Depreciation and amortization includes purchase accounting adjustments of $4,066 and $3,779 for the three months ended March 31, 2020 and 2019 , respectively, and $10,531 and $13,241 for the nine months ended March 31, 2020 and 2019 , respectively.

For the three and nine months ended March 31, 2020 , the Company recorded a non-cash impairment charge of $102,211 associated with Tao Group Hospitality.

This impairment charge included impairment charges associated with one venue within the Tao Group Hospitality of $3,541 and $17,972 , related to a tradename and long-lived assets, respectively, in addition to an impairment charge of $80,698 related to goodwill associated with Tao Group Hospitality reporting unit.

Of the total impairment charge, $90,154 , which is associated with goodwill, property and equipment and right-of-use assets, was reflected within the “MSG Entertainment” segment.

The remaining $12,057 of the impairment was reported as “Purchase accounting adjustments” for segment reporting purposes and primarily relates to intangible assets and certain right-of use assets for favorable lease, as these balances are associated with the purchase price allocations in connection with the acquisition of Tao Group Hospitality on January 25, 2017.

See Note 11 and 21 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further details.

Adjusted operating income for the three months ended March 31, 2020 decreased $72,501 , or 86% , to $11,647 as compared to the prior year period.

For the nine months ended March 31, 2020 , adjusting operating income decreased $107,194 , or 52% , to $97,454 as compared to the prior year period.

The net decreases were attributable to the following:

Decrease in adjusted operating income of the MSG Entertainment

Decrease in adjusted operating income of the MSG Sports

Other net decreases

Inter-segment eliminations

Other net decreases of $7,726 for the three months ended March 31, 2020 were lower than the decrease of operating loss in Corporate and Other of $8,219 due to increases in share-based compensation of $378 and depreciation and amortization of $115 .

For the nine months ended March 31, 2020 , other net decreases of $34,262 were lower than the decrease of operating loss in Corporate and Other of $35,339 due to an increase in share-based compensation of $1,815 , partially offset by lower depreciation and amortization of $738 .

Net loss attributable to redeemable and nonredeemable noncontrolling interests

For the three months ended March 31, 2020 , the Company recorded $22,447 of net loss attributable to redeemable noncontrolling interests, including proportional share of expenses related to purchase accounting adjustments (“ PPA Expenses ”) of $22,257 , and $590 of net loss attributable to nonredeemable noncontrolling interests, including $155 of PPA Expenses , as compared to $7 of net loss attributable to redeemable noncontrolling interests, including $1,595 of PPA Expenses , and $1,101 of net loss attributable to nonredeemable noncontrolling interests, including $194 of PPA Expenses , for the three months ended March 31, 2019 .

For the nine months ended March 31, 2020 , the Company recorded $23,851 of net loss attributable to redeemable noncontrolling interests, including $25,547 of PPA Expenses , and $1,663 of net loss attributable to nonredeemable noncontrolling interests, including $472 of PPA Expenses , as compared to $3,662 of net loss attributable to redeemable noncontrolling interests, including $5,499 of PPA Expenses , and $4,913 of net loss attributable to nonredeemable noncontrolling interests, including $779 of PPA Expenses , for the nine months ended March 31, 2019 .

These amounts represent the share of net loss from the Company’s investments in Tao Group Hospitality , BCE and CLG that are not attributable to the Company.

In addition, PPA Expenses attributable to redeemable noncontrolling interests of $22,257 and $25,547 for the three and nine months ended March 31, 2020 , respectively, include $22,997 of proportional charge related to impairment of intangibles, long-lived assets and goodwill for Tao Group Hospitality .

Business Segment Results

MSG Entertainment

The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income (loss) to adjusted operating income (loss) for MSG Entertainment.

Three Months Ended

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Impairment of long-lived assets and goodwill

Operating loss

Reconciliation to adjusted operating income (loss):

Share-based compensation

Depreciation and amortization

Impairment of long-lived assets and goodwill

Adjusted operating income (loss)

Nine Months Ended

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Impairment of long-lived assets and goodwill

Operating income (loss)

Reconciliation to adjusted operating income:

Share-based compensation

Depreciation and amortization

Impairment of long-lived assets and goodwill

Adjusted operating income

_________________

NM — Percentage is not meaningful

MSG Entertainment operating results were materially impacted during the three and nine months ended March 31, 2020 by the coronavirus pandemic and government actions taken in response.

Please see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business — Effects on MSG Entertainment ” for more information.

Revenues decreased $30,054 , or 18% , to $136,398 for the three months ended March 31, 2020 as compared to the prior year period.

Revenue decreased $37,822 , or 6% , to $608,097 for the nine months ended March 31, 2020 as compared to the prior year period.

The net decreases were attributable to the following:

Decrease in event-related revenues from concerts

(Decrease) increase in revenues associated with entertainment dining and nightlife offerings (a)

Decrease in event-related revenues from other live events

Decreases in venue-related sponsorship and signage and suite license fee revenues due to the impact of the temporary closure of venues since March 12, 2020 due to COVID-19, partially offset by higher sales of existing sponsorship and signage inventory in the current year period.

Decrease in revenues from Obscura due to the decision to wind down its third-party production business to focus on the development of MSG Sphere

Decrease in revenues associated with the expiration of the Wang Theatre booking agreement in February 2019

Increase in revenues from the presentation of the Christmas Spectacular

Other net decreases

_________________

Tao Group Hospitality ’s operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis.

Accordingly, the Company’s results for the three and nine months ended March 31, 2020 include Tao Group Hospitality ’s operating results from September 30, 2019 to December 29, 2019 and from April 1, 2019 to December 29, 2019 , respectively.

As such, the Tao Group Hospitality ’s operating results reported above did not include the periods impacted by COVID-19, which will be reflected in the fourth quarter of fiscal year 2020.

See Note 2 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further discussion of Tao Group Hospitality ’s consolidation.

The decrease in event-related revenues from concerts for the three months ended March 31, 2020 was due to (i) the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 , (ii) fewer events held at the Company’s venues prior to the temporary closure of venues since March 12, 2020 as compared to the prior year period , and (iii) the impact of the recognition of additional revenue during the prior year period as a result of the ticketing agreement renewal during the third quarter of fiscal year 2019 .

For the nine months ended March 31, 2020 , the decrease in event-related revenues from concerts was primarily due to (i) lower per-event revenues prior to the temporary closure of venues since March 12, 2020 as compared to the prior year period , (ii) the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 , (iii) the impact of the recognition of additional revenue during the prior year period as a result of the ticketing agreement renewal during the third quarter of fiscal year 2019 , partially offset by additional events held at the Company’s venues prior to the temporary closure of venues since March 12, 2020 as compared to the prior year period .

