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, 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; • 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 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; • 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 Madison Square Garden Entertainment Corp. (“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 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”); and • the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. 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, 2023, 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. 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, 2024 compared to the three and nine months ended March 31, 2023. 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, 2024 compared to the nine months ended March 31, 2023, 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 2024. 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, 2023 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. 28 Table of Contents Results of Operations Comparison of the three and nine months ended March 31, 2024 versus the three and nine months ended March 31, 2023 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 2024 2023 $ % 2024 2023 $ % Revenues $ 429,954 $ 382,744 $ 47,210 12 % $ 799,898 $ 760,527 $ 39,371 5 % Direct operating expenses 273,026 239,051 33,975 14 % 508,771 468,434 40,337 9 % Selling, general and administrative expenses 76,398 61,102 15,296 25 % 195,020 192,019 3,001 2 % Depreciation and amortization 788 840 (52) (6) % 2,372 2,703 (331) (12) % Operating income 79,742 81,751 (2,009) (2) % 93,735 97,371 (3,636) (4) % Other income (expense): Interest expense, net (6,444) (6,300) (144) (2) % (19,720) (14,768) (4,952) (34) % Miscellaneous (expense) income, net (1,403) 19,324 (20,727) NM (11,077) 19,543 (30,620) NM Income before income taxes 71,895 94,775 (22,880) (24) % 62,938 102,146 (39,208) (38) % Income tax expense (34,018) (42,962) 8,944 21 % (29,658) (47,024) 17,366 37 % Net income 37,877 51,813 (13,936) (27) % 33,280 55,122 (21,842) (40) % Less: Net loss attributable to nonredeemable noncontrolling interests — (566) 566 100 % — (1,928) 1,928 100 % Net income attributable to Madison Square Garden Sports Corp.’s stockholders $ 37,877 $ 52,379 $ (14,502) (28) % $ 33,280 $ 57,050 $ (23,770) (42) % ______________ NM - Percentage is not meaningful Revenues Revenues increased $47,210, or 12%, to $429,954 for the three months ended March 31, 2024 as compared to the prior year period. Revenues increased $39,371, or 5%, to $799,898 for the nine months ended March 31, 2024 as compared to the prior year period. The net increases were attributable to the following: Three Nine Months Months Increase in pre/regular season ticket-related revenues $ 29,874 $ 11,166 Increase in suite revenues 10,932 5,253 Increase in pre/regular season food, beverage, and merchandise sales 4,274 3,998 Increase in revenues from local media rights fees 1,348 3,532 Increase in revenues from league distributions 625 19,268 Increase (decrease) in sponsorship and signage revenues 130 (5,397) Other net increases 27 1,551 $ 47,210 $ 39,371 The increase in pre/regular season ticket-related revenues for the three months ended March 31, 2024 was primarily due to the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period and higher average Knicks and Rangers per-game revenue. The Knicks played 26 games at The Garden during the three months ended March 31, 2024 as compared to 21 games at The Garden during the prior year period. The increase in pre/regular season ticket-related revenues for the nine months ended March 31, 2024 was primarily due to higher average Knicks and Rangers per-game revenue, partially offset by the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period. The Knicks played 41 games at The Garden during the nine months ended 29 Table of Contents March 31, 2024 as compared to 42 games at The Garden during the prior year period. The Rangers played 38 games at The Garden during the nine months ended March 31, 2024 as compared to 41 games at The Garden during the prior year period. The increase in suite revenues for the three months ended March 31, 2024 was primarily due to the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period and 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 increase in suite revenues for the nine months ended March 31, 2024 was primarily due to 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, partially offset by the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period. The increase in pre/regular season food, beverage, and merchandise sales for the three months ended March 31, 2024 was primarily due to higher average per-game revenue, the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period, and higher online sales of merchandise. The increase in pre/regular season food, beverage, and merchandise sales for the nine months ended March 31, 2024 was primarily due to higher average per-game revenue and higher online sales of merchandise, partially offset by the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period. The increases in revenues from local media rights fees for the three and nine months ended March 31, 2024 were primarily due to contractual rate increases, partially offset by a reduction in rights fees due to a decrease in the number of events exclusively available to MSG Networks during the current year as compared to the prior year. The increase in revenues from league distributions for the three months ended March 31, 2024 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 and the absence of league distributions 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 revenues from league distributions for the nine months ended March 31, 2024 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, partially offset by lower other league distributions in the current year period and the absence of league distributions related to CLG in the current year period. The increase in sponsorship and signage revenues for three months ended March 31, 2024 was primarily due the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period, partially offset by the absence of sponsorship and signage revenues related to CLG in the current year period. The decrease in sponsorship and signage revenues for nine months ended March 31, 2024 was primarily due to the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period and the absence of sponsorship and signage revenues related to CLG in the current year period. Direct operating expenses Direct operating expenses increased $33,975, or 14%, to $273,026 for the three months ended March 31, 2024 as compared to the prior year