What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-05-05 · 93 added, 181 removed, 145 unchanged (65% of the section changed)

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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 engage in public activities due to COVID-19;

• 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 governmental restrictions, reduced tourism, and general hesitancy among the public to engage in public activities due to COVID-19;

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

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

• labor market disruptions due to the COVID-19 pandemic or otherwise;

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

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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 the Record Date, 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.

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 operations and operating results, with the Company recognizing materially less revenues, or in some cases no revenues, across a number of areas during fiscal years 2020 and 2021.

The Company’s operations and operating results were also impacted by temporary declines in attendance in fiscal year 2022, due to ongoing reduced tourism levels as well as an increase in cases during certain months of the fiscal year due to a COVID-19 variant.

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.

On December 16, 2020, and January 14, 2021, respectively, the Knicks and the Rangers resumed playing their homes games at The Garden as part of their 2020-21 seasons.

However, fans were initially prohibited from attending games due to government-mandated assembly restrictions.

Effective February 23, 2021, New York venues with at least a 10,000-person capacity were permitted to operate at 10% capacity, and the Knicks and the Rangers began playing games at The Garden with a limited number of fans in attendance on February 23 and 26, respectively.

Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests.

As a result, the Knicks played three home playoff games with ticket sales of approximately 15,000-16,500 per game during the fiscal year ended June 30, 2021.

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;

local media rights fees;

and food, beverage and merchandise sales.

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 paid 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.

During 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 were permitted to host guests at full capacity, subject to certain restrictions, including that all guests 12 years of age and older show proof of at least one dose of a COVID-19 vaccine.

Following updated New York City regulations, effective January 29, 2022, all guests five years of age and older and all employees were required to provide proof that they have received either two doses of a two-shot COVID-19 vaccination, or one dose of a single-shot vaccine.

Children under age five could attend events with a vaccinated adult, but children ages two to four were required to wear a mask while inside venues such as The Garden.

Effective March 7, 2022, New York City lifted all COVID-19 vaccination requirements pertaining to guests in attendance at indoor entertainment venues, followed by a lifting of vaccination requirements applicable to professional athletes competing in such venues effective March 24, 2022.

Also, in April 2022, New York State terminated the last of its mandatory COVID-19 rules for indoor venues.

As a result, there are no capacity restrictions or vaccination requirements applicable to fan attendance at games at The Garden as of the date of this filing.

The Knicks and the Rangers each completed their full 82-game regular season schedules for the 2021-22 season in April 2022 and the Rangers are currently competing in the playoffs.

Fan attendance during the regular season was impacted by the COVID-19 pandemic including the emergence of certain variants and ongoing reduced tourism levels.

It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact attendance of games at The Garden.

The Company’s business is also particularly sensitive to discretionary business and consumer spending.

A pandemic such as 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.

During fiscal years 2020 and 2021, COVID-19 disruptions and actions taken in response by governmental authorities and the leagues materially impacted the Company’s revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of areas.

In fiscal year 2022, the Company’s operations and operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year.

See Note 1, Description of Business and Basis of Presentation, to the Company’s audited consolidated financial statements and notes thereto for the year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K for more information regarding the impact of the COVID-19 pandemic on our business during fiscal years 2020, 2021 and 2022.

It is unclear to what extent COVID-19, including new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact the Company’s operations and operating results.

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, 2022 compared to the three and nine months ended March 31, 2021.

This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

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 nine months ended March 31, 2022 compared to the nine months ended March 31, 2021, and (iii) certain contractual obligations.

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, 2022 compared to the three months ended September 30, 2021, 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.

Critical Accounting Policies.

This section discusses accounting pronouncements that have been adopted by the Company, if any, 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 2023.

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, 2022 under “Item 7.