The decrease in revenues associated with entertainment dining and nightlife offerings for the three months ended March 31, 2020 was primarily due to lower revenues in New York including the impact of closing one venue in January 2019.

For the nine months ended March 31, 2020 , the increase in revenues associated with entertainment dining and nightlife offerings was primarily due to the impact of new venues (both owned and managed), partially offset by lower revenues at other venues, including the impact of closing one venue in New York in January 2019.

The decreases in event-related revenues from other live events for the three and nine months ended March 31, 2020 were primarily due to the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 .

In addition, the decrease in event-related revenues from other live events for the three months ended March 31, 2020 also included lower per-event revenue prior to the temporary closure of venues since March 12, 2020 as compared to the prior year period .

For the nine months ended March 31, 2020 , the Company had higher per-event revenue from a theatrical production at the Hulu Theater at Madison Square Garden and The Chicago Theatre in the current year period largely offset by the impact of a large-scale special event held at Radio City Music Hall during the prior year period.

The Company did not have a comparable special event in the current year period.

For the three months ended March 31, 2020 , the increase in revenues from the presentation of the Christmas Spectacular , as compared to the prior year periods, was primarily due to higher per-show ticket-related revenue from an increase in average per-show paid attendance, higher average ticket prices and higher ticket-related fees in the current year periods, largely offset by the impact of the recognition of additional revenue during the prior year period as a result of the ticketing agreement renewal during the third quarter of fiscal year 2019 .

For the nine months ended March 31, 2020 , the increase in revenues from the presentation of the Christmas Spectacular , as compared to the prior year periods, was primarily due to the following:

higher per-show ticket-related revenue from higher average ticket prices, an increase in average per-show paid attendance, and higher ticket-related fees in the current year periods;

higher merchandise revenue due to recording certain merchandise sales on a gross basis (as principal) as a result of transitioning those operations in-house in the current year periods that were outsourced in the prior year periods.

The increases in per-show ticket-related revenue and merchandise revenue discussed above were partially offset by the impact on ticket-related revenue due to fewer scheduled performances in the current year periods as compared to the prior year periods.

The Company had 199 scheduled Christmas Spectacular performances in this year’s holiday season, of which 186 and 13 took place in the second quarter and third quarter of fiscal year 2020, respectively, as compared to 210 scheduled performances in the prior year’s holiday season, of which 197 and 13 took place in the second quarter and third quarter of fiscal year 2019, respectively.

For this year’s holiday season, more than one million tickets were sold, representing a low-single digit percentage decrease as compared to the prior year period.

Direct operating expenses

Direct operating expenses decreased $10,785 , or 10% , to $98,197 for the three months ended March 31, 2020 as compared to the prior year period.

Direct operating expenses decreased $17,555 , or 5% , to $366,226 for the nine months ended March 31, 2020 as compared to the prior year period.

The net decreases were attributable to the following:

Decrease in event-related direct operating expenses associated with concerts primarily due to the impact of the temporary closure of venues since March 12, 2020 due to COVID-19

Decrease in direct operating expenses associated with entertainment dining and nightlife offerings

Decrease in direct operating expenses associated with Obscura due to the decision to wind down its third-party production business to focus on the development of MSG Sphere

Decrease in event-related direct operating expenses associated with other live events

Decrease in direct operating expenses associated with the expiration of the Wang Theatre booking agreement in February 2019

(Decrease) increase in direct operating expenses associated with the presentation of the Christmas Spectacular

Increase in venue operating costs primarily associated with higher labor-related venue operating costs as the Company continued to pay certain event-level employees during the temporary closure of its venues

Other net decreases

For the three months ended March 31, 2020 , the decrease in direct operating expenses associated with entertainment dining and nightlife offerings was primarily due to (i) higher expenses during the prior year period at a new venue which opened in September 2018, (ii) lower food and beverage costs and employee compensation and related benefits, and (iii) the absence of costs related to one venue in New York which closed in January 2019.

The decrease in event-related direct operating expenses associated with other live events for the three months ended March 31, 2020 was primarily due to the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 .

For the nine months ended March 31, 2020 , the decrease in event-related direct operating expenses associated with other live events was due to (i) the impact of a large-scale special event held at Radio City Music Hall during the prior year period with no comparable special event during the current year period, and (ii) the impact of the temporary closure of venues since March 12, 2020 due to COVID-19 .

The decrease was partially offset by higher per-event expenses from a theatrical production at the Hulu Theater at Madison Square Garden and The Chicago Theatre during the second quarter of the current year period.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2020 decreased $3,534 , or 7% , to $50,721 as compared to the prior year period.

For the nine months ended March 31, 2020 , selling, general and administrative expenses decreased $4,062 , or 3% , to $151,619 as compared to the prior year period.

For the three and nine months ended March 31, 2020 , the decrease s were primarily due to (i) lower professional fees of $1,737 and $669 , respectively, (ii) the absence of venue pre-opening costs of $1,443 and $5,181 , respectively, associated with entertainment dining and nightlife offerings that were recorded in the prior year period, and (iii) lower selling, general and administrative expenses associated with Obscura of $1,413 and $6,542 , respectively, due to the Company’s decision to wind down Obscura’s third-party production business to focus on the development of MSG Sphere.

These decreases were partially offset by higher employee compensation and related benefits of $1,441 and $8,399 for the three and nine months ended March 31, 2020 , respectively.

Depreciation & amortization

Depreciation and amortization for the three months ended March 31, 2020 increased $16 to $4,915 as compared to the prior year period.

For the nine months ended March 31, 2020 , depreciation and amortization increased $1,555 , or 12% , to $14,705 as compared to the prior year period.

The increases for the nine months ended March 31, 2020 were primarily due to capital expenditures associated with the opening of a new entertainment dining and nightlife venue in September 2018.

Impairment of long-lived assets and goodwill

Due to the operating disruptions from COVID-19, the Company considered that a “triggering event” has occurred in the Tao Group Hospitality reporting unit.

Accordingly, the Company performed an impairment test on long-lived assets in connection with the interim goodwill impairment test (See Note 11 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for further details).

As a result, the Company recorded a non-cash impairment of $90,154 , which includes an impairment related to goodwill associated with Tao Group Hospitality reporting unit, and an impairment related to long-lived assets that are associated with one venue within Tao Group Hospitality for the three and nine months ended March 31, 2020 .

Operating income (loss)

Operating loss for the three months ended March 31, 2020 increased $105,905 to $107,589 as compared to the prior year period.

The increase in operating loss was primarily due to (i) a non-cash impairment of long-lived asset and goodwill , and (ii) a decrease in revenues, partially offset by lower direct operating expenses and selling, general and administrative expenses, as discussed above.

For the nine months ended March 31, 2020 , operating income decreased $107,914 , or 116% , to $14,607 as compared to the prior year period.

