Item 2. Management’s Discussion and Analysis
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”), including stated annual local media rights fees for the year ended June 30, 2026. 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:
• developments affecting the regional sports network industry, including the effects of such developments on MSG Networks Inc.’s (“MSG Networks”) solvency, its ability to perform its obligations under its local media rights agreements with us and our ability to broadcast the games of our teams if MSG Networks ceases to perform its obligations under its local media rights agreements with us;
• 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, including the impact of a recession on our business;
• 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;
• 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;
• operational, business, reputational, litigation and other risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security or if third party facilities, systems and/or software upon which we rely are interrupted or unavailable;
• activities or other developments, such as the domestic terrorism recently experienced in New Orleans, 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 pandemic or public health emergency and our ability to effectively manage the impacts, including labor market disruptions;
• 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 and the operating and financial performance of strategic acquisitions and investments, including those we may not control;
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• the impact of governmental regulations or laws, including potential legislation related to ticketing, 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;
• changes in international trade policies and practices, including tariffs, and the economic impacts, volatility and uncertainty resulting therefrom;
• 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. (“Sphere Entertainment”) to its stockholders, which was completed on April 17, 2020; and
• the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 and in this Quarterly Report on Form 10-Q.
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, 2024, 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, 2025 compared to the three and nine months ended March 31, 2024.
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, 2025 compared to the nine months ended March 31, 2024, and (iii) certain contractual obligations.
Seasonality of Our Business. This section discusses the seasonal performance of our business .
Recent Accounting Pronouncements and 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 2025. 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, 2024 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.
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Matters Affecting Comparability
Proposed Amendments to Media Rights Agreements
On April 24, 2025, New York Knicks, LLC and New York Rangers, LLC (collectively, the “Teams”), entered into a Transaction Support Agreement (the “Transaction Support Agreement”) with respect to amendments to the media rights agreements between subsidiaries of MSG Networks and the Teams and the restructuring of the debt of subsidiaries of MSG Networks (the “Transactions”). The Transaction Support Agreement contemplates entering into amendments to the media rights agreements to which the Teams are a party, effective as of January 1, 2025, as follows:
• New York Knicks:
◦ a reduction of 28% in the annual rights fee;
◦ an elimination of the annual rights fee escalator; and
◦ a change to the contract expiration date to the end of the 2028-29 season, subject to a right of first refusal in favor of MSG Networks;
• New York Rangers:
◦ a reduction of 18% in the annual rights fee;
◦ an elimination of the annual rights fee escalator; and
◦ a change to the contract expiration date to the end of the 2028-29 season, subject to a right of first refusal in favor of MSG Networks; and
• the issuance by MSG Networks of penny warrants to the Company exercisable for 19.9% of the equity interests in MSG Networks.
The Transactions will be consummated upon the execution of definitive documents containing terms consistent with those set forth in the Transaction Support Agreement.
As a result of the proposed amendments to the media rights agreements contemplated by the Transaction Support Agreement, media rights fees revenues for the three and nine months ended March 31, 2025 have been recorded at the applicable reduced rate described above. The Company also expects to record media rights fees reflecting the reduced rates described above in future periods.
Knicks and Rangers Home Games at The Garden
The Company’s operating results are impacted by the number of home games the Knicks and the Rangers play at The Garden during each quarter of the fiscal year. For the three months ended March 31, 2025 the Knicks and the Rangers played two fewer combined home games at The Garden during the current year period as compared to the prior year period. For the nine months ended March 31, 2025 the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period. The Knicks played 23 games at The Garden during the three months ended March 31, 2025 and 40 games at The Garden during the nine months ended March 31, 2025 as compared to 26 and 41 games, respectively, during the prior year periods. The Rangers played 20 games at The Garden during the three months ended March 31, 2025 and 40 games at The Garden during the nine months ended March 31, 2025 as compared to 19 and 38 games, respectively, during the prior year periods.