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Results of Operations

Comparison of the three and nine months ended March 31, 2022 versus the three and nine months ended March 31, 2021

Comparison of the three months ended September 30, 2022 versus the three months ended September 30, 2021

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

Three Months Ended Nine Months Ended

March 31, Change (a)

Three Months Ended

September 30, Change

2022 2021 $ %

Revenues $ 337,774 $ 183,010 $ 154,764 85 % $ 646,149 $ 268,819 $ 377,330 NM

Direct operating expenses 206,273 126,510 79,763 63 % 407,698 182,957 224,741 NM

Revenues $ 24,089 $ 18,794 $ 5,295 28 %

Direct operating expenses 3,681 8,578 (4,897) (57) %

Selling, general and administrative expenses 55,281 43,728 11,553 26 %

Depreciation and amortization 1,025 1,426 (401) (28) %

Operating income (loss) 61,393 8,124 53,269 NM 62,374 (57,686) 120,060 NM

Operating loss (35,898) (34,938) (960) (3) %

Other expense:

Interest expense, net (2,956) (3,053) 97 3 %

Miscellaneous expense, net (63) (46) (17) (37) % (190) (236) 46 19 %

Income (loss) from operations before income taxes 58,912 5,148 53,764 NM 53,171 (65,328) 118,499 NM

Income tax (expense) benefit (34,993) (53) (34,940) NM (30,939) 275 (31,214) NM

Net income (loss) 23,919 5,095 18,824 NM 22,232 (65,053) 87,285 NM

Miscellaneous expense, net (166) (63) (103) NM

Loss from operations before income taxes (39,020) (38,054) (966) (3) %

Income tax benefit 20,493 21,169 (676) (3) %

Net loss (18,527) (16,885) (1,642) (10) %

Net loss attributable to nonredeemable noncontrolling interests (707) (480) (227) (47) %

Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders $ 24,503 $ 5,468 $ 19,035 NM $ 23,943 $ (63,574) $ 87,517 NM

_________________

NM – Percentage is not meaningful

(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 increased $154,764, or 85%, to $337,774 for the three months ended March 31, 2022 as compared to the prior year period.

Revenues increased $377,330 to $646,149 for the nine months ended March 31, 2022 as compared to the prior year period.

The net increases were attributable to the following:

Months Months

Increase in pre/regular season ticket-related revenues $ 105,780 $ 210,264

Net loss attributable to Madison Square Garden Sports Corp.’s stockholders $ (17,820) $ (16,405) $ (1,415) (9) %

Revenues increased $5,295, or 28%, to $24,089 for the three months ended September 30, 2022 as compared to the prior year period.

The net increase was attributable to the following:

Increase in suite license fee revenues $ 1,543

Increase in sponsorship and signage revenues 12,770 32,916

Increase in pre/regular season food, beverage and merchandise sales 9,700 18,527

(Decrease) increase in local media rights fees (9,510) 39,597

(Decrease) increase in revenues from league distributions (3,024) 551

Increase in pre/regular season ticket-related revenues 1,099

Increase in revenues from league distributions 910

Other net increases 1,743

$ 154,764 $ 377,330

The increases in pre/regular season ticket-related revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods.

In the prior year periods, the Knicks and the Rangers played games at The Garden with no fans in attendance until February 23 and 26, 2021, respectively, and after that, played games with attendance restricted to 10% capacity.

The increases in suite license fee revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.

In the prior year periods, for Knicks and Rangers games played with a limited number of fans in attendance, access to suites was sold by way of individual tickets, thus minimal suite license fee revenue was recognized for the three and nine months ended March 31, 2021.

The increases in sponsorship and signage revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.

In addition, the increase for the nine months ended March 31, 2022 was also due to the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year period.

The increases in pre/regular season food, beverage and merchandise sales for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.

The decrease in local media rights fees for the three months ended March 31, 2022 was primarily due to the compressed timing of the NBA and NHL 2020-21 seas ons resulting in revenue being recognized over a shorter time frame in the prior fiscal year, partially offset by the impact of the shortened NBA and NHL 2020-21 regular season schedules in the prior year period, as well as contractual rate increases.

