What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-02-06 compared with 2023-11-02 · 98 added, 62 removed, 159 unchanged (50% of the section changed)

20 unchanged sentences

• 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 New York Knickerbockers (the “Knicks”) and the New York Rangers (the “Rangers”) are played;

• activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including Madison Square Garden Arena (“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;

8 unchanged sentences

• 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 Sphere Distribution (as defined below);

• the tax-free treatment of the distribution of all of the outstanding common stock of Sphere Entertainment Co.

(formerly Madison Square Garden Entertainment Corp.

and referred herein as “Sphere Entertainment”) to its stockholders, which was completed on April 17, 2020 (the “Sphere Distribution”);

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

6 unchanged sentences

Results of Operations.

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.

This section provides an analysis of our unaudited results of operations for the three and six months ended December 31, 2023 compared to the three and six months ended December 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 three months ended September 30, 2023 compared to the three months ended September 30, 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 six months ended December 31, 2023 compared to the six months ended December 31, 2022, and (iii) certain contractual obligations.

Seasonality of Our Business.

5 unchanged sentences

Results of Operations

Comparison of the three months ended September 30, 2023 versus the three months ended September 30, 2022

Comparison of the three and six months ended December 31, 2023 versus the three and six months ended December 31, 2022

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

Three Months Ended

September 30, Change

Three Months Ended Six Months Ended

December 31, Change December 31, Change

2023 2022 $ % 2023 2022 $ %

3 unchanged sentences

Depreciation and amortization 790 838 (48) (6) % 1,584 1,863 (279) (15) %

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

Other expense:

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

Operating income 28,817 51,518 (22,701) (44) % 13,993 15,620 (1,627) (10) %

Other income (expense):

Interest expense, net (6,800) (5,512) (1,288) (23) % (13,276) (8,468) (4,808) (57) %

Miscellaneous income (expense), net 2,991 385 2,606 NM (9,674) 219 (9,893) NM

Income (loss) before income taxes 25,008 46,391 (21,383) (46) % (8,957) 7,371 (16,328) NM

Income tax (expense) benefit (10,784) (24,555) 13,771 56 % 4,360 (4,062) 8,422 NM

Net income (loss) 14,224 21,836 (7,612) (35) % (4,597) 3,309 (7,906) NM

Net loss attributable to nonredeemable noncontrolling interests — (655) 655 100 % — (1,362) 1,362 100 %

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:

Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders $ 14,224 $ 22,491 $ (8,267) (37) % $ (4,597) $ 4,671 $ (9,268) NM

Revenues decreased $26,796, or 8%, to $326,898 for the three months ended December 31, 2023 as compared to the prior year period.

Revenues decreased $7,839, or 2%, for the six months ended December 31, 2023 as compared to the prior year period.

The net decreases were attributable to the following:

Months Months

Decrease in pre/regular season ticket-related revenues $ (19,045) $ (18,709)

Decrease in suite revenues (5,895) (5,679)

Decrease in sponsorship and signage revenues (5,811) (5,527)

Increase in revenues from local media rights fees 1,952 2,184

Increase in revenues from league distributions 1,651 18,643

Other net increases 352 1,249

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.

$ (26,796) $ (7,839)

The decreases in pre/regular season ticket-related revenues for the three and six months ended December 31, 2023 were primarily due to the Knicks and the Rangers playing fewer home games at The Garden during the current year periods as compared to the prior year periods, partially offset by higher average per-game revenue.

The Knicks played 15 games at The Garden during the three and six months ended December 31, 2023 as compared to 21 games during the prior year periods.

The Rangers played 17 games at The Garden during the three months ended December 31, 2023 and 19 games at The Garden during the six months ended December 31, 2023 as compared to 20 and 22 games, respectively, during the prior year periods.

The decreases in suite revenues for the three and six months ended December 31, 2023 were primarily due to the Knicks and the Rangers playing fewer games at The Garden during the current year periods as compared to the prior year periods, partially offset by higher net sales of suites products, including revenue related to new premium hospitality offerings which were made available at the start of the 2023-24 seasons.

The decreases in sponsorship and signage revenues for the three and six months ended December 31, 2023 were primarily due to the Knicks and the Rangers playing fewer games at The Garden during the current year periods as compared to the prior year periods.

The increases in revenues from local media rights fees for the three and six months ended December 31, 2023 were primarily due to contractual rate increases.

The increase in revenues from league distributions for the three months ended December 31, 2023 was primarily due to increased national media rights fees in the current year period, partially offset by lower other league distributions in the current year period.

