What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-05-04 · 83 added, 158 removed, 138 unchanged (64% of the section changed)

12 unchanged sentences

• 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;

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

• the performance by our affiliates of their obligations under various agreements with the Company, including the potential for financial difficulties that may impact MSG Networks Inc.’s (“MSG Networks”) ability to perform its obligations;

• a resurgence of the COVID-19 pandemic or another pandemic or public health emergency, and our ability to effectively manage the impacts, including labor market disruptions;

• any NBA, NHL or other work stoppage;

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

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

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

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

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

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• 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;

(“MSG Entertainment”) to maintain necessary permits or licenses;

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

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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 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 tax-free treatment of the Sphere Distribution (as defined below);

• the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

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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.

This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2023 compared to the three months ended September 30, 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.

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, 2023 compared to the three months ended September 30, 2022, and (iii) certain contractual obligations.

Seasonality of Our Business.

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Results of Operations

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

Comparison of the three months ended September 30, 2023 versus the three months ended September 30, 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

Three Months Ended

September 30, Change

2023 2022 $ %

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Depreciation and amortization 794 1,025 (231) (23) %

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

Operating loss (14,824) (35,898) 21,074 59 %

Other expense:

Interest expense, net (6,476) (2,956) (3,520) NM

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

Miscellaneous expense, net (12,665) (166) (12,499) NM

Loss before income taxes (33,965) (39,020) 5,055 13 %

Income tax benefit 15,144 20,493 (5,349) (26) %

Net loss (18,821) (18,527) (294) (2) %

Net loss attributable to nonredeemable noncontrolling interests — (707) 707 100 %

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:

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

Net loss attributable to Madison Square Garden Sports Corp.’s stockholders $ (18,821) $ (17,820) $ (1,001) (6) %

Revenues increased $18,957, or 79%, to $43,046 for the three months ended September 30, 2023 as compared to the prior year period.

The net increase was attributable to the following:

Increase in revenues from league distributions $ 16,991

Other net increases 1,966

$ 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.

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.

The increase in revenues from league distributions for the three months ended September 30, 2023 was primarily due to an increase in and the timing of recognition of certain league distributions unrelated to national media rights fees.

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:

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.

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.

Direct operating expenses decreased $161, or 4%, to $3,520 for the three months ended September 30, 2023 as compared to the prior year period.

The net decrease was attributable to the following:

Decrease in team personnel compensation $ (1,329)

Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax 1,008

Other net increases 160

The decrease in team personnel compensation for the three months ended September 30, 2023 primarily reflects the absence of expenses related to Counter Logic Gaming (“CLG”) in the current year period, following the Company’s sale of its controlling interest in CLG in April 2023.

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 September 30, 2023 was primarily due to the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow).

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 primarily consist of (i) administrative costs, including compensation, professional fees and costs under the Company’s Services Agreement, (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.

Selling, general and administrative expenses for the three months ended September 30, 2023 decreased $1,725, or 3%, to $53,556 as compared to the prior year period driven by lower employee compensation and related benefits of $2,705, primarily due to executive management transition costs recognized in the prior year period, partially offset by higher other general and administrative expenses.

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.

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.

Depreciation and amortization for the three months ended September 30, 2023 decreased $231, or 23%, to $794 as compared to the prior year period.

Operating loss

Operating loss for the three months ended September 30, 2023 decreased $21,074, or 59%, to $14,824 as compared to the prior year period primaril y due to higher revenues and, to a lesser extent, lower 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.

Net interest expense for the three months ended September 30, 2023 increased $3,520 to $6,476 as compared to the prior year period primarily due to increased interest expense caused by higher average interest rates in the current year period and higher average borrowings under the Rangers and Knicks revolving credit facilities in the current year period.

There were no borrowings outstanding under the Rangers revolving credit facility during the three months ended September 30, 2022.

Miscellaneous expense, net

Miscellaneous expense, net for the three months ended September 30, 2023 increased $12,499 to $12,665 as compared to the prior year period primarily due to the recognition of unrealized losses in the current year period related to the Company’s investments in Xtract One common stock and warrants which were made in the third and fourth quarters of fiscal year 2023.

See Note 17 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.