The increase in local media rights fees for the nine months ended March 31, 2022 was primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons and the impact of the shortened NBA and NHL 2020-21 regular season schedules in the prior year period, as well as contractual rate increases.

In addition, the increase for the nine months ended March 31, 2022 was slightly offset by the recognition of local media rights fees in the prior year period associated with the Rangers’ participation in the Stanley Cup Qualifiers.

The decrease in revenues from league distributions for the three months ended March 31, 2022 was primarily due to the compressed timing of the NBA and NHL 2020-2021 seasons resulting in revenue being recognized over a shorter time frame in the prior fiscal year , partially offset by increased NBA and NHL national media rights fees and higher other league distributions in the current year period.

The increase in revenues from league distributions for the nine months ended March 31, 2022 was primarily due to ( i) higher NBA and NHL national media rights fees and other league distributions as a result of the delayed start of the 2020-21 NBA and N HL regular seasons in the prior year period and (ii) increased NBA and NHL national media rights fees and other league distributions in the current year period.

In addition, the increase for the nine months ended March 31, 2022 was partially offset by the recognition of the remainder of national media rights fees related to the 2019-20 NBA and NHL seasons during the first quarter of fiscal year 2021 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 increase in suite license fee revenues for the three months ended September 30, 2022 was primarily due to suite licenses including preseason home games at The Garden in the current year period compared to suites sold primarily on a single-event basis in the prior year period.

The increase in pre/regular season ticket-related revenues for the three months ended September 30, 2022 was primarily due to higher average per-game revenue.

Direct operating expenses

Direct operating expenses increased $79,763, or 63%, to $206,273 for the three months ended March 31, 2022 as compared to the prior year period.

Direct operating expenses increased $224,741 to $407,698 for the nine months ended March 31, 2022 as compared to the prior year period.

The net increases were attributable to the following:

Months Months

Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 58,244 $ 70,211

Increase in other team operating expenses not discussed elsewhere in this table 11,121 46,874

Increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden 9,084 35,854

Increases in pre/regular season expense associated with food, beverage and merchandise sales 3,790 8,276

Increase in team personnel compensation 525 78,210

Direct operating expenses decreased $4,897, or 57%, to $3,681 for the three months ended September 30, 2022 as compared to the prior year period.

The net decrease was attributable to the following:

Decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ (3,630)

Decrease in net provisions for certain team personnel transactions (1,056)

$ 79,763 $ 224,741

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

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 Increase 2022 2021 Increase

Net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax $ 26,471 $ (31,773) $ 58,244 $ 47,748 $ (22,463) $ 70,211

The increases in net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax for the three and nine months ended March 31, 2022 were primarily due to higher provisions for league revenue sharing expense (net of escrow) of $61,787 and $78,019, respectively, as a result of higher escrow recoveries and lower revenue sharing expense in the prior year periods, which reflected the impact of the COVID-19 pandemic, partially offset by higher estimated recoveries of NBA luxury tax in the current year periods.

In addition, the increase in league revenue sharing expense (net of escrow) for the nine months ended March 31, 2022 was partially offset by 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.

The Knicks were not a luxury tax payer for the 2020-21 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, 2022 would not result in the team being a luxury tax payer for the 2021-22 season.

The actual amounts for the 2021-22 seasons 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 increases in other team operating expenses not discussed elsewhere in this table for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above, and the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year periods.

Other team operating expenses not discussed elsewhere in this table primarily consists of league assessments and expenses associated with day-to-day operations, including variable day-of-event costs incurred at The Garden, team travel and player insurance.

The increases in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the three and nine months ended March 31, 2022 were primarily a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.

In addition, the increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the nine months ended March 31, 2022 was also due to the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year period.

The increases in pre/regular season expense associated with food, beverage and merchandise sales for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.

The increase in team personnel compensation for the nine months ended March 31, 2022 was primarily due to the net impact of the delayed start and shortened 2020-21 NBA and NHL regular seasons in the prior year period and higher player compensation in the current year period.