The increase in revenues from league distributions for the six months ended December 31, 2023 was primarily due to an increase in and the timing of recognition of certain league distributions unrelated to national media rights fees and, to a lesser extent, increased national media rights fees in the current year period.

Direct operating expenses

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)

Direct operating expenses increased $6,523, or 3%, to $232,225 for the three months ended December 31, 2023 as compared to the prior year period.

Direct operating expenses increased $6,362, or 3%, to $235,745 for the six months ended December 31, 2023 as compared to the prior year period.

The net increases were attributable to the following:

Months Months

Increase in team personnel compensation $ 12,192 $ 10,863

Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax 2,626 3,634

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).

Decrease in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden (7,255) (7,255)

Other net decreases (1,040) (880)

$ 6,523 $ 6,362

The increases in team personnel compensation for the three and six months ended December 31, 2023 were primarily due to roster changes for the Knicks and the Rangers, partially offset by the absence of expenses related to Counter Logic Gaming (“CLG”) in the current year periods, following the Company’s sale of its controlling interest in CLG in April 2023.

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,

2023 2022 Increase 2023 2022 Increase

Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 23,584 $ 20,958 $ 2,626 $ 22,418 $ 18,784 $ 3,634

The increases in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the three and six months ended December 31, 2023 were primarily related to higher provisions for league revenue sharing expense (net of escrow and excluding playoffs) of $2,276 and $2,276, respectively.

In addition, the increase 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, 2023 was partially due to the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow).

The Knicks were not a luxury tax payer for the 2022-23 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, 2023 would not result in the team being a luxury tax payer for the 2023-24 season.

The actual amounts for the 2023-24 seasons may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.

The decreases 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, 2023 were a result of the Knicks and the Rangers playing fewer games at The Garden during the current year periods as compared to the prior year periods.

Selling, general and administrative expenses

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

Selling, general and administrative expenses for the three months ended December 31, 2023 decreased $10,570, or 14%, to $65,066 as compared to the prior year period driven by lower employee compensation and related benefits of $7,821, primarily due to executive management transition costs recognized in the prior year period, and lower other general and administrative expenses.

Selling, general and administrative expenses for the six months ended December 31, 2023 decreased $12,295, or 9%, to $118,622 as compared to the prior year period driven by lower employee compensation and related benefits of $10,527, primarily due to executive management transition costs recognized in the prior year period, and lower other general and administrative expenses.

Depreciation and amortization

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.

Depreciation and amortization for the three months ended December 31, 2023 decreased $48, or 6%, to $790 as compared to the prior year period.

Depreciation and amortization for the six months ended December 31, 2023 decreased $279, or 15%, to $1,584 as compared to the prior year period.

Operating income

Operating income for the three months ended December 31, 2023 decreased $22,701, or 44%, to $28,817 as compared to the prior year period primaril y due to lower revenues and, to a lesser extent, higher direct operating expenses, partially offset by lower selling, general and administrative expenses.

Operating income for the six months ended December 31, 2023 decreased $1,627, or 10%, to $13,993 as compared to the prior year period primaril y due to lower revenues and higher direct operating expenses, partially offset by lower selling, general and administrative expenses.

Interest expense, net

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.

Net interest expense for the three months ended December 31, 2023 increased $1,288, or 23%, to $6,800 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 Knicks Revolving Credit Facility in the current year period.

The increase was partially offset by lower average borrowings under the Rangers Revolving Credit Facility in the current year period.

Net interest expense for the six months ended December 31, 2023 increased $4,808, or 57%, to $13,276 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 Revolving Credit Facility and the Knicks Revolving Credit Facility in the current year period.

Miscellaneous income (expense), net

Miscellaneous income, net for the three months ended December 31, 2023 increased $2,606 to $2,991 as compared to the prior year period primarily due to the recognition of unrealized gains 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.

Miscellaneous income (expense), net for the six months ended December 31, 2023 decreased $9,893 to a net expense of $9,674 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.

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 a discussion of the Company’s income taxes.

Adjusted operating loss

Adjusted operating income

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.

4 unchanged sentences

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.

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.

1 unchanged sentence

The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss).

