What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2023-02-07 · 112 added, 96 removed, 184 unchanged (53% of the section changed)

22 unchanged sentences

• 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;

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

• 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;

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

• the performance by MSG Entertainment and Sphere Entertainment and their respective subsidiaries of their respective obligations under various agreements with the Company related to the Sphere Distribution and ongoing commercial arrangements;

• the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

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

League Matters

On April 26, 2023, the NBA and the National Basketball Players Association (the “NBPA”) announced that a new seven-year CBA had been ratified by the NBA Board of Governors and the NBA players, which will take effect on July 1, 2023 and run through the 2029-30 season.

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 six months ended December 31, 2022 compared to the three and six months ended December 31, 2021.

This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2023 compared to the three and nine months ended March 31, 2022.

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 six months ended December 31, 2022 compared to the six months ended December 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 nine months ended March 31, 2023 compared to the nine months ended March 31, 2022, and (iii) certain contractual obligations.

Seasonality of Our Business.

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Results of Operations

Comparison of the three and six months ended December 31, 2022 versus the three and six months ended December 31, 2021

Comparison of the three and nine months ended March 31, 2023 versus the three and nine months ended March 31, 2022

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

Three Months Ended Six Months Ended

December 31, Change December 31, Change

Three Months Ended Nine Months Ended

March 31, Change March 31, Change

2023 2022 $ % 2023 2022 $ %

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Depreciation and amortization 840 1,206 (366) (30) % 2,703 3,847 (1,144) (30) %

Operating income 51,518 35,919 15,599 43 % 15,620 981 14,639 NM

Operating income 81,751 61,393 20,358 33 % 97,371 62,374 34,997 56 %

Other expense:

Interest expense, net (5,512) (3,542) (1,970) (56) % (8,468) (6,595) (1,873) (28) %

Interest expense, net (6,300) (2,418) (3,882) NM (14,768) (9,013) (5,755) (64) %

Miscellaneous income (expense), net 19,324 (63) 19,387 NM 19,543 (190) 19,733 NM

Income (loss) from operations before income taxes 46,391 32,313 14,078 44 % 7,371 (5,741) 13,112 NM

Income tax (expense) benefit (24,555) (17,115) (7,440) (43) % (4,062) 4,054 (8,116) NM

Net income (loss) 21,836 15,198 6,638 44 % 3,309 (1,687) 4,996 NM

Income before income taxes 94,775 58,912 35,863 61 % 102,146 53,171 48,975 92 %

Income tax expense (42,962) (34,993) (7,969) (23) % (47,024) (30,939) (16,085) (52) %

Net income 51,813 23,919 27,894 NM 55,122 22,232 32,890 NM

Net loss attributable to nonredeemable noncontrolling interests (566) (584) 18 3 % (1,928) (1,711) (217) (13) %

Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders $ 22,491 $ 15,845 $ 6,646 42 % $ 4,671 $ (560) $ 5,231 NM

Revenues increased $64,113, or 22%, to $353,694 for the three months ended December 31, 2022 as compared to the prior year period.

Revenues increased $69,408 to $377,783 for the six months ended December 31, 2022 as compared to prior year period.

Net income attributable to Madison Square Garden Sports Corp.’s stockholders $ 52,379 $ 24,503 $ 27,876 NM $ 57,050 $ 23,943 $ 33,107 NM

Revenues increased $44,970, or 13%, to $382,744 for the three months ended March 31, 2023 as compared to the prior year period.

Revenues increased $114,378, or 18%, to $760,527 for the nine months ended March 31, 2023 as compared to prior year period.

The net increases were attributable to the following:

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Increase in pre/regular season ticket-related revenues $ 21,936 $ 52,706

Increase in suite license fee revenues 12,484 14,027

Increase in suite revenues 8,874 22,900

Increase in revenues from local media rights fees 6,850 11,167

Increase in sponsorship and signage revenues 4,751 14,855

Increase in pre/regular season food, beverage, and merchandise sales 3,153 7,666

Increase in revenues from local media rights fees 3,916 4,317

Increase in revenues from league distributions 3,179 4,089

(Decrease) increase in revenues from league distribution (820) 3,270

Other net increases 226 1,814

$ 44,970 $ 114,378

The increases in pre/regular season ticket-related revenues for the three and six months ended December 31, 2022 were primarily due to higher average per-game revenue and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The Rangers played six more regular season games at The Garden during the current year periods as compared to the prior year periods.