The decrease was primarily due to (i) a non-cash impairment of long-lived asset and goodwill , (ii) lower revenues, and (iii) an increase in depreciation and amortization, partially offset by lower direct operating expenses and selling, general and administrative expenses, as discussed above.

Adjusted operating income (loss)

Adjusted operating income for the three months ended March 31, 2020 decreased $16,837 to adjusted operating loss of $9,600 as compared to the prior year period.

For the nine months ended March 31, 2020 , adjusted operating income decreased $17,090 to $100,190 as compared to the prior year period.

The decreases in adjusted operating income were lower than the decreases in operating income primarily due to the impairment of long-lived assets and goodwill of $90,154 for three and nine months ended March 31, 2020 .

The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for MSG Sports.

Three Months Ended

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income

Reconciliation to adjusted operating income:

Share-based compensation

Depreciation and amortization

Adjusted operating income

Nine Months Ended

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income

Reconciliation to adjusted operating income:

Share-based compensation

Depreciation and amortization

Adjusted operating income

Adjusted operating loss $ (17,755) $ (40,633) $ 22,878 56 %

_________________

MSG Sports operating results were materially impacted during the three and nine months ended March 31, 2020 by the coronavirus pandemic and government actions taken in response.

Please see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business — Effects on MSG Sports ” for more information.

Revenues decreased $63,201 to $288,393 for the three months ended March 31, 2020 as compared to the prior year period.

Revenues decreased $61,896 to $660,893 for the nine months ended March 31, 2020 as compared to the prior year period.

The net decreases were attributable to the following:

Decrease in professional sports teams’ pre/regular season ticket-related revenues

Decrease in local media rights fees from MSG Networks primarily due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 slightly offset by contractual rate increases

Decrease in suite license fee revenues primarily due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19

Decrease in sponsorship and signage revenues and ad sales commission

Decrease in event-related revenues from other live sporting events

(Decrease) increase in revenues from league distributions

Decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales

Other net (decreases) increases

The decrease in professional sports teams’ pre/regular season ticket-related revenues for the three and nine months ended March 31, 2020 was due to (i) the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 , (ii) the impact of the recognition of additional revenue during the prior year period as a result of the ticketing agreement renewal during the third quarter of fiscal year 2019 , and (iii) lower average per-game revenue in the current year period as compared to the prior year period.

The decrease in sponsorship and signage revenues and ad sales commission for the three and nine months ended March 31, 2020 was primarily due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 .

In addition, the decrease for the nine months ended March 31, 2020 was due to lower sales of existing sponsorship and signage inventory.

The decrease in event-related revenues from other live sporting events for the three months ended March 31, 2020 was primarily due to the cancellation of college basketball events as a result of the temporary closure of venues since March 12, 2020 due to COVID-19 slightly offset by an additional event prior to the temporary closure.

The decrease in event-related revenues from other live sporting events for the nine months ended March 31, 2020 was primarily due to the cancellation of college basketball events as a result of the temporary closure of venues since March 12, 2020 due to COVID-19 and fewer events prior to the temporary closure slightly offset by higher per-event revenue.

The decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales for the three and nine months ended March 31, 2020 was due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 , slightly offset by higher average per-game revenue.

Direct operating expenses

Direct operating expenses decreased $27,263 , or 14% , to $173,586 for the three months ended March 31, 2020 as compared to the prior year period.

Direct operating expenses decreased $28,638 , or 7% , to $406,244 for the nine months ended March 31, 2020 as compared to the prior year period.

The net decreases were attributable to the following:

Decrease in net provisions for certain team personnel transactions

(Decrease) increase in team personnel compensation

Decrease in other team operating expenses not discussed elsewhere in this table due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 offset by an increase in league assessments and other net increases

Decrease in net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax

Decrease in professional sports teams’ pre/regular season expense associated with food, beverage and merchandise sales

Decrease in event-related expenses associated with other live sporting events

Other net increases

Net provisions for certain team personnel transactions were as follows:

Three Months Ended

Nine Months Ended

Net provisions for certain team personnel transactions

Team personnel transactions for the three months ended March 31, 2020 reflect waiver/contract terminations of $43 , which are net of credits due to the recoveries associated with previously recorded waivers/contract termination costs and player trades of $834 .

Team personnel transactions for the three months ended March 31, 2019 reflect (i) waivers/contract terminations of $12,379 , which are net of credits due to the recoveries associated with previously recorded waivers/contract termination costs, (ii) player trades of $4,055 , and (iii) season-ending player injuries of $542 .

Team personnel transactions for the nine months ended March 31, 2020 reflect waiver/contract terminations of $26,962 and player trades of $1,802 .

Team personnel transactions for the nine months ended March 31, 2019 reflect (i) waivers/contract terminations of $50,879 , which are net of credits due to the recoveries associated with previously recorded waivers/contract termination costs, (ii) player trades of $5,642 , and (iii) season-ending player injuries of $542 .

The decrease in team personnel compensation for the three months ended March 31, 2020 was primarily due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 partially offset by roster changes at the Company’s sports teams and other team personnel compensation.

The increase in team personnel compensation for the nine months ended March 31, 2020 was primarily due to roster changes at the Company’s sports teams and other team personnel compensation partially offset by the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 .

Net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax were as follows:

Three Months Ended

Nine Months Ended

Net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax

The decrease in net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax for the three months ended March 31, 2020 reflect lower provisions for league revenue sharing expense of $4,093 slightly offset by $1,454 change to an estimated NBA luxury tax credit as a result of a higher tax credit recorded in the current year period as compared to the prior year period.

Lower provisions for league revenue sharing expense primarily reflects lower estimated NBA and NHL revenue sharing expense for the 2019-20 season due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 partially offset by higher estimated NBA and NHL revenue sharing expense for the 2019-20 season games played prior to the suspensions.

The decrease in net provisions for league revenue sharing expense (excluding playoffs) and NBA luxury tax for the nine months ended March 31, 2020 reflect lower provisions for league revenue sharing expense of $3,566 offset by lower estimated NBA luxury tax credit in the current year period as compared to the prior year period of $2,788 .

The Knicks were not a luxury tax payer for the 2018-19 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams.

The Knicks’ roster as of March 31, 2020 would not result in the team being a luxury tax payer for the 2019-20 season and the estimated luxury tax receipt is currently anticipated to be lower than the luxury tax receipt for the 2018-19 season.

The actual amounts for the 2019-20 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.

The decrease in professional sports teams’ pre/regular season expense associated with food, beverage and merchandise sales for the three and nine months ended March 31, 2020 was due to the impact of the suspensions of the NBA and NHL 2019-20 seasons on March 11 and 12, 2020, respectively, due to COVID-19 , slightly offset by higher average per-game expenses.