This increase in team personnel compensation for the nine months ended March 31, 2022 was partially offset by 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 (credits) for certain team personnel transactions were as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 Increase (Decrease) 2022 2021 Increase (Decrease)

Other net decreases (211)

The decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the three months ended September 30, 2022 was primarily due to the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow).

Net provisions for certain team personnel transactions were as follows:

Three Months Ended

September 30,

2022 2021 Increase (Decrease)

Waivers/contract terminations $ (1,421) $ 727 $ (2,148)

Player trades 1,092 — 1,092

Season-ending player injuries (a)

1,305 — 1,305 2,662 — 2,662

Net provisions for certain team personnel transactions $ (329) $ 727 $ (1,056)

(a) Net of insurance recovery of $656 for the three and nine months ended March 31, 2022.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2022 increased $22,099, or 47%, to $68,902 as compared to the prior year period.

Selling, general and administrative expenses for the nine months ended March 31, 2022 increased $33,522, or 24%, to $172,230 as compared to the prior year period.

For the three and nine months ended March 31, 2022 the increases were primarily due to higher (i) employee compensation and related benefits (including separation-related costs), (ii) marketing costs, (iii) commissions related to the Company’s sponsorship sales and service representation agreements with MSG Entertainment, and (iv) costs related to the Company’s TSA with MSG Entertainment.

Selling, general and administrative expenses for the three months ended September 30, 2022 increased $11,553, or 26%, to $55,281 as compared to the prior year period primarily due to higher employee compensation and related benefits, including the impact of staffing increases relative to the prior year period reflecting the business’ return to normal operations and executive management transition costs recorded in the current year period, as well as higher other general and administrative expenses.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2022 decreased $367, or 23%, to $1,206 as compared to the prior year period.

Depreciation and amortization for the nine months ended March 31, 2022 decreased $993, or 21%, to $3,847 as compared to the prior year period.

Operating income (loss)

Operating income for the three months ended March 31, 2022 increased $53,269 to $61,393 as compared to the prior year period.

For the nine months ended March 31, 2022, operating income of $62,374 improved $120,060 as compared to the period year period.

For the three and nine months ended March 31, 2022 the improvements to operating income were primarily due to increases in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses.

Depreciation and amortization for the three months ended September 30, 2022 decreased $401, or 28%, to $1,025 as compared to the prior year period.

Operating loss

Operating loss for the three months ended September 30, 2022 increased $960, or 3%, to $35,898 as compared to the prior year period primarily due to an increase in selling, general and administrative expenses, partially offset by higher revenues and lower direct operating expenses.

Interest expense, net

Net interest expense for the three months ended March 31, 2022 decreased $512, or 17%, to $2,418 as compared to the prior year period.

Net interest expense for the nine months ended March 31, 2022 increased $1,607, or 22%, to $9,013 as compared to the prior year period.

The decrease in net expense for the three months ended March 31, 2022 was primarily a result of principal repayments made under the Rangers revolving credit facility during the current year period.

The increase in net interest expense for the nine months ended March 31, 2022 was primarily driven by (i) commitment fees on unused commitments as a result of principal repayments made under the Rangers revolving credit facility during the current year period, (ii) interest expense related to the advances received in March 2021 under the 2021 Rangers NHL Advance Agreement, and (iii) acceleration of certain previously incurred financing costs when the Company terminated the 2020 Knicks Holdings Revolving Credit Facility in its entirety during December 2021.

Net interest expense for the three months ended September 30, 2022 decreased $97, or 3%, to $2,956 as compared to the prior year period primarily due to lower interest expense on the Rangers revolving credit facilities as there were no borrowings outstanding during the three months ended September 30, 2022, and higher interest income due to higher cash balances along with increased earned interest rates, partially offset by higher interest expense associated with the Knicks revolving credit facilities due to higher interest rates.

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 (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.

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, (vi) the impact of purchase accounting adjustments related to business acquisitions, and (vii) gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan (which was established in November 2021), which is referred to as adjusted operating income (loss), a non-GAAP measure.