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Results of Operations
Comparison of the three and nine months ended March 31, 2025 versus the three and nine months ended March 31, 2024
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
2025 2024 $ % 2025 2024 $ %
Revenues $ 424,197 $ 429,954 $ (5,757) (1) % $ 835,263 $ 799,898 $ 35,365 4 %
Direct operating expenses 316,335 273,026 43,309 16 % 600,299 508,771 91,528 18 %
Selling, general and administrative expenses 74,697 76,398 (1,701) (2) % 195,184 195,020 164 — %
Depreciation and amortization 823 788 35 4 % 2,396 2,372 24 1 %
Operating income 32,342 79,742 (47,400) (59) % 37,384 93,735 (56,351) (60) %
Other income (expense):
Interest income 1,051 477 574 NM 2,605 1,549 1,056 68 %
Interest expense (5,020) (6,921) 1,901 (27) % (16,662) (21,269) 4,607 (22) %
Miscellaneous expense, net (5,743) (1,403) (4,340) NM (13,478) (11,077) (2,401) 22 %
Income before income taxes 22,630 71,895 (49,265) (69) % 9,849 62,938 (53,089) (84) %
Income tax expense (36,857) (34,018) (2,839) 8 % (30,507) (29,658) (849) 3 %
Net (loss) income $ (14,227) $ 37,877 $ (52,104) NM $ (20,658) $ 33,280 $ (53,938) NM
______________
NM - Percentage is not meaningful
Revenues
Revenues decreased $5,757, or 1%, to $424,197 for the three months ended March 31, 2025 as compared to the prior year period. Revenues increased $35,365, or 4%, to $835,263 for the nine months ended March 31, 2025 as compared to the prior year period.
The net (decrease) increase were attributable to the following:
Three Nine
Months Months
Decrease in revenues from local media rights fees $ (18,638) $ (16,837)
Decrease in pre/regular season food, beverage and merchandise sales (2,534) (96)
Increase in sponsorship and signage revenues 8,898 11,602
Increase in suite revenues 3,401 10,669
Increase in revenues from league distributions 2,446 14,822
Increase in pre/regular season ticket-related revenues 506 15,272
Other net increases (decreases) 164 (67)
$ (5,757) $ 35,365
The decreases in revenues from local media rights fees for the three and nine months ended March 31, 2025 were primarily due to a reduction in expected local media rights fees for the 2024-25 season as a result of proposed amendments to the Knicks’ and Rangers’ local media rights agreements with MSG Networks contemplated in the Transaction Support Agreement. As a result of the amendments contemplated by the Transaction Support Agreement, the Company expects revenues from local media rights fees will be $1,098 lower for the three months ended June 30, 2025, as compared to the prior year period. Stated annual local media rights fees, subject to adjustments in certain circumstances, including if the Company does not make available a minimum number of games in the year, after consideration of the media rights amendments contemplated in the Transaction Support Agreement are anticipated to be $162,939 and $139,237 for the years ended June 30, 2025 and 2026, respectively.
The decrease in pre/regular season food, beverage, and merchandise sales for the three months ended March 31, 2025 was primarily due to lower average per-game revenue, lower online sales of merchandise, and the Knicks and the Rangers playing two fewer combined home games at The Garden during the current year period as compared to the prior year period. The
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decrease in pre/regular season food, beverage, and merchandise sales for the nine months ended March 31, 2025 was primarily due to lower online sales of merchandise, partially offset by the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period and higher average per-game revenue. Merchandise sales for the three and nine months ended March 31, 2024 included the positive impact of new Rangers’ jersey launches.
The increase in sponsorship and signage revenues for the three months ended March 31, 2025 was primarily due to higher net sales of existing sponsorship and signage inventory, partially offset by the Knicks and the Rangers playing two fewer combined home games at The Garden during the current year period as compared to the prior year period. The increase in sponsorship and signage revenues for the nine months ended March 31, 2025 was primarily due to higher net sales of existing sponsorship and signage inventory.
The increase in suite revenues for the three months ended March 31, 2025 was primarily due higher net sales of suite products, partially offset by the Knicks and the Rangers playing two fewer combined home games at The Garden during the current year period as compared to the prior year period. The increase in suite revenues for the nine months ended March 31, 2025 was primarily due higher net sales of suite products and the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period.
The increase in revenues from league distributions for the three months ended March 31, 2025 was primarily due to increased national media rights fees in the current year period. The increase in revenues from league distributions for the nine months ended March 31, 2025 was primarily due to an increase in certain league distributions unrelated to national media rights fees and increased national media rights fees in the current year period.
The increase in pre/regular season ticket-related revenues for the three months ended March 31, 2025 was primarily due to higher average per-game revenue, partially offset by the Knicks and the Rangers playing two fewer combined home games at The Garden during the current year period as compared to the prior year period. The increase in pre/regular season ticket-related revenues for the nine months ended March 31, 2025 was primarily due to higher average per-game revenue and the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period.
Direct operating expenses
Direct operating expenses increased $43,309, or 16%, to $316,335 for the three months ended March 31, 2025 as compared to the prior year period. Direct operating expenses increased $91,528, or 18%, to $600,299 for the nine months ended March 31, 2025 as compared to the prior year period.
The net increases were attributable to the following:
Three Nine
Months Months
Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 33,808 $ 52,808
Increase in team personnel compensation 14,692 29,939
Increase in other team operating expenses 1,091 2,972
(Decrease) increase in net (credits) provisions for certain team personnel transactions (2,823) 5,596
(Decrease) increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden (1,989) 429
Decrease in pre/regular season expense associated with merchandise sales (1,470) (216)
$ 43,309 $ 91,528
Three Months Ended Nine Months Ended
March 31, March 31,
2025 2024 Increase 2025 2024 Increase
Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax $ 53,911 $ 20,103 $ 33,808 $ 95,329 $ 42,521 $ 52,808
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, 2025 were primarily due to higher NBA luxury tax expense. In addition, the increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for
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the three months ended March 31, 2025 was partially due to higher provisions for league revenue sharing expense (net of escrow and excluding playoffs). The increases in NBA luxury tax expense were the result of the Knicks being a significant luxury tax payer for the 2024-25 season based on their roster as of March 31, 2025, whereas the Knicks were not a luxury tax payer for the 2023-24 season. The Knicks received an equal share of the portion of luxury tax receipts that were distributed to non-paying teams for the 2023-24 season.
The actual net provisions for league revenue sharing expense (net of escrow and excluding playoffs) for the 2024-25 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 increases in team personnel compensation for the three and nine months ended March 31, 2025 were primarily due to changes in the Knicks roster.
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, 2025 was primarily due to higher average per-game expenses, partially offset by the Knicks and the Rangers playing two fewer combined 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, 2025 was primarily due to higher average per-game expenses and the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period.
Net (credits) provisions for certain team personnel transactions were as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2025 2024 Decrease 2025 2024 Increase (Decrease)
Season-ending player injuries $ 133 $ 2,170 $ (2,037) $ 133 $ 2,170 $ (2,037)
Player trades (786) — (786) 6,800 — 6,800
Waivers/contract terminations — — — 833 — 833
Net (credits) provisions for certain team personnel transactions $ (653) $ 2,170 $ (2,823) $ 7,766 $ 2,170 $ 5,596
The decrease in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the three months ended March 31, 2025 was a result of the Knicks and the Rangers playing two fewer combined 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 nine months ended March 31, 2025 was a result of the Knicks and the Rangers playing a combined one additional home game at The Garden during the current year period as compared to the prior year period.
Recognition of operating lease costs is recorded on a straight-line basis over the term of the applicable agreement based upon the value of total future payments under the arrangement. Operating lease costs associated with the Knicks and the Rangers playing home games at The Garden includes operating lease costs of (i) $21,747 and $40,048 of expense paid in cash for the three and nine months ended March 31, 2025, respectively, and $22,372 and $38,610 of expense paid in cash for the three and nine months ended March 31, 2024, respectively, and (ii) a non-cash expense of $11,633 and $21,424 for the three and nine months ended March 31, 2025, respectively, and $12,998 and $22,433 for the three and nine months ended March 31, 2024, respectively.
The decrease in pre/regular season expense associated with merchandise sales for the three months ended March 31, 2025 was primarily related to lower average per-game revenue, lower online sales of merchandise, and the Knicks and the Rangers playing two fewer combined home games at The Garden during the current year period as compared to the prior year period. The decrease in pre/regular season expense associated with merchandise sales for the nine months ended March 31, 2025 was primarily due to higher reserves for obsolete inventory recorded in the prior year period as compared to the current year period.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of (i) administrative costs, including compensation, costs under the Services Agreement, professional fees, and operating lease costs, (ii) fees related to the 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.
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Selling, general and administrative expenses for the three months ended March 31, 2025 decreased $1,701, or 2%, to $74,697 as compared to the prior year period driven by lower employee compensation and related benefits of $12,423, primarily related to executive management transition costs recognized in the prior year period, and lower other general and administrative expenses, partially offset by (i) higher professional fees of $7,617, (ii) higher costs related to the Services Agreement of $1,844, (iii) higher operating lease costs of $1,373, and (iv) higher fees related to the Sponsorship Sales and Service Representation Agreements of $1,182.
Selling, general and administrative expenses for the nine months ended March 31, 2025 increased $164 to $195,184 as compared to the prior year period driven by (i) higher professional fees of $11,518, (ii) higher operating lease costs of $5,138, and (iii) higher fees related to the Sponsorship Sales and Service Representation Agreements of $1,686, offset by lower employee compensation and related benefits of $15,701, primarily related to executive management transition costs recognized in the prior year period, lower sales and marketing costs of $2,202, and lower other general and administrative expenses.
Operating income
Operating income for the three months ended March 31, 2025 decreased $47,400, or 59%, to $32,342 as compared to the prior year period primarily due to higher direct operating expenses and, to a lesser extent, lower revenues.
Operating income for the nine months ended March 31, 2025 decreased $56,351, or 60%, to $37,384 as compared to the prior year period primarily due to higher direct operating expenses, partially offset by higher revenues.
Interest income
Interest income for the three months ended March 31, 2025 increased $574 to $1,051 as compared to the prior year period primarily due to higher average cash balances in the current year period, partially offset by lower average interest rates.
Interest income for the nine months ended March 31, 2025 increased $1,056, or 68%, to $2,605 as compared to the prior year period primarily due to higher average cash balances in the current year period, partially offset by lower average interest rates.
Interest expense
Interest expense for the three months ended March 31, 2025 decreased $1,901, or 27%, to $5,020 as compared to the prior year period primarily due to lower average borrowings under the Rangers Revolving Credit Facility in the current year period and lower average interest rates under the Knicks Revolving Credit Facility in the current year period.
Interest expense for the nine months ended March 31, 2025 decreased $4,607, or 22%, to $16,662 as compared to the prior year period primarily due to lower average borrowings under the Rangers Revolving Credit Facility in the current year period and lower average interest rates under the Knicks Revolving Credit Facility in the current year period.
Miscellaneous expense, net
Miscellaneous expense, net for the three months ended March 31, 2025 increased $4,340 to $5,743 as compared to the prior year period primarily due to higher unrealized losses in the current year period as compared to the prior year period related to the Company’s investments in Xtract One common stock and warrants and the net impact of the remeasurement of the fair value of assets under the Deferred Compensation Plan.
Miscellaneous expense, net for the nine months ended March 31, 2025 increased $2,401, or 22%, to $13,478 as compared to the prior year period primarily due to higher unrealized losses in the current year period related to the Company’s investments in equity investments without readily determinable fair values and Xtract One common stock and warrants, and lower unrealized gains in the current year period related to the remeasurement of the fair value of assets under the Deferred Compensation Plan.
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
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
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cash. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating income (loss) whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).
The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by 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, 2025 and 2024:
Three Months Ended Nine Months Ended
March 31, Change March 31, Change
2025 2024 $ % 2025 2024 $ %
Operating income $ 32,342 $ 79,742 $ (47,400) (59) % $ 37,384 $ 93,735 $ (56,351) (60) %
Depreciation and amortization 823 788 2,396 2,372
Share-based compensation 3,900 7,350 14,159 18,069
Remeasurement of deferred compensation plan liabilities (134) 821 973 1,556
Adjusted operating income $ 36,931 $ 88,701 $ (51,770) (58) % $ 54,912 $ 115,732 $ (60,820) (53) %
For the three months ended March 31, 2025, adjusted operating income decreased $51,770, or 58%, to $36,931 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, lower revenues.
For the nine months ended March 31, 2025, adjusted operating income decreased $60,820, or 53%, to $54,912 as compared to the prior year period. The decrease in adjusted operating income was primarily due to higher direct operating expenses, partially offset by higher revenues.
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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, 2025, we had $96,536 in C ash and cash equivale nts. In addition, as of March 31, 2025, the Company’s deferred revenue obligations were $124,958, net of billed, but not yet collected deferred revenue. This balance is primarily comprised of obligations in connection with tickets and suites.
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 $96,536 in Cash and cash equivalents as of March 31, 2025, along with $258,000 of additional available borrowing capacity under existing credit facilities (as of March 31, 2025), to fund our operations and satisfy any obligations for the foreseeable future. If MSG Networks were to experience a bankruptcy or insolvency event (as set forth in each of the credit facilities), we would be prevented, absent a cure or waiver, from making borrowings under our revolving credit facilities. The Rangers Credit Agreement also includes an event of default upon a bankruptcy or insolvency event with respect to a material media rights counterparty, including MSG Networks. There were no borrowings outstanding under the Rangers Revolving Credit Facility as of March 31, 2025. In addition, we had an outstanding receivable balance of $30,101 as of March 31, 2025 from MSG Networks related to unpaid amounts under the media rights agreements. If MSG Networks were to experience a bankruptcy or insolvency event, some or all of this accounts receivable balance could be impaired.
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 2024 other than the New Sublease Agreement described in Note 7 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and 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, 2025 and 2024:
Nine Months Ended March 31,
2025 2024
Net (loss) income $ (20,658) $ 33,280
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: 21,038 24,407
Changes in working capital assets and liabilities 41,504 (73,907)
Net cash provided by (used in) operating activities 41,884 (16,220)
Net cash used in investing activities (5,349) (5,689)
Net cash (used in) provided by financing activities (26,406) 26,234
Net increase in cash, cash equivalents and restricted cash $ 10,129 $ 4,325
Operating Activities
Net cash provided by (used in) operating activities for the nine months ended March 31, 2025 improved by $58,104 to $41,884 as compared to the prior year period. The improvement was primarily due to changes in working capital assets and liabilities, partially
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offset by the decrease in net (loss) income adjusted for non-cash items. The changes in working capital assets and liabilities were primarily driven by (i) an increase in deferred revenue of $68,441 primarily due to higher collections of ticket, suites, and sponsorship sales in advance of recognition, (ii) a higher increase in accrued and other liabilities of $39,964 primarily due to increased accruals for NBA luxury tax in the current year period, (iii) a lower increase in prepaid expenses and other assets of $33,982 primarily due to a lower increase in contract assets in the current year period primarily due to lower revenue recognized under the Company’s local media rights agreements, and (iv) a decrease in net related party receivables of $10,327 primarily due to the timing of collections related to the Company’s Sponsorship Sales and Service Representation Agreements. These changes were partially offset by a higher increase in accounts receivable, net of $39,559 primarily due to higher accounts receivable from MSG Networks related to unpaid amounts under the local media rights agreements.
Investing Activities
Net cash used in investing activities for the nine months ended March 31, 2025 decreased by $340 to $5,349 as compared to the prior year period primarily due to lower purchases of investments in the current year period, partially offset by higher capital expenditures.
Financing Activities
Net cash used in financing activities for the nine months ended March 31, 2025 was $26,406 as compared to net cash provided by financing activities for the nine months ended March 31, 2024 of $26,234. This was primarily due to additional borrowings under the Company’s credit facilities in the prior year period and, to a lesser extent, the impact of principal repayments under the Rangers NHL Advance Agreement in the current year period and higher taxes paid in lieu of shares issued for equity-based compensation in the current year period. These were partially offset by lower repayments under the Company’s credit facilities in the current 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.
Recent Accounting Pronouncements and Critical Accounting Policies
Recent 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 recent 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 2025. 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, 2024.
Goodwill
The carrying amount of goodwill as of March 31, 2025 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, quantitative assessment is performed 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, not to exceed the carrying amount of goodwill.
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The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2025 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 2025, 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, 2025:
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 2025, 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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.