The decrease in event-related expenses associated with other live sporting events for the three months ended March 31, 2020 was primarily due to the cancellation of college basketball events as a result of the temporary closure of venues since March 12, 2020 due to COVID-19 , slightly offset by an additional event prior to the temporary closure and higher per-event expenses.

The decrease in event-related expenses associated with other live sporting events for the nine months ended March 31, 2020 was primarily due to the cancellation of college basketball events as a result of the temporary closure of venues since March 12, 2020 due to COVID-19 and fewer events prior to the temporary closure, slightly offset by higher per-event expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2020 increased $10,823 , or 21% , to $63,206 as compared to the prior year period.

Selling, general and administrative expenses for the nine months ended March 31, 2020 increased $22,614 , or 15% , to $170,527 as compared to the prior year period.

For the three and nine months ended March 31, 2020 , the increases were primarily due to higher employee compensation and related benefits of $6,871 and $16,453 , respectively, including severance-related costs attributable to a separation agreement with a team executive, and, to a lesser extent, higher professional fees of $1,889 and $2,649 , respectively.

Operating income

Operating income for the three months ended March 31, 2020 decreased $47,074 , or 49% , to $49,389 as compared to the prior year period primarily due to lower revenues and, to a lesser extent, higher selling, general and administrative expenses partially offset by lower direct operating expenses, as discussed above.

Operating income for the nine months ended March 31, 2020 decreased $55,842 , or 42% , to $78,327 as compared to the prior year period primarily due to lower revenues and higher selling, general and administrative expenses partially offset by lower direct operating expenses, as discussed above.

Adjusted operating income

Adjusted operating income for the three months ended March 31, 2020 decreased $47,762 , or 46% , to $55,367 as compared to the prior year period.

The decrease was higher than the decrease in operating income primarily due to lower share-based compensation slightly offset by higher depreciation and amortization.

Adjusted operating income for the nine months ended March 31, 2020 decreased $55,346 , or 36% , to $97,005 as compared to the prior year period.

The decrease was lower than the decrease in operating income primarily due to higher share-based compensation slightly offset by lower depreciation and amortization.

(a) Depreciation and amortization includes purchase accounting adjustments of $265 and $269 for the three months ended September 30, 2020 and 2019, respectively.

Adjusted operating loss for the three months ended September 30, 2020 decreased $22,878, or 56%, to $17,755 as compared to the prior year period.

The decrease was lower than the decrease of operating loss primary due to lower share-based compensation and depreciation and amortization.

Liquidity and Capital Resources

As further described under “— Entertainment Distribution,” on April 17, 2020 the Company completed the Entertainment Distribution.

Although the information set forth in this Quarterly Report on Form 10-Q generally does not give effect to the Entertainment Distribution, the information set forth in this section focuses on the liquidity and capital resources of the Company following the Entertainment Distribution.

Our operations and operating results have been, and continue to be, materially impacted by the COVID-19 pandemic and government and league actions taken in response.

As of the date of this Quarterly Report on Form 10-Q, nearly all of our business operations have been suspended and it is not clear when those operations will resume.

The NBA and NHL suspended their 2019-20 seasons on March 11 and 12, 2020, respectively.

No Knicks or Rangers games are currently being played, and it is uncertain if the current seasons will resume.

For more information about the impacts and risks to the Company as a result of COVID-19, see “— Impact of COVID-19 on Our Business” and “Item 1A.

Risk Factors-Our Operations and Operating Results Have Been, and Continue to be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response.”

Our primary sources of liquidity are $100,000 of cash and cash equivalents, cash flows from the operations of our businesses and borrowing capacity under our revolving credit facilities (described below), of which $15,000 of the $365,000 maximum amount was available as of March 31, 2020, as well as $200,000 of borrowing capacity under the Delayed Draw Term Loan Facilities (“DDTL Facilities”) described below.

Our principal uses of cash include working capital-related items, the repayment of outstanding debt, and potential repurchases of shares of the Company’s Class A Common Stock.

In addition, as of March 31, 2020, the deferred revenue obligation related to the sports business was approximately $85,000 , net of billed, but not yet collected deferred revenue.

Of this amount, approximately half is related to the 2019-20 NBA and NHL seasons, which would be addressed, to the extent necessary, through refunds, credits and/or make-goods, as applicable.

The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation.

On May 26, 2020, the NHL announced return-to-play plans for 24 teams which began August 1, 2020.

The Rangers were among the teams that returned to play in a 24-team tournament.

On June 4, 2020, the NBA announced plans to resume play on July 30, 2020 with 22 teams.

The Knicks were not among the teams that returned to competition.

For more information about the impacts and risks to the Company as a result of COVID-19, see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business” and “Item 1A.

Risk Factors — Our Operations and Operating Results Have Been, and Continue to be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Until the 2020-21 NBA and NHL seasons commence, our primary sources of liquidity are cash and cash equivalents and available borrowing capacity under our credit facilities.

On November 6, 2020, the Company amended and extended the 2016 Knicks Credit Agreement and the 2017 Rangers Credit Agreement, and entered into the 2020 Knicks Holdings Credit Agreement (together with the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement, the “New Financing”), which provide for an aggregate of $250,000 of additional liquidity.

In connection with the New Financing, the Company terminated its existing Knicks Unsecured Credit Facility and DDTL Facilities, described below.

Once the 2020-21 NBA and NHL seasons commence, we also expect to have access to cash flow from our operations as a source of liquidity, but there can be no assurances that our expenses will not exceed our revenues, thereby presenting an ongoing use of liquidity.

Our principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, and potential repurchases of shares of the Company’s Class A Common Stock.

As of September 30, 2020, we had approximately $23,500 in unrestricted cash and cash equivalents.

As of September 30, 2020, the Company had approximately $138,000 in current deferred revenue obligations.

This balance is primarily comprised of obligations in connection with tickets, local media rights, suites and sponsorships.

The prepaid media rights payments are expected to be earned as the 2020-21 NBA and NHL seasons commence, but if those seasons do not commence, certain of those amounts are required to be returned.

As a general matter, deferred revenue obligations relating to suites, tickets and sponsorships will be addressed, to the extent necessary, through credits, make-goods and/or refunds, as applicable.

Cash and cash equivalents decreased from approximately $77,900 as of June 30, 2020 to approximately $23,500 as of September 30, 2020, primarily reflecting the impact of compensation-related payments.

This included significant amounts related to team and corporate personnel that typically occur in the first quarter and not during the balance of the year.

These payments were partially offset by local media rights fees and advance season ticket sales, both related to the 2020-21 NBA and NHL seasons, along with escrow recoveries related to the 2019-20 NHL season.

We regularly monitor and assess our ability to meet our net funding and investing requirements.