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.

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.

In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).

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.

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.

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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 income (loss) to adjusted operating income (loss) for the three and nine months ended March 31, 2022 as compared to the prior year period:

Three Months Ended Nine Months Ended

March 31, Change March 31, Change

The following are the reconciliations of operating loss to adjusted operating loss for the three months ended September 30, 2022 as compared to the prior year period:

Three Months Ended

September 30, Change

2022 2021 $ %

Operating income (loss) $ 61,393 $ 8,124 $ 53,269 NM $ 62,374 $ (57,686) $ 120,060 NM

Operating loss $ (35,898) $ (34,938) $ (960) (3) %

Deferred rent 506 529

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Share-based compensation 7,220 4,851

Restructuring charges — — — 1,644

Adjusted operating income (loss) $ 81,454 $ 30,042 $ 51,412 NM $ 108,989 $ (6,729) $ 115,718 NM

For the three months ended March 31, 2022, adjusted operating income increased $51,412 to $81,454 as compared to the prior year period.

For the nine months ended March 31, 2022, adjusted operating income of $108,989 improved $115,718 as compared to the prior year period.

For the three and nine months ended March 31, 2022 the improvements were primarily due to increases in revenues partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses.

Remeasurement of deferred compensation plan liabilities (103) —

Adjusted operating loss $ (27,250) $ (28,132) $ 882 3 %

Adjusted operating loss for the three months ended September 30, 2022 decreased $882 to $27,250 as compared to the prior year period primarily due to higher revenues and lower direct operating expenses, partially offset by an increase in selling, general and administrative expenses.

Liquidity and Capital Resources

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

Our operations and operating results were materially impacted by the COVID-19 pandemic and government and league actions taken in response during fiscal years 2020 and 2021.

Our operations and operating results were also impacted by temporary declines in fan attendance in fiscal year 2022, due to ongoing reduced tourism levels as well as an increase in cases during certain months of the fiscal year due to COVID-19 variants.

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.

Risk Factors — Sports Business Risks — Our Operations and Operating Results Have Been, and May in the Future 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, 2022.

In addition, see also Note 1 to the consolidated financial statements included in “Part I — Item 1.

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On December 14, 2021, the Company amended and extended the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement.

In addition, in March 2021, 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, pursuant to the 2021 Rangers NHL Advance Agreement.

In addition, in March 2021, pursuant to the 2021 Rangers NHL Advance Agreement (the “2021 Rangers NHL Advance Agreement”), the NHL advanced the Company $30,000, which the league made available to each team.

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 2021 Knicks Credit Agreement”, 2021 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 March 31, 2022, we had approximately $49,200 in Cash and cash equivalents.

In addition, as of March 31, 2022, the Company’s deferred revenue obligations were approximately $79,753, net of billed, but not yet collected deferred revenue.

The current portion of this balance is primarily comprised of obligations in connection with tickets.

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.

Our principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, the payment of a special, one-time cash dividend of $7.00 per share (expected to be approximately $172,749) (the “Special Dividend”), and repurchases of shares of the Company’s Class A Common Stock, including approximately $75,000 under the accelerated share repurchase (“ASR”) program announced by the Company on October 6, 2022.

As of September 30, 2022, we had approximately $81,000 in Cash and cash equivale nts.

In addition, as of September 30, 2022, the Company’s deferred revenue obligations were approximately $266,439, 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.

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.

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 $49,200 in Cash and cash equivalents as of March 31, 2022, along with $240,000 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 for the foreseeable future.

In addition, on April 27, 2022, the Company made an additional principal repayment of $15,000 under the 2021 Rangers Revolving Credit Facility using cash on hand.

We believe we have sufficient liquidity, including approximatel y $81,000 in Cash and cash equivalents as of September 30, 2022, along with $305,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations, including with respect to the payment of the Special Dividend and the repurchase of shares of the Company’s Class A Common Stock under the ASR program, for the foreseeable future.

Financing Agreements and Stock Repurchases

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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.