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

Three Months Ended

September 30, Change

The following are the reconciliations of operating income to adjusted operating income for the three and six months ended December 31, 2023 and 2022:

Three Months Ended Six Months Ended

December 31, Change December 31, Change

2023 2022 $ % 2023 2022 $ %

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

Operating income $ 28,817 $ 51,518 $ (22,701) (44) % $ 13,993 $ 15,620 $ (1,627) (10) %

Depreciation and amortization 790 838 1,584 1,863

1 unchanged sentence

Remeasurement of deferred compensation plan liabilities 839 449 735 346

Adjusted operating loss (a)

Adjusted operating income (a)

$ 37,016 $ 64,424 $ (27,408) (43) % $ 27,031 $ 36,668 $ (9,637) (26) %

3 unchanged sentences

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

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.

Adjusted operating income includes operating lease costs of (i) $15,409 and $16,238 of expense paid in cash for the three and six months ended December 31, 2023, respectively, and $19,416 and $20,221 of expense paid in cash for the three and six months ended December 31, 2022, respectively, and (ii) a non-cash expense of $8,953 and $9,435, for the three and six months ended December 31, 2023, respectively, and $12,202 and $12,708 for the three and six months ended December 31, 2022, respectively.

For the three months ended December 31, 2023, adjusted operating income decreased $27,408, or 43%, to $37,016 as compared to the prior year period.

The decrease in adjusted operating income was primarily due to lower revenues and, to a lesser extent, higher direct operating expenses, partially offset by lower selling, general and administrative expenses.

For the six months ended December 31, 2023, adjusted operating income decreased $9,637, or 26%, to $27,031 as compared to the prior year period.

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

Liquidity and Capital Resources

3 unchanged sentences

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, dividends, if declared, and investments.

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.

As of December 31, 2023, we had $37,880 in C ash and cash equivale nts.

In addition, as of December 31, 2023, the Company’s deferred revenue obligations were $218,450, 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.

1 unchanged sentence

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.

1 unchanged sentence

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

We believe we have sufficient liquidity, including approximately $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.

We believe we have sufficient liquidity, including approximately $37,880 in Cash and cash equivalents as of December 31, 2023, along with $195,000 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

4 unchanged sentences

Cash Flow Discussion

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:

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

Six Months Ended December 31,

Net (loss) income $ (4,597) $ 3,309

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

18,325 24,937

5 unchanged sentences

Operating Activities

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.

Net cash used in operating activities for the six months ended December 31, 2023 was $20,257 as compared to net cash provided by operating activities in the prior period of $31,577.

This was primarily due to the decrease in net (loss) 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 (i) lower accrued and other liabilities of $60,478 primarily due to higher payments related to employee compensation, league revenue sharing, and income taxes in the current year period, (ii) higher prepaid expenses and other assets of $10,236 primarily due to higher payments for income taxes in the current year period and lower receipts related to escrow and player compensation recoveries in the current year period, (iii) $7,586 related to operating lease right-of-use assets and lease liabilities due to the timing of recognition of operating lease costs and higher lease payments, (iv) higher net related party

receivables of $6,114 due to the timing of collections related to the Company’s sponsorship sales and service representation agreements and Arena License Agreements, (v) higher accounts receivable, net of $4,793 due to the timing of collections related to sponsorship and ticket sales.

These changes are partially offset by (i) higher deferred revenue of $33,592 primarily due to the higher collections of ticket sales in advance of recognition of pre/regular season ticket-related revenues, (ii) lower net related party payables of $11,592 primarily due to the timing of payments related to the Services Agreement, and (iii) lower investments of $7,344 primarily related to the Company’s Executive Deferred Compensation Plan.

Investing Activities

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.

Net cash used in investing activities for the six months ended December 31, 2023 increased by $3,924 to $5,238 as compared to the prior year period primarily due to higher purchases of investments in the current year period.

Financing Activities

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.

Net cash provided by financing activities for the six months ended December 31, 2023 was $26,268 as compared to net cash used in financing activities for the six months ended December 31, 2022 of $76,123.

This was primarily due to the impact of dividends paid and the accelerated share repurchase in the prior year period and, to a lesser extent, lower taxes paid in lieu of shares issued for equity-based compensation in the current year period.

These impacts were partially offset by additional borrowings under the Knicks Revolving Credit Facility and the Rangers Revolving Credit Facility in the prior year period and higher principal repayments under the Company’s credit facilities in the current year period.

Seasonality of Our Business

7 unchanged sentences

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 September 30, 2023 was $226,523.

The carrying amount of goodwill as of December 31, 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.

22 unchanged sentences

Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or substantive changes in circumstances.

The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of September 30, 2023:

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, 2023:

Sports franchises $ 102,564

17 unchanged sentences

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