The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, management’s view of a favorable allocation of cash resources, and the timing of cash flow generation.

To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and challenging U.S.

and global economic and market conditions could adversely impact its ability to do so at that time.

As of March 31, 2020 , we had approximately $1,006,000 in unrestricted cash and cash equivalents and $331,000 of short-term investments.

This amount includes $200,000 borrowed by Knicks LLC under the Knicks Revolving Credit Facility in March 2020 and $150,000 borrowed by Rangers LLC under the Rangers Revolving Credit Facility in March 2020.

In connection with the Entertainment Distribution, the Company contributed $300,000 of the amounts borrowed under the revolving credit facilities to Madison Square Garden Entertainment Corp.

as part of an approximately $1,100,000 cash contribution to Madison Square Garden Entertainment Corp.

As a result of the Entertainment Distribution, our balance of unrestricted cash and cash equivalents is approximately $100,000, including the remaining $50,000 drawn under the revolving credit facilities during March 2020.

We continue to have $15,000 of borrowing capacity under the Knicks Unsecured Credit Facility.

We regularly monitor and assess our ability to meet our net funding and investing requirements.

We believe we have sufficient liquidity, including approximately $100,000 in unrestricted cash and cash equivalents as of April 17, 2020, along with available borrowing capacity under our revolving credit facilities and DDTL Facilities combined with operating cash flows, over the next 12 months, to fund our operations and repay a portion of our outstanding debt (see Note 13 to the consolidated financial statements included in “Part I - Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the Company’s short-term investments).

We believe we have sufficient liquidity, including approximately $23,500 in unrestricted cash and cash equivalents as of September 30, 2020, along with $250,000 of additional available borrowing capacity from the New Financing, to fund our operations, satisfy any obligations with respect to the return or application of deferred revenue and repay any outstanding debt that becomes due over the next 12 months.

2020 Knicks Revolving Credit Facility

On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Knicks Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes.

On November 6, 2020, Knicks LLC, a wholly owned subsidiary of the Company, entered into the 2020 Knicks Credit Agreement with a syndicate of lenders providing for the 2020 Knicks Revolving Credit Facility to fund working capital needs and for general corporate purposes.

Amounts borrowed may be distributed to the Company except during an event of default.

The 2020 Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period.

As of March 31, 2020, Knicks LLC was in compliance with this financial covenant.

As of September 30, 2020, Knicks LLC was in compliance with this financial covenant.

The 2020 Knicks Revolving Credit Facility will mature and any unused commitments thereunder will expire on November 6, 2023.

All borrowings under the 2020 Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions.

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Knicks LLC is required to pay a commitment fee ranging from 0.25% to 0.30% per annum in respect of the average daily unused commitments under the 2020 Knicks Revolving Credit Facility.

During the three months ended March 31, 2020, Knicks LLC borrowed all $200,000 available under the Knicks Revolving Credit Facility.

The outstanding balance under the 2020 Knicks Revolving Credit Facility was $220,000 as of November 9, 2020.

All obligations under the 2020 Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S.

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and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.

The foregoing description of the 2020 Knicks Credit Agreement is qualified in its entirety by reference to that agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

2020 Knicks Holdings Revolving Credit Facility

On November 6, 2020, Knicks Holdings entered into the 2020 Knicks Holdings Credit Agreement with a syndicate of lenders providing for the 2020 Knicks Holdings Revolving Credit Facility to fund working capital needs and for general corporate purposes.

The 2020 Knicks Holdings Revolving Credit Facility requires Knicks Holdings to comply with a debt service ratio of 1.1:1.0 over a trailing four quarter period.

The 2020 Knicks Holdings Revolving Credit Facility will mature and any unused commitments thereunder will expire on November 6, 2023.

All borrowings under the 2020 Knicks Holdings Revolving Credit Facility are subject to the satisfaction of certain customary conditions.

Borrowings under the 2020 Knicks Holdings Revolving Credit Facility bear interest at a floating rate, which at the option of Knicks Holdings may be either (i) a base rate plus a margin ranging from 1.00% to 1.25% per annum or (ii) LIBOR plus a margin ranging from 2.00% to 2.25% per annum.

Knicks Holdings is required to pay a commitment fee ranging from 0.375% to 0.50% per annum in respect of the average daily unused commitments under the 2020 Knicks Holdings Revolving Credit Facility.

The 2020 Knicks Holdings Revolving Credit Facility is currently undrawn as of November 9, 2020.

All obligations under the 2020 Knicks Holdings Revolving Credit Facility are secured by debt service and distribution accounts maintained by Knicks Holdings, and includes a guarantee from MSG NYK Holdings, LLC, an indirect wholly-owned subsidiary of the Company and the direct parent of Knicks Holdings.

Subject to customary notice and minimum amount conditions, Knicks Holdings may voluntarily prepay outstanding loans under the 2020 Knicks Holdings Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans).

Knicks Holdings is required to make mandatory prepayments in certain circumstances, including if the amount of commitments under the 2020 Knicks Holdings Revolving Credit Facility increase above $350,000.

In addition to the financial covenant described above, the 2020 Knicks Holdings Revolving Credit Facility and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default.

The 2020 Knicks Holdings Revolving Credit Facility contains certain restrictions on the ability of Knicks Holdings to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2020 Knicks Holdings Revolving Credit Facility, including the following:

(i) incurring additional indebtedness and contingent liabilities;

(ii) creating liens on certain assets;

(iii) making restricted payments during the continuance of an event of default under the 2020 Knicks Holdings Revolving Credit Facility;

(iv) engaging in sale and leaseback transactions;

(v) merging or consolidating;

and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks Holdings’ collateral.

The foregoing description of the Knicks Holdings Credit Agreement and related security agreements is qualified in its entirety by reference to those agreements, which are attached hereto as Exhibits 10.2 and 10.3 and are incorporated herein by reference.

Knicks Unsecured Credit Facility

On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364-day term (the “Knicks Unsecured Credit Facility”).

Knicks LLC renewed this facility with the lender on the same terms in successive years and the facility was renewed for a new 365-day term effective as of September 27, 2019.

There was no borrowing under the Knicks Unsecured Credit Facility as of March 31, 2020.

This facility does not have financial covenants.

On September 30, 2016, Knicks LLC entered into the Knicks Unsecured Credit Facility.

Knicks LLC renewed this facility with the lender on the same terms in successive years and the facility was renewed for a new term effective as of September 25, 2020.

There was no borrowing under the Knicks Unsecured Credit Facility as of September 30, 2020.

On November 6, 2020, the Company terminated the Knicks Unsecured Credit Facility in connection with the New Financing.

2020 Rangers Revolving Credit Facility

On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “Rangers Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes.

