Item 1A. Risk Factors
Item 1A. Risk Factors
The risk factor set forth below should be read carefully in conjunction with the risk factors discussed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, which could materially impact our business, financial condition and results of operations.
Local Media Rights Are a Significant Revenue Stream for Our Business and Decreases in Local Media Rights Revenue, including from a Work-Out or Bankruptcy of MSG Networks, Could Have a Material Negative Effect on our Business and Results of Operations.
Solvency and business disruptions impacting our broadcasting partner, MSG Networks, including the work-out or bankruptcy of MSG Networks (as discussed below) and actions by the NBA or NHL or their national broadcast partners, could adversely affect the revenue that can be derived from these media rights.
In October 2015, the Knicks and the Rangers entered into 20-year local media rights agreements with MSG Networks, a regional sports network and wholly-owned subsidiary of Sphere Entertainment. These agreements provide MSG Networks with exclusive local linear and digital rights to home and away games of the Knicks and the Rangers, as well as other team-related programming.
In recent years, certain regional sports networks have experienced financial difficulties. For example, in March 2023, Diamond Sports Group, an unconsolidated subsidiary of Sinclair Broadcasting Group Inc., which licensed and distributed sports content in a number of regional markets, filed for protection under Chapter 11 of the bankruptcy code. As a result, the majority of Diamond Sports Group’s media rights agreements were either rejected in connection with the bankruptcy proceedings or expired without renewal. For example, during its bankruptcy, Diamond Sports Group ended its media rights agreements with a number of NHL, NBA and MLB teams, and emerged from bankruptcy owning rights to 29 teams (compared to 42 teams prior to its bankruptcy).
MSG Networks was not able to refinance its credit facilities prior to their maturity in October 2024 and entered into a forbearance agreement with its lenders that initially terminated on November 8, 2024 and that has been extended numerous times with a current termination date of February 4, 2025. According to recent public filings, MSG Networks anticipates that any further extension would be for at least several weeks. MSG Networks has indicated that it is pursuing a work-out of its indebtedness and, if the work-out is not successful, may seek bankruptcy protection prior to the lenders exercising their rights under its credit facilities. The expiration of MSG Networks’ affiliation agreement with Altice without renewal on December 31, 2024 could increase the risk that MSG Networks will seek bankruptcy protection. As part of a work-out, MSG Networks has sought to renegotiate its media rights agreements prior to expiration, including to reduce the fees thereunder, and in the absence of renegotiation, may seek to discharge those agreements as part of a bankruptcy proceeding. Media rights revenues for the Knicks and Rangers totaled $175.3 million in fiscal year 2024 and stated rights fees for fiscal year 2025 total up to approximately $186.7 million (which amounts are subject to reduction if games broadcast by the leagues’ national broadcast partners exceed certain numbers of games). If MSG Networks were to discharge its media rights agreements with us as part of a bankruptcy proceeding, we would lose a significant recurring revenue stream with stated rights fees that increase annually, and would also lose the exposure provided by the MSG Networks broadcasting related to the Knicks and the Rangers, any of which could have a material negative effect on our business and results of operations. Although we would pursue alternative sources of distribution for home and away games of the Knicks and the Rangers, as well as other team-related programming, there can be no assurances as to the timing or success of such alternative sources of distribution, all of which would be subject to the approval of the applicable league. In addition, financial difficulties by MSG Networks may have negative implications under our credit facilities. For example, the Rangers Credit Agreement (as defined herein), which had no borrowings outstanding as of December 31, 2024, includes an event of default upon a bankruptcy or insolvency event (as set forth in the Rangers Credit Agreement) with respect to a material media rights counterparty, including MSG Networks. See “— Economic and Business Relationship Risks — Certain of Our Subsidiaries Have Incurred Substantial Indebtedness, and the Occurrence of an Event of Default Under Our Subsidiaries’ Credit Facilities or Our Inability to Repay Such Indebtedness When Due Could Substantially Impair the Assets of Those Subsidiaries and Have a Negative Effect on Our Business” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
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