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

Adjusted operating loss

During the fourth quarter of fiscal year 2023, the Company amended the definition of adjusted operating income (loss) so that the impact of the non-cash portion of operating lease costs related to the Company’s Arena License Agreements with MSG Entertainment is no longer excluded in the calculation of adjusted operating income (loss) in all periods presented.

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

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

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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.

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

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

with specific reference to these indicators.

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

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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 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)

The following are the reconciliations of operating loss to adjusted operating loss for the three months ended September 30, 2023 and 2022:

Three Months Ended

September 30, Change

2023 2022 $ %

Operating loss $ (14,824) $ (35,898) $ 21,074 59 %

Depreciation and amortization 794 1,025

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Remeasurement of deferred compensation plan liabilities (104) (103)

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

Adjusted operating loss (a)

$ (9,985) $ (27,756) $ 17,771 64 %

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

_________________

(a) During the fourth quarter of fiscal year 2023, the Company amended the definition of adjusted operating income (loss) so that the impact of the non-cash portion of operating lease costs related to the Company’s Arena License Agreements with MSG Entertainment is no longer excluded.

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.

Adjusted operating loss includes operating lease costs of (i) $829 and $805 of expense paid in cash for the three months ended September 30, 2023 and 2022, respectively, and (ii) a non-cash expense of $482 and $506, for the three months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023, adjusted operating loss decreased $17,771, or 64%, to $9,985 as compared to the prior year period.

The decrease in adjusted operating loss was primarily due to higher revenues, partially offset by higher selling, general and administrative expenses, excluding share-based compensation.

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.

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

See Note 12 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.

Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the Knicks Credit Agreement, the Rangers Credit Agreement, and the Rangers NHL Advance Agreement (each as defined therein).

As of September 30, 2023, we had $51,208 in C ash and cash equivale nts.

In addition, as of September 30, 2023, the Company’s deferred revenue obligations were $270,876, 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 $11,033 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.

We borrowed $75,000 under our credit facilities in the three months ended September 30, 2023 to fund the operation of our businesses.

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.

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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 $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 .

We believe we have sufficient liquidity, including approximately $51,208 in Cash and cash equivalents as of September 30, 2023, along with $155,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations 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 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

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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,

Net income $ 55,122 $ 22,232

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

The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Net loss $ (18,821) $ (18,527)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

2,445 (11,891)

Changes in working capital assets and liabilities (37,765) 31,703

Net cash provided by operating activities 114,801 64,233

Net cash (used in) provided by operating activities (54,141) 1,285

Net cash used in investing activities (1,729) (271)

Net cash used in financing activities (129,618) (84,978)

Net decrease in cash, cash equivalents and restricted cash $ (25,183) $ (21,881)

Net cash provided by (used in) financing activities 67,830 (10,996)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 11,960 $ (9,982)

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.

Net cash used in operating activities for the three months ended September 30, 2023 was $54,141 as compared to net cash provided by operating activities in the prior period of $1,285.

This was primarily due to the decrease in net loss 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 (i) lower accrued and other liabilities of $55,833 primarily due to higher payments related to league revenue sharing and employee compensation, (ii) lower Net related party payables of $7,955 due to the timing of payments related to the Services Agreement, (iii) higher Net related party receivables of $5,308 due to the timing of collections related to the Company’s Arena License Agreements, and (iv) increased accounts receivable, net of $4,643 primarily due to the timing of payments associated with

sponsorship and signage revenue and pre/regular season ticket-related revenues.

These changes are partially offset by lower payments for Investments of $6,155 related to the Company’s Executive Deferred Compensation Plan.

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.

Net cash used in investing activities for the three months ended September 30, 2023 increased by $1,458 to $1,729 as compared to the prior year period primarily due to higher purchases of investments in the current 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.

Net cash provided by financing activities for the three months ended September 30, 2023 was $67,830 as compared to net cash used in financing activities for the three months ended September 30, 2022 of $10,996.

This was primarily due to additional borrowings under the Knicks and the Rangers credit facilities in the current year period, and, to a lesser extent, lower taxes paid in lieu of shares issued for equity-based compensation.

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

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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, 2023.

The carrying amount of goodwill as of March 31, 2023 was $226,955.

The carrying amount of goodwill as of September 30, 2023 was $226,523.

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 March 31, 2023:

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, 2023:

Sports franchises $ 102,564

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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