Madison Square Garden Sports Corp.

Good morning, thank you for standing by and welcome to the Madison Square Garden Sports Corp fiscal 2024 fourth quarter and year end earnings conference call. At this time, all participants are in a listen only mode. After the speaker's remarks, there will be a question and answer session. I would now like to turn the call over to Ari Daines, Investor Relations. Please go ahead.

Thank you, operator. Good morning. And welcome to MSG Sports fiscal 2024 fourth quarter and year-end earnings conference call. Our chief operating officer, Jamal Hussain, will begin this morning's call with an update on the company's strategy and operations. This will be followed by a review of our financial results with Victoria Mink, our EVP, chief financial officer, and treasurer. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the investor section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Jamal.

Thank you, Ari, and good morning, everyone. I'd like to begin by saying how honored I am to step into this leadership role at MSG Sports. I look forward to working with my colleagues to continue to strengthen and build upon the legacies of our two iconic franchises, the Knicks and the Rangers. Both teams had exciting regular and postseason campaigns this past year, resulting in strong financial results for our business. For fiscal 24, MSG Sports generated revenues of over $1 billion and adjusted operating income of $172 million, both exceeding fiscal 23 results and setting new records for our company. These strong results reflect the robust demand we experienced from our fans and partners throughout the season, as well as the on ice and on court performance of our two franchises this past year. The Rangers won the President's Trophy awarded to the NHL team with the best regular season record, while the Knicks had their best regular season record in over 10 years, and both teams advanced to the playoffs, with the Rangers reaching the Eastern Conference final and the Knicks to the Eastern Conference semifinals. This offseason, Rangers have acquired a number of new players, including former Stanley Cup champion Riley Smith. The Knicks extended the contract of All-NBA guard Jalen Brunson and re-signed all defensive team forward OG Ananobi, while also acquiring Mikel Bridges via trade. As we look ahead to the 24-25 seasons, both teams have a number of key players secured under long-term contracts and are poised to build upon last year's success. Our fans' enthusiastic support for our teams this past year was evident in many areas of our business, from ticket sales and per-cap spending at the Garden to local TV ratings and increased engagement on social. At the Garden, both the Knicks and Rangers again played to at or near capacity crowds all throughout the year. This fan support has carried over in renewals for the 24-25 seasons, with the average combined season ticket renewal rate for the Knicks and Rangers at approximately 94%. For the upcoming seasons, we made the decision to not increase season ticket prices for our loyal, renewing season ticket holders. However, we will continue to opportunistically price new season ticket packages, as well as individual and group tickets, and expect to benefit from increased demand for our flexible ticket plans. Our fans' excitement also translated into higher in-arena spending during fiscal 24, as food, beverage, and merchandise per cap spending was up year over year. On the merchandise front, we partnered with premium brands and introduced several new offerings that resonated with our fans. For example, both the Knicks and Rangers partnered with Siegelman Stable to offer a unique line of hats this past season. At the same time, the Knicks launched a new collaboration with Saherty while also continuing its successful partnership with KISS. These offerings, along with two new Rangers jerseys, one for home games and one to mark the team's participation in the 2024 NHL Stadium Series, were a success, as merchandise revenue in the regular season hit new highs in fiscal 24. Beyond merchandise, we continue to pursue ways to strengthen our connection with our fans. This past season, we hosted several special events during playoff away games. including two watch parties at the Garden during the Nixon Rangers second round series, and a viewing party in Central Park for game three of the Rangers Eastern Conference Finals. These events included alumni appearances and photo opportunities, allowing us to directly connect with a range of fans from across the city. Our fans' excitement to watch their teams this season was also reflected in strong local viewership. Local ratings for both teams on MSG Networks up by a mid to high teens percentage for the 23-24 seasons. And throughout the season, we also amplified team activity on social media, where we added over 830,000 net new followers during the season, bringing the Knicks and Rangers combined following to over 19 million as of the end of the fiscal year. Going forward, we will continue to look for unique ways to engage with fans, and deliver compelling content throughout digital platforms. Turning to media rights. Last month, the NBA announced new agreements for the league's national media rights. These 11-year deals start with the 25-26 season and include a step up in average annual value compared to the current agreements, as well as increased annual escalators. The agreements also include an increase in the number of live game telecasts made available to national media partners. This will result in a corresponding reduction in the number of exclusive telecasts made available to regional sports networks. The RSN industry is already facing a challenging environment. The reduction in local telecasts further impacts this valuable part of our ecosystem, which teams rely upon to drive enhanced fan engagement through unique and tailored content for local markets. This evolving landscape impacts our local media rights partner, MSG Networks, which faces a significant debt maturity this October. In its 10Q filing this past May, MSG Networks provided additional disclosure on the status of its refinancing efforts, including the implications of not completing a refinancing. We continue to actively evaluate these developments including the potential impact on MSG networks and our corresponding local media rights revenue. Turning to marketing partnerships. This past year, we welcomed several new marketing partners, including Beyond Meat, Pfizer, Next Entire, and Oura Ring, among others. We have also gotten off to a good start in fiscal 25 in terms of new deals and expect to have more to share in the coming weeks. In terms of our premium hospitality business, this past fiscal year, we saw record suite revenues driven by strong demand, as well as the addition of two new event-level suite products, an event-level suite and a luxury event-level club space. Looking ahead to fiscal 25, we expect to benefit from continued renewals and new sales activity. We are also expanding the capacity of the event-level club space. And in partnership with MSU Entertainment, we are in the process of renovating a number of the event and Lexus level suites. This is in keeping with our goal of improving the guest experience and creating incremental revenue opportunities for our business. So to summarize, we are pleased with how our business has performed this past fiscal year. And while the media landscape is continuing to evolve, fan enthusiasm for live sports remains strong. and the popularity of our leagues continues to grow, which reinforces our confidence in the value of our franchises and our ability to drive long-term shareholder value. With that, I'll now turn the call over to Victoria.