On November 6, 2020, Rangers LLC entered into the 2020 Rangers Credit Agreement with a syndicate of lenders providing for the 2020 Rangers Revolving Credit Facility to fund working capital needs and for general corporate purposes.

Amounts borrowed may be distributed to the Company except during an event of default.

The 2020 Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period.

As of March 31, 2020, Rangers LLC was in compliance with this financial covenant.

As of September 30, 2020, Rangers LLC was in compliance with this financial covenant.

The 2020 Rangers Revolving Credit Facility will mature and any unused commitments thereunder will expire on November 6, 2023.

All borrowings under the 2020 Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions.

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Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the 2020 Rangers Revolving Credit Facility.

During the three months ended March 31, 2020, Rangers LLC borrowed all $150,000 available under the Rangers Revolving Credit Facility.

The outstanding balance under the 2020 Rangers Revolving Credit Facility was $160,000 as of November 9, 2020.

All obligations under the 2020 Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S.

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Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the 2020 Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans).

Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the Rangers Revolving Credit Facility.

Rangers LLC is required to make mandatory prepayments in certain

circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the 2020 Rangers Revolving Credit Facility.

In addition to the financial covenant described above, the 2020 Rangers Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default.

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and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the 2020 Rangers Revolving Credit Facility.

The foregoing description of the 2020 Rangers Credit Agreement is qualified in its entirety by reference to that agreement, which is attached hereto as Exhibit 10.4 and is incorporated herein by reference.

Delayed Draw Term Loan Credit Facilities

As an additional source of liquidity for the Company in response to the COVID-19 pandemic, on April 17, 2020, MSG NYR Holdings, LLC and MSG NYK Holdings, LLC, two indirect wholly-owned subsidiaries of the Company, each entered into a separate delayed draw term loan credit agreement with MSG Entertainment Group, LLC, a wholly-owned subsidiary of MSG Entertainment, as lender (the “DDTL Lender”).

The credit agreement for MSG NYK Holdings, LLC (the “Knicks DDTL Facility Borrower”) provides for a $110,000 senior unsecured delayed draw term loan facility (the “Knicks DDTL Facility”) and the credit agreement for MSG NYR Holdings, LLC (the “Rangers DDTL Facility Borrower”) provides for a $90,000 senior unsecured delayed draw term loan facility (the “Rangers DDTL Facility” and, together with the Knicks DDTL Facility, the “DDTL Facilities”).

The DDTL Facilities will mature and any unused commitments thereunder will expire on October 17, 2021.

Borrowings under the DDTL Facilities will bear interest at a variable rate equal to either, at the election of the applicable borrower, (i) LIBOR plus 2.00% per annum or (ii) a base rate plus 1.00% per annum.

Subject to the borrowing conditions, each of the DDTL Facilities may be drawn in up to four separate borrowings of $10,000 or more.

Proceeds of borrowings under the DDTL Facilities will be used for general corporate purposes.

The availability of each of the DDTL Facilities to the respective borrowers is subject to certain conditions, including (a) the liquidity, including cash on hand and availability under revolving credit commitments, of the Company, MSG Sports, LLC, the Knicks DDTL Facility Borrower and its subsidiaries and the Rangers DDTL Facility Borrower and its subsidiaries (other than any liquidity that is restricted by law or contractual obligation from being transferred to the relevant DDTL Facility Borrower or its subsidiaries) must be (i) less than $50,000 immediately prior to giving effect to any borrowing, and (ii) less than $75,000 immediately after giving effect to any borrowing, and (b) with respect to the Knicks DDTL Facility, the Knicks DDTL Facility Borrower and its subsidiaries must have used commercially reasonable efforts to raise additional financing (“New Third-Party Debt”), including additional commitments under existing revolving facilities, prior to drawing on the Knicks DDTL Facility to the extent permitted by the debt policies of the NBA.

In addition, the commitments of the DDTL Lender to make advances under the Knicks DDTL Facility will be permanently reduced and the Knicks DDTL Facility will be subject to mandatory prepayments in an amount equal to the net cash proceeds received by the Company, MSG Sports, LLC, the Knicks DDTL Facility Borrower, or the subsidiaries of the Knicks DDTL Facility Borrower from any New Third-Party Debt.

Pursuant to the NBA debt policies, the NBA has consented (the “NBA Consent Letter”) to the incurrence of the indebtedness under the Knicks DDTL Facility.

The NBA Consent Letter provides that the Knicks DDTL Facility Borrower and its subsidiaries (including the Knicks basketball team) will, among other matters, (i) operate the team in a first class manner, consistent with the manner in which NBA teams generally are operated, as determined by the NBA Commissioner in his sole discretion, and (ii) maintain sufficient net working capital and cash reserves to pay expenses, liabilities and obligations of the team in the ordinary course and in a timely fashion.

In addition, the Knicks DDTL Facility Borrower and its subsidiaries (including the Knicks basketball team) have agreed with the NBA to not transfer certain basketball-related assets and to not make distributions to the Company without first providing the NBA with advance notice and not receiving the objection of the NBA Commissioner.

Madison Square Garden Entertainment Corp.

Through the end of the quarter ended March 31, 2020 and prior to the Entertainment Distribution, the Company’s cash expenditures included capital spending in connection with the construction of MSG Sphere at The Venetian, the state-of-the-art entertainment venue currently under construction in Las Vegas.

The Company’s actual construction costs for MSG Sphere at The Venetian incurred through March 31, 2020 were approximately $349,000 , which is net of $65,000 received from Las Vegas Sands Corp.

during the nine months ended March 31, 2020.

In addition, the amount of construction costs incurred as of March 31, 2020 includes approximately $67,600 of accrued expenses that were not yet paid as of that date.

For additional information regarding the Company’s capital expenditures related to MSG Sphere for the three and nine months ended March 31, 2020, see Note 21 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q.

Prior to the Entertainment Distribution the Company’s business also included the Forum, an arena-sized venue in Inglewood, CA.

During the three months ended March 31, 2020, three subsidiaries of Madison Square Garden Entertainment Corp.

reached an agreement to sell the Forum and settle related litigation for a cash purchase price of $400,000 pursuant to a Membership Interest Purchase Agreement.

All proceeds from the transaction, which closed subsequent to the Entertainment Distribution, and rights and obligations of the parties to the Membership Interest Purchase Agreement were retained by Madison Square Garden Entertainment Corp.

and its subsidiaries.

The credit agreement for the Knicks DDTL Facility Borrower provides for a $110,000 Knicks DDTL Facility and the credit agreement for the Rangers DDTL Facility Borrower provides for a $90,000 Rangers DDTL Facility.

On November 6, 2020, the Company terminated the DDTL Facilities in connection with the New Financing.

Financing Agreements and Stock Repurchases

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Contractual Obligations

The Company adopted ASU No.

2016-02, Leases (Topic 842), on July 1, 2019.