The increases in suite license fee revenues for the three and six months ended December 31, 2022 were primarily due to the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods and higher net sales of suites products.

The increases in sponsorship and signage revenues for the three and six months ended December 31, 2022 were primarily due to (i) the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods, (ii) higher net sales of existing sponsorship and signage inventory, and (iii) sales of new sponsorship and signage inventory.

The increases in pre/regular season food, beverage, and merchandise sales for the three and six months ended December 31, 2022 were primarily due to higher average Knicks and Rangers per-game revenue and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The increases in revenues from local media rights for the three and six months ended December 31, 2022 were primarily due to contractual rate increases.

The increases in revenues from league distributions for the three and six months ended December 31, 2022 were primarily related to increased NBA and NHL national media rights fees and other league distributions in the current year periods.

The increases in pre/regular season ticket-related revenues for the three and nine months ended March 31, 2023 were primarily due to higher average per-game revenue and the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The Knicks played twenty-one games at The Garden during the three months ended March 31, 2023 and forty-two games at The Garden during the nine months ended March 31, 2023 as compared to twenty and forty-one games at The Garden, respectively, during the prior year periods.

The Rangers played nineteen games at The Garden during the three months ended March 31, 2023 and forty-one games at The Garden during the nine months ended March 31, 2023 as compared to eighteen and thirty-four games at The Garden, respectively, during the prior year periods.

The increases in suite revenues for the three and nine months ended March 31, 2023 were primarily due to higher net sales of suites products and the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The increases in revenues from local media rights for the three and nine months ended March 31, 2023 were primarily due to contractual rate increases and the timing of the NHL 2021-22 regular season resulting in revenue being recognized over a longer time frame in the prior fiscal year.

The increases in sponsorship and signage revenues for the three and nine months ended March 31, 2023 were primarily due to (i) the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods, (ii) higher net sales of existing sponsorship and signage inventory, and (iii) sales of new sponsorship and signage inventory.

The increases in pre/regular season food, beverage, and merchandise sales for the three and nine months ended March 31, 2023 were primarily due to higher average Knicks and Rangers per-game revenue and the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The decrease in revenues from league distributions for the three months ended March 31, 2023 was primarily due to lower other league distributions in the current year period, partially offset by increased national media rights fees in the current year period and the timing of the NHL 2021-22 regular season resulting in revenue being recognized over a longer time frame in the prior fiscal year.

The increase in revenues from league distributions for the nine months ended March 31, 2023 was primarily due to increased national media rights fees in the current year period and the timing of the NHL 2021-22 regular season resulting in revenue being recognized over a longer time frame in the prior fiscal year, partially offset by lower other league distributions in the current year period.

Direct operating expenses

Direct operating expenses increased $32,855, or 17%, to $225,702 for the three months ended December 31, 2022 as compared to the prior year period.

Direct operating expenses increased $27,958, or 14%, to $229,383 for the six months ended December 31, 2022 as compared to the prior year period.

Direct operating expenses increased $32,778, or 16%, to $239,051 for the three months ended March 31, 2023 as compared to the prior year period.

Direct operating expenses increased $60,736, or 15%, to $468,434 for the nine months ended March 31, 2023 as compared to the prior year period.

The net increases were attributable to the following:

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Increase in other team operating expenses 6,229 13,265

Increase in operating lease costs associated with the Knicks and Rangers playing home games at The Garden 3,932 3,932

Increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden 1,537 5,469

Increase in pre/regular season expense associated with merchandise sales 1,692 4,152

Increase (decrease) in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax 1,137 (2,493)

Decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax (14,751) (17,243)

Decrease in net provisions for certain team personnel transactions (223) (2,538)

$ 32,778 $ 60,736

The increases in team personnel compensation for the three and six months ended December 31, 2022 were primarily related to the impact of roster changes for the Knicks and the Rangers.

The increases in other team operating expenses for the three and six months ended December 31, 2022 were primarily related to higher per-game average expenses and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The increases in team personnel compensation for the three and nine months ended March 31, 2023 were primarily related to the impact of roster changes for the Knicks and the Rangers and the timing of the NHL 2021-22 regular season resulting in expenses being recognized over a longer time frame in the prior fiscal year.

The increases in other team operating expenses for the three and nine months ended March 31, 2023 were primarily related to (i) higher per-game average expenses as compared to the prior year periods, (ii) the timing of the NHL 2021-22 regular season resulting in expenses being recognized over a longer time frame in the prior fiscal year, and (iii) and the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

Other team operating expenses primarily consists of expenses associated with day-to-day operations, including variable day-of-event costs incurred at The Garden, team travel, player insurance, and league assessments.

The increases in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the three and six months ended December 31, 2022 were related to the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The increases in pre/regular season expense associated with merchandise sales for the three and six months ended December 31, 2022 were primarily related to higher merchandise sales as a result of higher average Knicks and Rangers per-game revenue and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

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, 2023 were related to the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

The increases in pre/regular season expense associated with merchandise sales for the three and nine months ended March 31, 2023 were primarily related to higher merchandise sales as a result of higher average Knicks and Rangers per-game revenue and the Knicks and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.

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

Three Months Ended Six Months Ended

December 31, December 31,

2022 2021 Increase 2022 2021 Decrease

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 Decrease 2023 2022 Decrease

Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 11,720 $ 26,471 $ (14,751) $ 30,505 $ 47,748 $ (17,243)

The increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the three months ended December 31, 2022 was primarily related to the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow and excluding playoffs), partially offset by higher estimated recoveries of NBA luxury tax in the current year period.

The decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the six months ended December 31, 2022 was primarily related to the net impact of adjustments to prior seasons’ revenue

sharing expense (net of escrow and excluding playoffs) and higher estimated recoveries of NBA luxury tax in the current year period.

The decreases in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the three and nine months ended March 31, 2023 were primarily related to (i) lower provisions for league revenue sharing expense (net of escrow and excluding playoffs) of $9,138 and $9,337, respectively, (ii) higher estimated recoveries of NBA luxury tax in the current year periods, and (iii) the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow and excluding playoffs).

The Knicks were not a luxury tax payer for the 2021-22 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 December 31, 2022 would not result in the team being a luxury tax payer for the 2022-23 season.

The Knicks’ roster as of March 31, 2023 would not result in the team being a luxury tax payer for the 2022-23 season.

The actual amounts for the 2022-23 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.

Net provisions for certain team personnel transactions were as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 Increase (Decrease) 2023 2022 Increase (Decrease)

Season-ending player injuries (a)

$ — $ 1,305 $ (1,305) $ — $ 2,662 $ (2,662)

Waivers/contract terminations 30 65 (35) (1,362) 723 (2,085)

Player trades 51 (1,066) 1,117 1,143 (1,066) 2,209

Season-ending player injuries — 1,357 (1,357) — 1,357 (1,357)

Net provisions for certain team personnel transactions $ 81 $ 304 $ (223) $ (219) $ 2,319 $ (2,538)

(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 December 31, 2022 increased $16,036, or 27%, to $75,636 as compared to the prior year period.

Selling, general and administrative expenses for the six months ended December 31, 2022 increased by $27,589, or 27%, to $130,917 as compared to the prior ye ar period.

The increases were primarily due to higher employee compensation and related benefits, including executive management transition costs recorded in the current year periods, as well as higher marketing costs.

In addition, for the six months ended December 31, 2022, higher employee compensation and related benefits included the impact of staffing increases relative to the prior year period reflecting the business’ return to normal operations.

Selling, general and administrative expenses primarily consist of (i) administrative costs, including compensation, professional fees, costs under the Company’s Services Agreement with Sphere Entertainment, (ii) fees related to the Company’s sponsorship sales and service representation agreements, and (iii) sales and marketing costs.

Selling, general and administrative expenses generally do not fluctuate in line with changes in the Company’s revenues and direct operating expenses.

Selling, general and administrative expenses for the three months ended March 31, 2023 decreased $7,800, or 11%, to $61,102 as compared to the prior year period, primarily due to lower employee compensation and related benefits of $8,020, a result of executive management transition costs recognized during the prior year period.

Selling, general and administrative expenses for the nine months ended March 31, 2023 increased by $19,789, or 11%, to $192,019 as compared to the prior year period, primarily due to (i) higher employee compensation and related benefits of $12,969, including the net impact of executive management transition costs and the impact of staffing increases relative to the prior year period reflecting the business’ return to normal operations, (ii) an increase in marketing costs of $3,319, (iii) higher fees related to the Company’s sponsorship sales and service representation agreements with Sphere Entertainment of $1,636, and (iv) an increase in professional fees of $1,245, partially offset by lower costs related to the Company’s Services Agreement with Sphere Entertainment of $2,498.

As of the MSGE Distribution Date, the agreements described above with Sphere Entertainment are now between the Company and MSG Entertainment.

Depreciation and amortization

Depreciation and amortization for the three months ended December 31, 2022 decreased $377, or 31%, to $838 as compared to the prior year period.

Depreciation and amortization for the six months ended December 31, 2022 decreased by $778 or 29% to $1,863 as compared to the prior year period.

Depreciation and amortization for the three months ended March 31, 2023 decreased $366, or 30%, to $840 as compared to the prior year period.

Depreciation and amortization for the nine months ended March 31, 2023 decreased by $1,144 or 30% to $2,703 as compared to the prior year period.

Operating income

Operating income for the three months ended December 31, 2022 increased $15,599, or 43%, to $51,518 as compared to the prior year period.

Operating income for the six months ended December 31, 2022 increased $14,639 to $15,620 as compared to the prior year period.

For the three and six months ended December 31, 2022 the increases in operating income were primaril y due to increases in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses.

Operating income for the three months ended March 31, 2023 increased $20,358, or 33%, to $81,751 as compared to the prior year period.

For the three months ended March 31, 2023, the increase in operating income was primaril y due to an increase in revenues and to a lesser extent lower selling, general and administrative expenses, partially offset by higher direct operating expenses.

Operating income for the nine months ended March 31, 2023 increased $34,997, or 56%, to $97,371 as compared to the prior year period.

For the nine months ended March 31, 2023, the increase in operating income was primaril y due to an increase in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses.

Interest expense, net

Net interest expense for the three months ended December 31, 2022 increased $1,970, or 56%, to $5,512 as compared to the prior year period.

Net interest expense for the six months ended December 31, 2022 increased $1,873, or 28%, to $8,468 as compared to the prior yea r period.

The increases were primarily due to higher interest rates in the current year periods causing increased interest expense under the Knicks and the Rangers revolving credit facilities.

The increases were partially offset by (i) higher interest income due to increased interest rates in the current year periods and (ii) the acceleration of previously incurred financing costs that were recognized in the prior year periods as a result of the Company terminating the 2020 Knicks Holdings Revolving Credit Facility.

In addition, for the six months ended December 31, 2022 the increase in interest expense was partially offset by lower average borrowings under the Rangers revolving credit facility in the current year period as compared to the prior year period.

Net interest expense for the three months ended March 31, 2023 increased $3,882 to $6,300 as compared to the prior year period.

The increase was primarily due to higher interest rates in the current year period causing increased interest expense under the Knicks and the Rangers revolving credit facilities, partially offset by higher interest income due to increased interest rates in the current year period.

Net interest expense for the nine months ended March 31, 2023 increased $5,755, or 64%, to $14,768 as compared to the prior yea r pe riod.

The increase was primarily due to higher interest rates in the current year period causing increased interest expense under the Knicks and the Rangers revolving credit facilities.

The increase was partially offset by (i) higher interest income due to increased interest rates in the current year period, (ii) lower average borrowings under the Rangers revolving credit facility in the current year period as compared to the prior year period, and (iii) the acceleration of previously incurred financing costs that were recognized in the prior year period as a result of the Company terminating the 2020 Knicks Holdings Revolving Credit Facility.

Miscellaneous income (expense), net

Miscellaneous income (expense), net for the three months ended March 31, 2023 of $19,324 improved $19,387 as compared to the prior year period.

Miscellaneous income (expense), net for the nine months ended March 31, 2023 of $19,543 improved $19,733 as compared to the prior year period.

The improvements were primarily due to higher recognition of unrealized gains primarily related to the Company’s investments in Xtract One common stock and warrants and unrealized gains related to the Company’s forward contract in the current year periods as compared to the prior year periods.

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

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Adjusted operating income

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.

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 Sphere Entertainment (which are now with MSG Entertainment as of the MSGE Distribution Date), (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 this adjustment is beneficial for other incremental reasons as well.