Thank you, Jamal, and good morning, everyone. For fiscal 24, we generated total revenues of $1 billion and adjusted operating income of $172.2 million, which, As Jamal mentioned, are both records for our company. Our results for the fiscal 24 fourth quarter reflected robust demand for our teams as they completed their 23-24 regular seasons, followed by playoff appearances from both the Knicks and Rangers. Our results also reflected a combined four more Knicks and Rangers regular season home games and seven additional playoff home games in our fourth quarter as compared to the prior year period. As a result, total revenues for the quarter were $227.3 million as compared to $126.9 million in the prior year period. Event-related revenues of $152.1 million, which mainly consists of tickets, food, beverage, and merchandise revenues, inclusive of the playoffs, increased 116% year over year. Suites, sponsorship, and signage revenues, also inclusive of the playoffs, were $34.7 million, an increase of 71% year over year. In addition, national and local media rights fees of $28.4 million decreased 1%, primarily due to a reduction in the number of exclusive games made available to MSG Networks, partially offset by the impact of contractual rate increases on our local and national media rights deals. Adjusted operating income of $56.5 million increased $64.3 million, primarily due to the increase in revenues, partially offset by higher direct operating expenses, and to a lesser extent, higher selling general and administrative expenses. AOI for our fiscal 24 fourth quarter includes $2.4 million of non-cash arena operating lease costs as compared to $1.4 million in the prior year period. The increase in direct operating expenses reflected higher playoff-related expenses, other team operating expenses, and arena operating lease costs, all due to more games played at the Garden during the current year period. These increases were partially offset by a decrease in provisions for team personnel transactions and lower net provisions for revenue sharing expense and luxury tax. Turning to our balance sheet, at the end of the quarter, our cash balance was approximately $89 million, and our debt balance was $305 million. This was comprised of $275 million under the NICS Senior Secured Revolving Credit Facility and $30 million advanced from the NHL. Our cash and debt balance both reflect a total of $55 million of repayments under our ranger senior secured revolving credit facility during the quarter, bringing the outstanding borrowings under this facility to zero. So we are pleased with how our business has performed this fiscal year and remain confident in our ability to drive long-term value for our shareholders. I will now turn the call back over to Ari.

Thanks, Victoria. Operator, can we now open the call for questions?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from a line of David Kronofsky from JP Morgan. Your line is open.

Thank you. Just with the pressure to the RSN ecosystem, we have seen a number of teams across sports take haircuts on their right seeds in order to put more stability into the model. So given your distributors declining revenue and the upcoming debt maturity, wondering if that's something that's under consideration for the Knicks and Rangers. And then related with the National NBA Reds deal, obviously there's a nice step up in fees coming. But as you noted, there's some offsets in the exclusive game inventory for MSG Networks coming down. So curious if you could expand on how you do the net of it all for the teams.

Thanks, David, and good morning. And taking a step back for a moment, and as I mentioned earlier, our local media rights partner, MSG Networks, provided additional disclosure on the status of its debt refinancing efforts including the implications of not completing a refinancing. And then more recently, as I mentioned earlier, the NBA reached new agreements for its national media rights. These agreements may result in a reduction in the number of exclusive live telecasts made available to MSG networks. So it's clear that the sports media landscape continues to evolve. We continue to actively evaluate these developments, including the potential impact on MSG networks and any potential impact on our local media rights revenue, and we'll keep you updated as appropriate.