As a result, the contractual obligations related to future lease payments, which were historically reported as off-balance sheet commitments, are now reflected on the consolidated balance sheet as lease liabilities as of March 31, 2020 .

See Note 9 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for more details about the lease liabilities.

In connection with the Entertainment Distribution, certain contractual obligations, principally those that the Company had in connection with the MSG Sphere in Las Vegas and long-term noncancelable operating lease agreements for entertainment venues and certain office and storage space, were transferred to Madison Square Garden Entertainment Corp .

In connection with the Entertainment Distribution, subsidiaries of the Company are parties to Arena License Agreements with a subsidiary of Madison Square Garden Entertainment Corp.

that requires the Knicks and Rangers to play their home games at The Garden.

Under the Arena License Agreements, which each have a term of 35 years, the Knicks and Rangers will pay an annual license fee in connection with their respective use of The Garden.

The Company did not have any material changes in its contractual obligations since the end of fiscal year 2020 other than activities in the ordinary course of business.

Cash Flow Discussion

As of March 31, 2020 , cash, cash equivalents and restricted cash totaled $1,045,137 , as compared to $1,117,901 as of June 30, 2019 .

The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2020 and 2019 :

Nine Months Ended March 31,

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Net loss $ (29,015) $ (80,666)

Adjustments to reconcile net loss to net cash used in operating activities 7,459 45,477

(21,556) (35,189)

Changes in working capital assets and liabilities (35,929) 955

Net cash provided by operating activities

Net cash used in operating activities (57,485) (34,234)

Net cash used in investing activities (80) (74,236)

Net cash provided by (used in) financing activities

Net cash used in financing activities (6,902) (23,946)

Effect of exchange rates on cash, cash equivalents and restricted cash — (1,950)

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Operating Activities

Net cash provided by operating activities for the nine months ended March 31, 2020 improved by $13,789 to $111,133 as compared to the prior year period primarily due changes in working capital assets and liabilities which include (i) lower increase in accounts receivable as a result of the temporary closure of venues and suspensions of the NBA and NHL seasons due to COVID-19, (ii) higher collections due to promoters as events were postponed as a result of the temporary closure of venues due to COVID-19, (iii) higher increase in accrued and other liabilities primarily due to funds received from Las Vegas Sands Corp.

in connection with the ground lease in Las Vegas, partially offset by the waiver of a player in the prior year period.

The increase in cash provided by the changes in working capital discussed above was partially offset by the decrease in net income in the current year period adjusted for non-cash items.

Net cash used in operating activities for the three months ended September 30, 2020 increased by $23,251 to $57,485 as compared to the prior year period due to changes in working capital assets and liabilities partially offset by the decrease in net loss adjusted for non-cash items.

Net cash used in operating activities for the prior year period was not adjusted to exclude net cash used in discontinued operations.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2020 increased by $334,871 to $494,631 as compared to the prior year period primarily due to (i) an increase in purchase of short-term investments in the current year period as compared to the prior year period, (ii) higher capital expenditures in the current year period as compared to the prior year period, of which substantially all are related to the Company’s planned MSG Spheres in Las Vegas and London, and (iii) lower proceeds received from the sale of the Company’s 50% interest in AMSGE in the prior year period compared to the sale of the Company’s 50% interest in Tribeca in the current year period.

This increase was partially offset by (i) proceeds from maturity of short-term investments, (ii) a loan repayment received from subordinated note, (iii) lower investments made in nonconsolidated affiliates in the current year period as compared to the prior year period, and (iv) acquisition of notes receivable during the prior year period as compared to none during the current year period.

Net cash used in investing activities for the three months ended September 30, 2020 decreased by $74,156 to $80 as compared to the prior year period primarily driven by investing activities in discontinued operations in the prior year period.

activities included in discontinued operations in the prior year period primarily consisted of capital expenditures related to MSG Entertainment’s planned MSG Spheres in Las Vegas and London partially offset by proceeds received from the sale of interest in a nonconsolidated affiliate.

Financing Activities

Net cash provided by financing activities for the nine months ended March 31, 2020 was $306,818 as compared to net cash used in financing activities in the prior year period of $18,551 .

This change is primarily due to proceeds received from the borrowings under the Knicks Revolving Credit Facility and Rangers Revolving Credit Facility slightly offset by a repayment on the Tao Revolving Credit Facility and an increase in taxes paid in lieu of shares issued for equity-based compensation in the current year period as compared to the prior year period.

Net cash used in financing activities for the three months ended September 30, 2020 decreased by $17,044 to $6,902 as compared to the prior year period.

This decrease was primarily due to lower taxes paid in lieu of shares issued for equity-based compensation in the current year period as compared to the prior year period.

Taxes paid in lieu of shares issued for equity-based compensation in the prior year period included taxes associated with MSG Entertainment employees.

Seasonality of Our Business

As further described under “— Entertainment Distribution,” on April 17, 2020, the Company completed the Entertainment Distribution.

Although the information set forth in this Quarterly Report on Form 10-Q generally does not give effect to the Entertainment Distribution, the information set forth in this section focuses on the seasonality of the Company’s business following the Entertainment Distribution.

The dependence of MSG Sports on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year.

The Company’s dependence on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year.

On March 11 and 12, 2020, respectively, the NBA and NHL suspended their 2019-20 seasons due to COVID-19.

In July and August 2020, the NBA and NHL, respectively, restarted their seasons.

As a result, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarter of fiscal year 2020 during the first quarter of fiscal year 2021.

In addition, depending on when the 2020-21 NBA and NHL seasons commence, the Company might recognize certain revenues during the third and fourth quarters of fiscal year 2021, that otherwise would have been recognized during the second and third quarters of fiscal year 2021, respectively.

Recently Issued Accounting Pronouncements and Critical Accounting Policies

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Critical Accounting Policies

The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2020 and our interim impairment testing of goodwill and long-lived assets during the quarter ended March 31, 2020.

Subsequent to the issuance of our Annual Report on Form 10-K for the year ended June 30, 2019 , the Company adopted the ASC Topic 842, Leases i n the first quarter of fiscal year 2020.

See Note 9 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for discussion of leases.

In addition, the Company elected to adopt ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Accounting for Goodwill Impairment in the third quarter of fiscal year 2020 in connection with its interim goodwill impairment test performed as of March 31, 2020, as discussed further below.

2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

There have been no other material changes to the Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended June 30, 2019 .

Goodwill is tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or substantive changes in circumstances.

The Company performs its goodwill impairment test at the reporting unit level, which is one level below the operating segment level.

The Company has two operating and reportable segments, MSG Sports and MSG Entertainment, consistent with the way management makes decisions and allocates resources to the business.

For purposes of evaluating goodwill for impairment, the Company has three reporting units across its two operating segments, which are MSG Sports, MSG Entertainment and Tao Group Hospitality .