period. Direct operating expenses increased $40,337, or 9%, to $508,771 for the nine months ended March 31, 2024 as compared to the prior year period. The net increases were attributable to the following: Three Nine Months Months Increase in team personnel compensation $ 11,752 $ 22,616 Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax 8,383 12,016 Increase in other team operating expenses 5,106 3,388 Increase (decrease) in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden 4,408 (2,847) Increase in pre/regular season expense associated with merchandise sales 2,237 2,775 Increase in net provisions for certain team personnel transactions 2,089 2,389 $ 33,975 $ 40,337 The increases in team personnel compensation for the three and nine months ended March 31, 2024 were primarily due to roster changes for the Knicks and the Rangers, partially offset by the absence of expenses related to 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: 30 Table of Contents Three Months Ended Nine Months Ended March 31, March 31, 2024 2023 Increase 2024 2023 Increase Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 20,103 $ 11,720 $ 8,383 $ 42,521 $ 30,505 $ 12,016 The increases 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, 2024 were primarily related to higher provisions for league revenue sharing expense (net of escrow and excluding playoffs) of $6,600 and $8,875, respectively, and, to a lesser extent, lower estimated recoveries of NBA luxury tax in the current year periods. 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 March 31, 2024 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. Other team operating expenses primarily consist 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 increase in other team operating expenses for the three months ended March 31, 2024 was primarily due to higher average per-game expenses and the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period. The increase in other team operating expenses for the nine months ended March 31, 2024 was primarily due to higher average per-game expenses, partially offset by the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period . The increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the three months ended March 31, 2024 was a result of the Knicks playing additional home games at The Garden during the current year period as compared to the prior year period. The decrease in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the nine months ended March 31, 2024 was a result of the Knicks and the Rangers playing fewer home games at The Garden during the current year period as compared to the prior year period . The increases in pre/regular season expense associated with merchandise sales for the three and nine months ended March 31, 2024 were primarily related to higher merchandise sales. Net provisions for certain team personnel transactions were as follows: Three Months Ended Nine Months Ended March 31, March 31, 2024 2023 Increase (Decrease) 2024 2023 Increase (Decrease) Season-ending player injuries $ 2,170 $ — $ 2,170 $ 2,170 $ — $ 2,170 Player trades — 51 (51) — 1,143 (1,143) Waivers/contract terminations — 30 (30) — (1,362) 1,362 Net provisions for certain team personnel transactions $ 2,170 $ 81 $ 2,089 $ 2,170 $ (219) $ 2,389 Selling, general and administrative expenses Selling, general and administrative expenses primarily consist of (i) administrative costs, including compensation, costs under the Company’s Services Agreement, professional fees, and operating lease costs, (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, 2024 increased $15,296, or 25%, to $76,398 as compared to the prior year period driven by higher employee compensation and related benefits of $12,187, primarily due to executive management transition costs in the current year period, and higher other general and administrative expenses. Selling, general and administrative expenses for the nine months ended March 31, 2024 increased $3,001, or 2%, to $195,020 as compared to the prior year period primarily due to higher operating lease costs of $5,121 and higher employee compensation and related benefits of $1,417, partially offset by lower other general and administrative expenses. 31 Table of Contents Depreciation and amortization Depreciation and amortization for the three months ended March 31, 2024 decreased $52, or 6%, to $788 as compared to the prior year period. Depreciation and amortization for the nine months ended March 31, 2024 decreased $331, or 12%, to $2,372 as compared to the prior year period. Operating income Operating income for the three months ended March 31, 2024 decreased $2,009, or 2%, to $79,742 as compared to the prior year period primaril y due to higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, partially offset by higher revenues. Operating income for the nine months ended March 31, 2024 decreased $3,636, or 4%, to $93,735 as compared to the prior year period primaril y due to higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, partially offset by higher revenues. Interest expense, net Net interest expense for the three months ended March 31, 2024 increased $144, or 2%, to $6,444 as compared to the prior year period primarily due to lower interest income caused by lower cash balances, partially offset by decreased interest expense in the current year period. This decrease in interest expense was primarily due to lower average borrowings under the Rangers Revolving Credit Facility in the current year period, partially offset by higher average interest rates and higher average borrowings under the Knicks Revolving Credit Facility in the current year period. Net interest expense for the nine months ended March 31, 2024 increased $4,952, or 34%, to $19,720 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. Miscellaneous (expense) income, net Miscellaneous (expense) income, net for the three months ended March 31, 2024 decreased $20,727 to a net expense of $1,403 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 as compared to unrecognized gains in the prior year period related to the Company’s investments in Xtract One common stock, warrants and forward contracts. Miscellaneous (expense) income, net for the nine months ended March 31, 2024 decreased $30,620 to a net expense of $11,077 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 as compared to unrecognized gains in the prior year period related to the Company’s investments in Xtract One common stock and warrants. Income taxes 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 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. 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. 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 32 Table of Contents (expense), net, which is not reflected in Operating income (loss). The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. 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, 2024 and 2023: Three Months Ended Nine Months Ended March 31, Change March 31, Change 2024 2023 $ % 2024 2023 $ % Operating income $ 79,742 $ 81,751 $ (2,009) (2) % $ 93,735 $ 97,371 $ (3,636) (4) % Depreciation and amortization 788 840 2,372 2,703 Share-based compensation 7,350 3,220 18,069 22,059 Remeasurement of deferred compensation plan liabilities 821 368 1,556 714 Adjusted operating income (a) $ 88,701 $ 86,179 $ 2,522 3 % $ 115,732 $ 122,847 $ (7,115) (6) % _________________ (a) During the fourth quarter of fiscal year 2023, the Company amended the definition of adjusted operating income 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. Adjusted operating income includes operating lease costs of (i) $22,372 and $38,610 of expense paid in cash for the three and nine months ended March 31, 2024, respectively, and $19,013 and $39,234 of expense paid in cash for the three and nine months ended March 31, 2023, respectively, and (ii) a non-cash expense of $12,998 and $22,433, for the three and nine months ended March 31, 2024, respectively, and $11,949 and $24,657 for the three and nine months ended March 31, 2023, respectively. For the three months ended March 31, 2024, adjusted operating income increased $2,522, or 3%, to $88,701 as compared to the prior year period. The increase in adjusted operating income was primarily due to higher revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses. For the nine months ended March 31, 2024, adjusted operating income decreased $7,115, or 6%, to $115,732 as compared to the prior year period. The decrease in adjusted operating income was primarily due to higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, partially offset by higher revenues. 33 Table of Contents Liquidity and Capital Resources Overview 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 Knicks Credit Agreement, the Rangers Credit Agreement, and the Rangers NHL Advance Agreement (each as defined therein). 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 March 31, 2024, we had $40,033 in C ash and cash equivale nts. In addition, as of March 31, 2024, the Company’s deferred revenue obligations were $88,452, 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 $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. 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 approximately $40,033 in Cash and cash equivalents as of March 31, 2024, 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. In addition, on April 22, 2024, the Company made an additional principal repayment of $40,000 under the Rangers Revolving Credit Facility. Financing Agreements and Stock Repurchases See Note 12 and Note 15 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. Contractual Obligations The Company did not have any material changes in its contractual obligations since the end of fiscal year 2023 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, 2024 and 2023: Nine Months Ended March 31, 2024 2023 Net income $ 33,280 $ 55,122 Adjustments to reconcile net income to net cash (used in) provided by operating activities: 24,407 33,477 Changes in working capital assets and liabilities (73,907) 26,202 Net cash (used in) provided by operating activities (16,220) 114,801 Net cash used in investing activities (5,689) (10,366) Net cash provided by (used in) financing activities 26,234 (129,618) Net increase (decrease) in cash, cash equivalents and restricted cash $ 4,325 $ (25,183) Operating Activities Net cash used in operating activities for the nine months ended March 31, 2024 was $16,220 as compared to net cash provided by operating activities in the prior period of $114,801. This was primarily due to the decrease 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 (i) a decrease in deferred revenue of $52,369 primarily due to the timing of collections related to pre/regular season ticket sales and the recognition of certain league distributions unrelated to national media rights fees, (ii) a lower decrease in accrued and other liabilities of $37,191 primarily due to higher payments related to employee compensation and league revenue sharing in the current year period, (iii) a higher increase in prepaid expenses and other assets of $14,114 primarily due to higher contract assets as 34 Table of Contents a result of timing of revenue recognition and lower receipts related to escrow and player compensation recoveries in the current year period, and (iv) an increase in net related party receivables of $8,671 primarily due to the timing of collections related to the Company’s sponsorship sales and service representation agreements. These changes were partially offset by (i) a lower decrease in net related party payables of $11,157 primarily due to the timing of payments related to the Services Agreement, and (ii) a lower increase in investments of $7,669 primarily related to the Company’s Executive Deferred Compensation Plan. Investing Activities Net cash used in investing activities for the nine months ended March 31, 2024 decreased by $4,677 to $5,689 as compared to the prior year period primarily due to lower purchases of investments in the current year period. Financing Activities Net cash provided by financing activities for the nine months ended March 31, 2024 was $26,234 as compared to net cash used in financing activities for the nine months ended March 31, 2023 of $129,618. This was primarily due to the impact of dividends paid and the accelerated share repurchase in the prior year period, lower principal repayments under the Knicks Revolving Credit Facility and the Rangers Revolving Credit Facility in the current 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 Company’s credit facilities in 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 sports 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 2024. 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. Goodwill The carrying amount of goodwill as of March 31, 2024 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. 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. 35 Table of Contents The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2024 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 • 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 2024, 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, 2024: Sports franchises $ 102,564 Photographic related rights 1,080 $ 103,644 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 2024, 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.