Madison Square Garden Sports Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Sports Corp. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”) on our future operations. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: • the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams; • costs associated with player injuries, waivers or contract terminations of players and other team personnel; • changes in professional sports teams’ compensation, including the impact of signing free agents and executing trades, subject to league salary caps and the impact of luxury tax; • general economic conditions, especially in the New York City metropolitan area; • the demand for sponsorship arrangements and for advertising; • competition, for example, from other teams, and other sports and entertainment options; • changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues’ respective collective bargaining agreements (“CBAs”) with their players’ associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate; • 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; • 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; • seasonal fluctuations and other variation in our operating results and cash flow from period to period; • the level of our expenses, including our corporate expenses; • business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security; • activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and the Rangers are played; • a default by our subsidiaries under their respective credit facilities; • the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; • our ability to successfully integrate acquisitions or new businesses into our operations; • the operating and financial performance of our strategic acquisitions and investments, including those we may not control; • the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and MSG Entertainment to maintain necessary permits or licenses; • the impact of any government plans to redesign New York City’s Pennsylvania Station; 27 Table of Contents • business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings; • financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate; • 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 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; and • the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. 28 Table of Contents All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted. Introduction This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “MSG Sports,” or the “Company” refer collectively to Madison Square Garden Sports Corp., a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are conducted. The Company operates and reports financial information in one segment. Factors Affecting Results of Operations Impact of COVID-19 on Our 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 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 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 nine months ended March 31, 2023 compared to the nine months ended March 31, 2022, and (iii) certain contractual obligations. Seasonality of Our Business. This section discusses the seasonal performance of our business . 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements of the Company included therein. 29 Table of Contents Results of Operations 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 Nine Months Ended March 31, Change March 31, Change 2023 2022 $ % 2023 2022 $ % Revenues $ 382,744 $ 337,774 $ 44,970 13 % $ 760,527 $ 646,149 $ 114,378 18 % Direct operating expenses 239,051 206,273 32,778 16 % 468,434 407,698 60,736 15 % Selling, general and administrative expenses 61,102 68,902 (7,800) (11) % 192,019 172,230 19,789 11 % Depreciation and amortization 840 1,206 (366) (30) % 2,703 3,847 (1,144) (30) % Operating income 81,751 61,393 20,358 33 % 97,371 62,374 34,997 56 % Other expense: 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 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 Less: Net loss attributable to nonredeemable noncontrolling interests (566) (584) 18 3 % (1,928) (1,711) (217) (13) % 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 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: Three Nine Months Months Increase in pre/regular season ticket-related revenues $ 21,936 $ 52,706 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 (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 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. 30 Table of Contents 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 $32,778, 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: Three Nine Months Months Increase in team personnel compensation $ 38,294 $ 57,631 Increase in other team operating expenses 6,229 13,265 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 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 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 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. 31 Table of Contents 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, 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 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 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 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 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 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 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. 32 Table of Contents Operating income 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 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. Income taxes See Note 16 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s income taxes. Adjusted operating 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 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 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. 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 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 33 Table of Contents investors and analysts to analyze the Company’s performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss). The following are the reconciliations of operating 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 $ 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 Share-based compensation 3,220 6,973 22,059 19,178 Remeasurement of deferred compensation plan liabilities 368 — 714 — Adjusted operating income $ 98,128 $ 81,454 $ 16,674 20 % $ 147,504 $ 108,989 $ 38,515 35 % _________________ (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 Overview Our primary sources of liquidity are cash and cash equivalents, available borrowing capacity under our credit facilities, and cash flow from our operations. 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, 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. 34 Table of Contents We regularly monitor and assess our ability to meet our net funding and investing requirements. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, management’s view of a favorable allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and potentially 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 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 See Note 11 and Note 14 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s debt obligations and various financing agreements, and the Company’s stock repurchases, respectively. Special Dividend and Accelerated Share Repurchase 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. On October 28, 2022, the Company entered into a $75,000 ASR agreement with JPMorgan Chase Bank, National Association (“JP Morgan”). Pursuant to the ASR agreement, the Company made a payment of $75,000 to JP Morgan and JP Morgan delivered 388,777 initial shares of Class A Common Stock to the Company on November 1, 2022, representing 80% of the total shares expected to be repurchased under the ASR (determined based on the closing price of the Company’s Class A Common Stock of $154.33 on October 28, 2022). The ASR was completed on January 31, 2023 with JP Morgan delivering 67,681 additional shares of Class A Common Stock to the Company upon final settlement. The average purchase price per share for shares of Class A Common Stock purchased by the Company pursuant to the ASR was $164.31 . Contractual Obligations 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, 2023 and 2022: Nine Months Ended March 31, 2023 2022 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) Net cash provided by operating activities 114,801 64,233 Net cash used in investing activities (10,366) (1,136) Net cash used in financing activities (129,618) (84,978) Net decrease in cash, cash equivalents and restricted cash $ (25,183) $ (21,881) Operating Activities 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. 35 Table of Contents Investing Activities 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 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 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, which is when the majority of the teams’ games are played. 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. Goodwill 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. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company has one operating and reportable segment, and one reporting unit for goodwill impairment testing purposes. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company’s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. The amount of an impairment loss is measured as the amount by which a reporting unit’s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill. The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2023 impairment test. These assessments considered factors such as: • macroeconomic conditions; • industry and market considerations; • market capitalization; • cost factors; • overall financial performance of the reporting unit; • other relevant company-specific factors such as changes in management, strategy or customers; and 36 Table of Contents • relevant reporting unit specific events such as changes in the carrying amount of net assets. The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 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. 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, 2023: Sports franchises $ 111,064 Photographic related rights 1,080 $ 112,144 The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets. These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include: • cost factors; • financial performance; • legal, regulatory, contractual, business or other factors; • other relevant company-specific factors such as changes in management, strategy or customers; • industry and market considerations; and • macroeconomic conditions. The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 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.