Special Dividend and Accelerated Share Repurchase

On October 6, 2022, the Company announced that its Board of Directors declared the Special Dividend.

The Special Dividend is payable on October 31, 2022 to shareholders of record on October 17, 2022.

In addition, the Company’s Board of Directors has authorized a $75,000 ASR program under the Company’s existing share repurchase authorization.

As discussed in Note 14, the Company had $259,639 of availability remaining under its stock repurchase authorization as of September 30, 2022 and prior to the execution of the ASR program.

Borrowings under Revolving Credit Facilities

In connection with the special dividend and ASR, on October 27, 2022, the Company borrowed an additional $55,000 under the 2021 Knicks Revolving Credit Facility and $160,000 under the 2021 Rangers Revolving Credit Facility.

Following the additional borrowings, the Company has $90,000 of additional available borrowing capacity under existing credit facilities.

Contractual Obligations

See Note 7 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 contractual obligations related to future lease payments.

The Company did not have any material changes in its contractual obligations, including off-balance sheet commitments, since the end of fiscal year 2021 other than the lease commitments discussed in Note 7 and activities in the ordinary course of business.

The Company did not have any material changes in its contractual obligations since the end of fiscal year 2022 other than activities in the ordinary course of business.

Cash Flow Discussion

The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2022 and 2021:

Nine Months Ended March 31,

Net income (loss) $ 22,232 $ (65,053)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities 55,511 31,389

The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Net loss $ (18,527) $ (16,885)

Adjustments to reconcile net loss to net cash used in operating activities (11,994) (14,455)

(30,521) (31,340)

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Net cash used in investing activities (271) (306)

Net cash (used in) provided by financing activities (84,978) 42,155

Net cash used in financing activities (10,996) (12,142)

Net decrease in cash, cash equivalents and restricted cash $ (9,982) $ (31,758)

Operating Activities

Net cash provided by operating activities for the nine months ended March 31, 2022 was $64,233 as compared to net cash used in operating activities in the prior year period of $54,367.

This was primarily due to the increase in net income in the current year period, adjusted for non-cash items and, to a lesser extent, changes in working capital assets and liabilities driven by the COVID-19 pandemic in the prior year period.

Net cash provided by operating activities for the three months ended September 30, 2022 was $1,285 as compared to net cash used in operating activities in the prior year period of $19,310.

This was primarily due to the impact of changes in working capital assets and liabilities and, to a lesser extent, the decrease in net loss adjusted for non-cash items.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2022 increased by $699 to $1,136 as compared to the prior year period primarily due to higher capital expenditures and other investing activities in the current year period as compared to prior year period.

Net cash used in investing activities for the three months ended September 30, 2022 decreased by $35 to $271 as compared to the prior year period primarily due to higher other investing activities in the prior year period as compared to the current year period.

Financing Activities

Net cash used in financing activities for the nine months ended March 31, 2022 was $84,978 as compared to net cash provided by financing activities in the prior year period of $42,155.

This was due to (i) partial principal repayments on the 2021 Rangers Credit Agreement in the current year period, (ii) proceeds from the 2021 Rangers NHL Advance Agreement in the prior year period as compared to none in the current year period, and (iii) additional borrowings in the prior year period under the amended and extended 2021 Knicks Credit Agreement and 2021 Rangers Credit Agreement (prior to the amendment and restatement thereof) as compared to no borrowings in the current year period.

Net cash used in financing activities for the three months ended September 30, 2022 decreased by $1,146 to $10,996 as compared to the prior year period primarily due to higher taxes paid in lieu of shares issued for equity-based compensation in the prior year period as compared to the current 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 2023.

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, 2022.

The carrying amount of goodwill as of March 31, 2022 is $226,955.

The carrying amount of goodwill as of September 30, 2022 was $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.

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The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2023, 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.

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 most recent quantitative assessments were used in making this determination.

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, 2022:

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, 2022:

Sports franchises $ 111,064

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The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2023, 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.

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.

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