Madison Square Garden Sports Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Sports Corp. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”) including 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. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: • the duration and severity of the COVID-19 pandemic and our ability to effectively manage the impacts, including the availability of The Garden with no or limited fans, league decisions regarding play and other matters, the cancellation of games, the impact of restrictions imposed by New York State, New York City, or otherwise, reduced tourism, and general hesitancy among the public to return to pre-COVID-19 activity levels; • the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams; • costs associated with player injuries, waivers or contract terminations of players and other team personnel; • changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax; • 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, 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 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; • a default by our subsidiaries under their respective credit facilities; • the evolution of the esports industry and its potential impact on our esports businesses; • the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; • our ability to successfully integrate acquisitions or new businesses into our operations; • the operating and financial performance of our strategic acquisitions and investments, including those we may not control; • 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; 25 Table of Contents • 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 MSGS Distribution and the MSGE Distribution; • the performance by MSG Entertainment and its subsidiaries of its obligations under various agreements with the Company related to the MSGE Distribution and ongoing commercial arrangements; and • the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. 26 Table of Contents All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted. Introduction 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 fiscal year ended June 30, 2021, 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,” “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. After giving effect to the MSGE Distribution, the Company operates and reports financial information in one segment. Factors Affecting Results of Operations Impact of COVID-19 on Our Business COVID-19 disruptions have materially impacted the Company’s revenues and the Company recognized materially less revenues, or in some cases no revenues, across a number of areas during the fiscal year ended June 30, 2021. In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. As a result of the suspension of the 2019-20 NBA and NHL seasons and subsequent resumption of play in July and August 2020, respectively, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020. In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed and the Knicks and the Rangers played fewer games, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule. These compare to traditional 82-game regular season schedules for both the NBA and NHL. In connection with the MSGE Distribution, we entered into the Arena License Agreements with MSG Entertainment. The Garden was not available for use between April 17, 2020 (the date of the MSGE Distribution) and the start of the NBA and NHL 2020-21 seasons in December 2020 and January 2021, respectively, due to the government-mandated suspension of events in response to COVID-19, and was available at reduced capacity through May 2021. As a result, the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, and the Company continued to pay substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts. These disruptions materially impacted the Company’s revenues across a number of areas, including, ticket sales; the Company’s share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; and food, beverage and merchandise sales. During the fiscal year 2021, as a result of COVID-19, the Company implemented cost-reduction measures that included workforce reductions and limits on discretionary spending. In addition, as a result of the disruptions caused by COVID-19, certain operating expenses were reduced, including, in addition to the reduced payments to MSG Entertainment under the Arena License Agreements described above, (i) NBA league assessments and day-of-game expenses for Knicks and Rangers games, and (ii) league revenue sharing, net of escrow and team personnel expense. These expense reductions did not fully offset revenue losses. As a result of New York City regulations effective August 17, 2021, indoor entertainment venues such as The Garden are now permitted to host guests at full capacity, subject to certain restrictions, including that, all guests 12 years of age and older and employees (other than players who are not residents of New York City and who do not play for a New York City-based team) must show proof that they have received at least one dose of a COVID-19 vaccine. Guests are also required to wear masks unless they show proof of full COVID-19 vaccination (i.e., at least 14 days have passed after their final vaccine dose). Children under age 12 can attend events with a vaccinated adult, but ages 2 to 11 need to wear a mask while inside our venues. 27 Table of Contents At this time, the Company’s management is unable to predict if there will be any longer-term effects due to these COVID-19 related disruptions. Fan attendance for the 2021-22 NBA and NHL seasons could be impacted by a resurgence in the COVID-19 pandemic such as the Delta variant, governmental and league restrictions on attendance of games at The Garden, reduced tourism, as well as general hesitancy among the public to return to pre-COVID-19 activity levels. The Company’s business is also particularly sensitive to discretionary business and consumer spending. COVID-19 could impede economic activity in impacted regions or globally over the long-term, causing a global recession and leading to a further decline in discretionary spending on sporting events and other leisure activities, including declines in domestic and international tourism, which could result in long-term effects on the Company’s business. This MD&A is organized as follows: Results of Operations. This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Liquidity and Capital Resources. 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, 2021 compared to the three months ended September 30, 2020, and (iii) certain contractual obligations. Seasonality of Our Business. This section discusses the seasonal performance of our business . Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company as well as the results of the Company’s annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2022. This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements of the Company included therein. 28 Table of Contents Results of Operations Comparison of the three months ended September 30, 2021 versus the three months ended September 30, 2020 The table below sets forth, for the periods presented, certain historical financial information. Three Months Ended September 30, Change (a) 2021 2020 $ % Revenues $ 18,794 $ 57,038 $ (38,244) (67) % Direct operating expenses 8,578 39,786 (31,208) (78) % Selling, general and administrative expenses 43,728 42,996 732 2 % Depreciation and amortization 1,426 1,660 (234) (14) % Operating loss (34,938) (27,404) (7,534) (27) % Other expense: Interest expense, net (3,053) (1,989) (1,064) (53) % Miscellaneous expense, net (63) (120) 57 48 % Loss from operations before income taxes (38,054) (29,513) (8,541) (29) % Income tax benefit 21,169 498 20,671 NM Net loss (16,885) (29,015) 12,130 42 % Less: Net loss attributable to nonredeemable noncontrolling interests (480) (598) 118 20 % Net loss attributable to Madison Square Garden Sports Corp.’s stockholders $ (16,405) $ (28,417) $ 12,012 42 % _________________ (a) Operating results in the prior year period were materially impacted by the COVID-19 pandemic. Please see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business” for more information. Revenues Revenues decreased $38,244, or 67%, to $18,794 for the three months ended September 30, 2021 as compared to the prior year period. The net decrease was attributable to the following: Decrease in revenues from league distributions $ (41,215) Decrease in local media rights fees (1,764) Increase in pre/regular season ticket-related revenues 3,682 Other net increases 1,053 $ (38,244) The decrease in revenues from league distributions for the three months ended September 30, 2021 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 the COVID-19 pandemic, the NHL and NBA subsequently restarted their seasons which were completed in September and October 2020, respectively. The decrease in local media rights fees for the three months ended September 30, 2021 was due to the recognition of local media rights fees in the prior year period associated with the Rangers’ participation in the Stanley Cup Qualifiers. This decrease was partially offset by contractual rate increases. The increase in pre/regular season ticket-related revenues for the three months ended September 30, 2021 was due to two Rangers’ preseason home games played during the current year period as compared to no games played during the prior year period as a result of the delayed start of the 2020-21 NHL season. 29 Table of Contents Direct operating expenses Direct operating expenses decreased $31,208, or 78%, to $8,578 for the three months ended September 30, 2021 as compared to the prior year period. The net decrease was attributable to the following: Decrease in team personnel compensation $ (13,462) Decrease in net provisions for certain team personnel transactions (10,146) Decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax (8,881) Inclusion of operating lease costs associated with the Knicks and the Rangers playing home games at The Garden 1,311 Other net decreases (30) $ (31,208) The decrease in team personnel compensation was primarily due to the recognition of player compensation expense during the prior 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 certain team personnel transactions were as follows: Three Months Ended September 30, 2021 2020 Decrease Waivers/contract terminations $ 727 $ 8,373 $ (7,646) Player trades — 2,500 (2,500) Net provisions for certain team personnel transactions $ 727 $ 10,873 $ (10,146) 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, 2021 2020 Decrease Net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax $ 1,456 $ 10,337 $ (8,881) The decrease in net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax for the three months ended September 30, 2021 was primarily due to adjustments to revenue sharing expense for the 2019-20 NBA and NHL seasons in the prior year period. Based on the completion of the 2019-20 NBA and NHL seasons during the three months ended September 30, 2020, the Company recognized a portion of revenue sharing expense (net of escrow) related to those seasons during that period that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020. This decrease is partially offset by adjustments to revenue sharing expense for the 2020-21 NBA and NHL seasons during the three months ended September 30, 2021. Selling, general and administrative expenses Selling, general and administrative expenses for the three months ended September 30, 2021 increased $732, or 2%, to $43,728 as compared to the prior year period. Depreciation and amortization Depreciation and amortization for the three months ended September 30, 2021 decreased $234, or 14%, to $1,426 as compared to the prior year period. Operating loss Operating loss for the three months ended September 30, 2021 increased $7,534, or 27%, to $34,938 as compared to the prior year period primarily due to a decrease in revenues, partially offset by lower direct operating expenses. Interest expense, net Net interest expense for the three months ended September 30, 2021 increased $1,064, or 53%, to $3,053 as compared to the prior year period primarily due to interest expense associated with the Knicks and the Rangers revolving credit facilities. During the second quarter of fiscal year 2021, the Company amended and restated the Knicks and the Rangers credit agreements and as a result incurred additional financing costs that are being amortized over the term of the revolving credit facilities. 30 Table of Contents Income taxes 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 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 with GAAP. 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, 2021 as compared to the prior year period: Three Months Ended September 30, Change 2021 2020 $ % Operating loss $ (34,938) $ (27,404) $ (7,534) (27) % Deferred rent 529 — Depreciation and amortization 1,426 1,660 Share-based compensation 4,851 6,345 Restructuring charges — 1,644 Adjusted operating loss $ (28,132) $ (17,755) $ (10,377) (58) % Adjusted operating loss for the three months ended September 30, 2021 increased $10,377, or 58%, to $28,132 as compared to the prior year period primarily due to a decrease in revenues and, to a lesser extent, higher selling, general and administrative expenses, partially offset by lower direct operating expenses. Liquidity and Capital Resources Overview Our operations and operating results have been, and may continue to be, materially impacted by the COVID-19 pandemic and government and league actions taken in response. 