The goodwill balance reported on the Company’s consolidated balance sheet as of March 31, 2020 by reporting unit was as follows:

MSG Entertainment

Tao Group Hospitality

There have been no material changes to the Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended June 30, 2020.

The carrying amount of goodwill as of September 30, 2020 is $226,955.

Goodwill is tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or changes in circumstances.

The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level.

The Company has one operating and reportable segment, and one reporting unit for goodwill impairment testing purposes.

The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred.

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The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows.

Subsequent to the adoption of ASU No.

2017-04 in the third quarter of fiscal year 2020, the amount of an impairment loss is measured as the amount by which a reporting unit’s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill.

Prior to the adoption of ASU No.

2017-04, if the carrying amount of a reporting unit exceeded its fair value, the second step of the goodwill impairment test was performed to measure the amount of impairment loss, if any.

The second step of the goodwill impairment test compared the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.

If the carrying amount of the reporting unit’s goodwill exceeded the implied fair value of that goodwill, an impairment loss was

recognized in an amount equal to that excess.

The implied fair value of goodwill was determined in the same manner as the amount of goodwill that would be recognized in a business combination.

The Company elected to perform the qualitative assessment of impairment for the goodwill for all of the Company’s reporting units for the fiscal year 2020 annual impairment test.

The amount of an impairment loss is measured as the amount by which a reporting unit’s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill.

The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2021 impairment test.

These assessments considered factors such as:

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• industry and market considerations;

• market capitalization;

• cost factors;

overall financial performance of the reporting units;

• overall financial performance of the reporting unit;

• other relevant company-specific factors such as changes in management, strategy or customers;

• relevant reporting unit specific events such as changes in the carrying amount of net assets.

During the first quarter of fiscal year 2020 , the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for any of its reporting units as of the impairment test date.

Based on these impairment tests, the Company’s reporting units had sufficient safety margins, representing the excess of the estimated fair value of each reporting unit, derived from the most recent quantitative assessments, less its respective carrying value (including goodwill allocated to each respective reporting unit).

The Company believes that if the fair value of the reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.

During the third quarter of fiscal year 2020, the Company’s operating results have been, and continue to be, materially impacted by the COVID-19 pandemic and government and league actions taken in response, including government mandated assembly limitations and venue, restaurant, bar and nightclub closures impacting all the Company’s reporting units.

While the Company concluded that the effects of COVID-19 would not more likely than not reduce the fair value of its MSG Sports and MSG Entertainment reporting units below their carrying amounts, the Company concluded a triggering event had occurred for its Tao Group Hospitality reporting unit as of March 31, 2020 as a result of COVID-19.

Accordingly, the Company performed an interim quantitative impairment test as of March 31, 2020 (“interim testing date”) for the Tao Group Hospitality reporting unit, which required the Company to assess the carrying value of its long-lived assets, amortizable intangible assets and goodwill as of the interim test date.

Amortizable intangible assets and other long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent from cash flows from other assets and liabilities.

In determining whether an impairment of long-lived assets has occurred, the Company considers both qualitative and quantitative factors.

The quantitative analysis involves estimating the undiscounted future cash flows directly related to that asset group and comparing the resulting value against the carrying value of the asset group.

If the carrying value of the asset group is greater than the sum of the undiscounted future cash flows, an impairment loss is recognized for the difference between the carrying value of the asset group and its estimated fair value.

For the interim impairment test, the Company estimated the fair value of the Tao Group Hospitality reporting unit based on a discounted cash flow model (income approach).

This approach relied on numerous assumptions and judgments that were subject to various risks and uncertainties.

Principal assumptions utilized, all of which are considered Level III inputs under the fair value hierarchy (see Note 11 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q), include the Company's estimates of future revenue and terminal growth rates, margin assumptions and the discount rate applied to estimate future cash flows.

The assumptions utilized are subject to a high degree of judgment and complexity, particularly in light of economic and operational uncertainty that exists as a result of COVID-19 as of March 31, 2020.

Based upon the results of the Company’s interim quantitative impairment test, the Company concluded that the carrying value of the Tao Group Hospitality reporting unit exceeded its estimated fair value (“ Fair Value Deficit ”) as of the interim testing date by $102,211 .

Based on the evaluation of amortizable intangible assets and other long-lived assets, the Company recorded non-cash impairment charges of $11,573 , $6,399 and $3,541 , for Right-of-use assets, Property and equipment assets, and certain intangible assets, respectively, which were associated with a single venue within the Tao Group Hospitality .

The remaining Tao Group Hospitality Fair Value Deficit was allocated to goodwill for a non-cash goodwill impairment charge of $80,698 .

The goodwill impairment charge was calculated as the amount that the adjusted carrying value of the reporting unit, including any goodwill, exceeded its fair value.

Upon completion of the quantitative impairment test and recording of the associated impairments, as of March 31, 2020, the carrying value of the Tao Group Hospitality reporting unit equals its fair value, whereas the Company’s other reporting units still maintain a headroom that is sufficiently in excess of their carrying values.

See “ Part II

Risk Factors ” for more information about the risks to the Company’s business operations as a result of the COVID-19 pandemic.

The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2021, and there was no impairment of goodwill.

Based on this impairment test, the Company’s reporting unit had sufficient safety margins, defined as the excess of the amount by which the estimated fair value of the reporting unit exceeded the carrying value of the reporting unit, including goodwill.

The Company believes that if the fair value of a reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.

Identifiable Indefinite-Lived Intangible Assets

Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or substantive changes in circumstances.

The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of March 31, 2020 by reportable segment:

Sports franchises (MSG Sports)

Trademarks (MSG Entertainment)

Photographic related rights (MSG Sports)

Balance as of June 30, 2019

Allocation to the assets held for sale

Balance as of March 31, 2020

The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of September 30, 2020:

Sports franchises $ 111,064

Photographic related rights 1,080

The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred.

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If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The Company elected to perform the qualitative assessment of impairment for the indefinite-lived intangible assets for all of the Company’s reporting units for the fiscal year 2020 annual impairment test.

For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets.

These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset.

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• macroeconomic conditions.

During the first quarter of fiscal year 2020 , the Company performed its annual impairment test of the identifiable indefinite-lived intangible assets and determined that there were no impairments identified as of the impairment test date.

Based on results of the impairment tests performed, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value.

The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2021, and there were no impairments identified.

Based on this impairment test, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value.

The Company believes that if the fair value of an indefinite-lived intangible asset exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.

Contingent Consideration

See Note 13 to the consolidated financial statements included in “Part I — Item 1.

Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the fair value of the Company’s deferred and contingent consideration liabilities related to the acquisitions of Tao Group Hospitality and CLG .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis