Madison Square Garden Sports Corp. 10-Q

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. Decreases in Local Media Rights Revenue Have Had an Adverse Effect on our Business and Results of Operations, and the Effect of Future Reductions, Including from a Bankruptcy of MSG Networks, Could be Material. Business conditions impacting our broadcasting partner, MSG Networks, including the work-out or bankruptcy of MSG Networks (as discussed below) and/or actions by the NBA or NHL or their national broadcast partners, have in the past adversely affected and could in the future materially 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 significant 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 while pursuing a work-out of its indebtedness. On April 25, 2025, MSG Networks announced that it had reached an agreement among its lenders, the Knicks and the Rangers, and Sphere Entertainment to support certain proposed transactions to reduce and restructure its credit facilities (collectively, the “Proposed Transactions”). As part of this debt restructuring, the Knicks and the Rangers agreed to certain amendments to those local media rights agreements, including, effective as of January 1, 2025, fee reductions of 28% for the Knicks and 18% for the Rangers with no annual rights fee escalators. As proposed, the term of the media rights agreements would also be reduced to end after the 2028-29 seasons, subject to a right of first refusal in favor of MSG Networks. As a result of the proposed amendments, the Company expects that media rights fees will be approximately $1.1 million lower for the three months ended June 30, 2025 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 to MSG Networks in the year, after consideration of the media rights amendments contemplated in the Transaction Support Agreement are anticipated to be approximately $162.9 million and $139.2 million for the years ending June 30, 2025 and 2026, respectively. The Proposed Transactions, including the amendments to the media rights agreements, are subject to the execution of definitive documentation. See “Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Matters Affecting Comparability — Proposed Amendments to Media Rights Agreements” of this Quarterly Report on Form 10-Q for more information regarding the amendments to the local media rights agreements. Although the parties have agreed to work together and use commercially reasonable and timely efforts to support, implement and finalize the Proposed Transactions, if the Proposed Transactions are not successfully implemented, MSG Networks could seek bankruptcy protection prior to the lenders exercising their rights under its credit facilities. MSG Networks may also seek bankruptcy protection if its business conditions deteriorate at a more rapid pace than it currently expects, including as a result of carriage disputes between MSG Networks and its distributors. 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, 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 40 Table of Contents 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, we had an outstanding receivable balance of $30.1 million at 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, which may have a material adverse effect on our liquidity. Financial difficulties by MSG Networks also may have negative implications under our credit facilities. For example, if MSG Networks were to experience a bankruptcy or insolvency event (as set forth in each of the Knicks Credit Agreement and Rangers Credit Agreement), we would be prevented, absent a cure or waiver, from making borrowings under our revolving credit facilities. Further, the Rangers Credit Agreement (as defined herein), which had no borrowings outstanding as of March 31, 2025, includes an event of default upon a bankruptcy or insolvency event 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.