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 — Sports Business Risks — Our Operations and Operating Results Have Been, and May 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, 2021. In addition, see also 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 information. 31 Table of Contents Our primary sources of liquidity are cash and cash equivalents and available borrowing capacity under our credit facilities as well as cash flow from our operations. 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 additional liquidity. In addition, the NHL advanced the Company $30,000, which the league made available to each team following the completion of the NHL’s approximately $1,000,000 private placement in January 2021 (the “2021 Rangers NHL Advance Agreement”). 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 a discussion of the 2020 Knicks Credit Agreement, 2020 Knicks Holdings Credit Agreement, 2020 Rangers Credit Agreement and 2021 Rangers NHL Advance Agreement. 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, 2021, we had approximately $33,600 in Cash and cash equivalents. In addition, as of September 30, 2021, the Company’s deferred revenue obligations were approximately $231,507, net of billed, but not yet collected deferred revenue. This balance is primarily comprised of obligations in connection with tickets, suites and local media rights. In addition, the Company's deferred revenue obligations included $30,000 from the NBA, which the league provided to each team following the completion of the NBA’s $900,000 private placement in December 2020. 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. We believe we have sufficient liquidity, including approximately $33,600 in Cash and cash equivalents as of September 30, 2021, along with $245,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations, including with respect to the return or application of deferred revenue over the next 12 months. Financing Agreements and Stock Repurchases See Note 11 and Note 14 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 debt obligations and various financing agreements, and the Company’s stock repurchases, respectively. Contractual Obligations The Company did not have any material changes in its contractual obligations since the end of fiscal year 2021 other than activities in the ordinary course of business. Cash Flow Discussion The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Net loss $ (16,885) $ (29,015) Adjustments to reconcile net loss to net cash used in operating activities (14,455) 7,459 Subtotal (31,340) (21,556) Changes in working capital assets and liabilities 12,030 (35,929) Net cash used in operating activities (19,310) (57,485) Net cash used in investing activities (306) (80) Net cash used in financing activities (12,142) (6,902) Net decrease in cash, cash equivalents and restricted cash $ (31,758) $ (64,467) Operating Activities Net cash used in operating activities for the three months ended September 30, 2021 decreased by $38,175 to $19,310 as compared to the prior year period primarily due to changes in working capital assets and liabilities driven by the COVID-19 pandemic in the prior year period. The change was slightly offset by the increase in net loss adjusted for non-cash items. 32 Table of Contents Investing Activities Net cash used in investing activities for the three months ended September 30, 2021 increased by $226 to $306 as compared to the prior year period primarily due to other investing activities in the current year period and higher capital expenditures in current year period as compared to prior year period. Financing Activities Net cash used in financing activities for the three months ended September 30, 2021 increased by $5,240 to $12,142 as compared to the prior year period primarily due to higher taxes paid in lieu of shares issued for equity-based compensation in the current year period as compared to the prior year period. Seasonality of Our Business 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, resumed their seasons and the NHL and NBA subsequently completed their seasons in September and October 2020, respectively. As a result, during the first quarter of fiscal year 2021 the Company recognized certain revenues that otherwise would have typically been recognized during the third and fourth quarter of fiscal year 2020. Recently Issued Accounting Pronouncements and Critical Accounting Policies Recently Issued Accounting Pronouncements 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 discussion of recently issued accounting pronouncements. 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 2022. 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 fiscal year ended June 30, 2021. Goodwill The carrying amount of goodwill as of September 30, 2021 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. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company’s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. 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. 33 Table of Contents The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2022 impairment test. These assessments considered factors such as: • macroeconomic conditions; • industry and market considerations; • market capitalization; • cost factors; • overall financial performance of the reporting unit; • other relevant company-specific factors such as changes in management, strategy or customers; and • relevant reporting unit specific events such as changes in the carrying amount of net assets. The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2022, and there was no impairment of goodwill. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. 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 September 30, 2021: Sports franchises $ 111,064 Photographic related rights 1,080 $ 112,144 The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. 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. Examples of such events and circumstances include: • cost factors; • financial performance; • legal, regulatory, contractual, business or other factors; • other relevant company-specific factors such as changes in management, strategy or customers; • industry and market considerations; and • macroeconomic conditions. The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2022, and there were no impairments identified. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the indefinite-lived intangible assets was less than their carrying amount.