This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with MSG Entertainment.

This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with Sphere Entertainment (now MSG Entertainment).

In addition, this adjustment is a component of the performance measures used to evaluate, and compensate, senior management of the Company.

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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 to adjusted operating income for the three and six months ended December 31, 2022 as compared to the prior year periods:

Three Months Ended Six Months Ended

December 31, Change December 31, Change

The following are the reconciliations of operating income to adjusted operating income for the three and nine months ended March 31, 2023 as compared to the prior year periods:

Three Months Ended Nine Months Ended

March 31, Change March 31, Change

2023 2022 $ % 2023 2022 $ %

Operating income $ 51,518 $ 35,919 $ 15,599 43 % $ 15,620 $ 981 $ 14,639 NM

Deferred rent 12,202 11,179 12,708 11,708

Operating income $ 81,751 $ 61,393 $ 20,358 33 % $ 97,371 $ 62,374 $ 34,997 56 %

Deferred rent (a)

11,949 11,882 24,657 23,590

Depreciation and amortization 840 1,206 2,703 3,847

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Adjusted operating income $ 98,128 $ 81,454 $ 16,674 20 % $ 147,504 $ 108,989 $ 38,515 35 %

For the three months ended December 31, 2022, adjusted operating income incr eased $20,959 to $76,626 as compared to the prior year period.

For the six months ended December 31, 2022, adjusted operating income increased $21,841 to $49,376 as compared to the prior year period.

The increases in adjusted operating income were p rimarily due to higher revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses.

_________________

(a) This adjustment represents the non-cash portion of operating lease costs related to the Company’s Arena License Agreements with Sphere Entertainment.

Pursuant to GAAP, recognition of operating lease costs is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement.

As a result, operating lease costs is comprised of a contractual cash component plus or minus a non-cash component for each period presented.

Operating expense on a GAAP basis includes operating lease costs of (i) $19,013 and $39,234 of expense paid in cash for the three and nine months ended March 31, 2023, respectively, and $17,543 and $34,831 of expense paid in cash for three and nine months ended March 31, 2022, respectively, and (ii) a non-cash expense of $11,949 and $24,657 for the three and nine months ended March 31, 2023, respectively, and $11,882 and $23,590 for the three and nine months ended March 31, 2022, respectively.

For the three months ended March 31, 2023, adjusted operating income increased $16,674, or 20%, to $98,128 as compared to the prior year period.

For the three months ended March 31, 2023, the increase in adjusted operating income was primarily due to an increase in revenues and to a lesser extent lower selling, general and administrative expenses, partially offset by higher direct operating expenses.

For the nine months ended March 31, 2023, adjusted operating income increased $38,515, or 35%, to $147,504 as compared to the prior year period.

For the nine months ended March 31, 2023.

The increase in adjusted operating income was primarily due to an increase in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, available borrowing capacity under our credit facilities, and cash flow from our operations.

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, 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 of its member teams.

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, the payment of a special, one-time cash dividend of $7.00 per share (the “Special Dividend”), repurchases of shares of the Company’s Class A Common Stock, including $75,000 under the ASR (as defined below), and investments.

As of December 31, 2022, we had approximatel y $44,000 in C ash and cash equivale nts.

In addition, as of December 31, 2022, the Company’s deferred revenue obligations were approximately $183,844, 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.

Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the 2021 Knicks Credit Agreement, the 2021 Rangers Credit Agreement, and the 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, repurchases of shares of the Company’s Class A Common Stock, including $75,000 under the ASR (as defined below), dividends, if declared, and investments.

As of March 31, 2023, we had $65,182 in C ash and cash equivale nts.

In addition, as of March 31, 2023, the Company’s deferred revenue obligations were $140,430, net of billed, but not yet collected deferred revenue.

This balance is primarily comprised of obligations in connection with tickets and suites.

In addition, the Company’s deferred revenue obligations included $30,000 from the NBA, which the league provided to each team.

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

We believe we have sufficient liquidity, including approximatel y $44,000 in Cash and cash equivalents as of December 31, 2022, along with $120,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future.

In addition, on February 3, 2023, the Company made an additional principal repayment of $15,000 under the 2021 Rangers Revolving Credit Facility.

We believe we have sufficient liquidity, including approximatel y $65,182 in Cash and cash equivalents as of March 31, 2023, along with $175,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future.

In addition, on April 28, 2023, the Company made an additional principal repayment of $30,000 under the 2021 Rangers Revolving Credit Facility .

Financing Agreements and Stock Repurchases

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Special Dividend and Accelerated Share Repurchase

On October 6, 2022, the Company announced that its Board of Directors declared the Special Dividend payable on October 31, 2022 to shareholders of record on October 17, 2022.

During the three and six months ended December 31, 2022, the Company made payments of $170,683 related to the Special Dividend.

On October 6, 2022, the Company announced that its Board of Directors declared a one-time cash dividend of $7.00 per share (the “Special Dividend”) payable on October 31, 2022 to shareholders of record on October 17, 2022.

During the three and nine months ended March 31, 2023, the Company made payments of $170,824 related to the Special Dividend.

On October 6, 2022, the Company’s Board of Directors authorized a $75,000 accelerated share repurchase (“ASR”) program under the Company’s existing share repurchase authorization.

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The average purchase price per share for shares of Class A Common Stock purchased by the Company pursuant to the ASR was $164.31 .

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.

During the three months ended December 31, 2022, the Company made principal repayments of $15,000 under the 2021 Knicks Revolving Credit Facility and $15,000 under the 2021 Rangers Revolving Credit Facility.

Following the additional borrowings and principal repayments, the Company has $120,000 of additional available borrowing capacity under existing credit facilities.

Contractual Obligations

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Cash Flow Discussion

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

Six Months Ended December 31,

Net income (loss) $ 3,309 $ (1,687)

Adjustments to reconcile net income (loss) to net cash used in operating activities 25,283 12,053

The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2023 and 2022:

Nine Months Ended March 31,

Net income $ 55,122 $ 22,232

Adjustments to reconcile net income to net cash used in operating activities 34,191 55,511

Changes in working capital assets and liabilities 25,488 (13,510)

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Operating Activities

Net cash provided by operating activities for the six months ended December 31, 2022 was $31,577 as compared to net cash provided by operating activities in the prior year period of $24,030.

This was primarily due to the increase in net income (loss) adjusted for non-cash items partially offset by the impact of changes in working capital assets and liabilities.

Net cash provided by operating activities for the nine months ended March 31, 2023 was $114,801 as compared to net cash provided by operating activities in the prior period of $64,233.

This was primarily due to the increase in net income adjusted for non-cash items in addition to changes in working capital assets and liabilities.

The changes in working capital assets and liabilities were primarily driven by lower Net related party receivables of $45,592 due to the timing of collections related to the Company’s Arena License Agreements and an increase in Deferred revenue of $30,132 due to higher collections of ticket sales.

These changes are partially offset by (i) lower Net related party payables of $20,225 due to the timing of payments related to the Company’s Services Agreement and employee matters agreements, (ii) increased Accounts receivable, net of $15,098 primarily due to collections of league related receivables, including escrow and player compensation recoveries, luxury tax, and league distributions related to prior NBA and NHL seasons in the prior year period, and (iii) the timing of collections associated with sponsorship and signage revenue.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2022 increased by $687 to $1,314 as compared to the prior year period primarily due to higher other investing activities and capital expenditures in the current year period as compared to the prior year period.

Net cash used in investing activities for the nine months ended March 31, 2023 increased by $9,230 to $10,366 as compared to the prior year period primarily due to higher purchases of equity securities in the current year period as compared to the prior year period.

Financing Activities

Net cash used in financing activities for the six months ended December 31, 2022 increased by $36,244 to $76,123 as compared to the prior year period primarily due to the payment of the Special Dividend and the ASR in the current year period, partially offset by additional net borrowings under the Knicks and the Rangers credit facilities in the current year period as compared to the prior year period.

Net cash used in financing activities for the nine months ended March 31, 2023 increased by $44,640 to $129,618 as compared to the prior year period primarily due to the payment of the Special Dividend and the ASR in the current year period, partially offset by additional net borrowings under the Knicks and the Rangers credit facilities in the current year period as compared to the prior year period.

Seasonality of Our Business

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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

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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 December 31, 2022 was $226,955.

The carrying amount of goodwill as of March 31, 2023 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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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 December 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 March 31, 2023:

Sports franchises $ 111,064

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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.

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.

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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