Hey, David, it's Victoria. I'll take the second part of your question around the overall financial impact on the NBA's new national media deal. So, as you know, all NBA teams share equally in national media rights fees, and at the league level, players receive about 50% of league-wide revenues, including the national media rights fees. So starting with the 25-26 season, the NBA will see that step up in the average annual value for its national media rights, as well as increased annual escalators, which in turn will increase our national media rights fees revenues. However, as noted, we're also assessing the impact that these new rights agreements may have on other areas of our business, including local media rights revenue. Our local agreements include thresholds around the number of live games telecast to be provided to MSG networks, such as a minimum number of total regular season games. If certain thresholds are not met as a result of the new NBA national deals, our local rights agreements would provide for a reduction in local media rights fees, and this would partially offset the increase in the national media rights revenue.

Thank you. Your next question comes from the line of Daniel Duran from Morgan Stanley. Your line is open.

Hi. Thank you for taking my question. Why not raise ticket prices, and what are the implications for revenues and AOI in fiscal 25? Thank you.

And thank you for that, Daniel. So philosophically, all of our key decisions are made with a long-term view. That includes how we manage our relationships with our loyal season ticket holders. And as you alluded to, after a successful season for both of our teams, or I should say successful seasons, we made the decision to not increase season ticket prices for renewing holders. However, we will continue to opportunistically price new season ticket packages as well as individual and group tickets and expect to benefit from increased demand for those and our flexible ticket plans. And so putting it all together, We believe we have the opportunity to drive modest ticket revenue growth in fiscal 25. And then looking beyond the 24-25 seasons, we still see opportunity around ticket yield, and we'll continue to reevaluate our season ticket pricing on an annual basis.

Got it. Thank you very much.

Your next question comes from the line of Brandon Ross from Lakeshed. Your line is open.

Hey, thanks for taking the questions. Just wanted to get an update on how you're thinking about capital return. You've delivered a bunch at this point. You paid down that Rangers facility, cash in the balance sheets up, what, $50 million year over year. Should we expect some buyback activity? And how does the situation with networks play into your thinking around capital return? Follow.

Sure. Good morning. So, you know, taking a step back, as it relates to our overall capital allocation philosophy and priorities, you know, things really remain the same at this point. You know, so to just take you through, right, first is to maintain appropriate liquidity to fund our operations and invest in our core business. Second, we want to make sure we have a strong balance sheet, you know, and we've continued to prioritize debt paydowns given the high interest rate environments. And as you noted, this included $55 million of repayments under our rangers revolving credit facility during the fourth fiscal quarter. And then third, we plan to be opportunistic about other uses of our cash flow and we'll keep all options open. As you know, we currently have approximately $185 million remaining under our share repurchase authorization. And as Jamal noted, we continue to just evaluate the overall landscape of the RSN industry and we'll act accordingly.

Great. And then it's been a couple of years since you spoke to exploring minority sales of the teams. Seems like franchise values have increased quite a bit since then. Is that still something that's on the table or have you? I guess, table at this point.

Sure. As we said before, we continue to be as confident as ever in the value of our teams. These are incredibly scarce assets with strong business fundamentals, which we don't think is appropriately reflected in our current stock price. And while we would never

rule out the possibility of a minority stake sale we have nothing to report at this time great thank you very much your next question comes from the line of peter sapino from wolf research your line is open hi good morning a question about revenue growth obviously the new broadcast rights deal media rights deal will bring welcome growth to the company i wonder what initiatives you might be thinking about beyond that to drive organic revenue growth next year and beyond. Thanks.

Thank you for that, Peter. And I'm glad you asked that question as we continue to be very pleased with how our business is performing, including record financial results in fiscal 24. And let me walk you through some of the key areas of our business for the upcoming year and looking ahead. From a ticketing standpoint, we are already seeing strong demand. with, as I mentioned earlier, combined average season ticket renewal rates of approximately 94%. We will also continue to opportunistically price new season ticket packages as well as individual and group tickets. And we expect to benefit from increased demand for our flexible ticket packages. From a sponsorship standpoint, we believe we're off to a good start in fiscal 25 in terms of new deals and expect to have more to share in the coming weeks. We also have a number of renewals this year and are optimistic about those. And then on premium hospitality, we expect to capitalize on strong demand for renewals and new sales activity. And in partnership with MSG Entertainment, we are expanding the event level club space at the garden that was introduced last season. And lastly on suites, we also expect to benefit from the renovation of several event and lexus level suites so we believe we have the opportunity to drive growth across a number of areas of our business this year thanks peter operator we will take one last caller certainly your final question comes from the line of paul golding from macquarie capital your line is open

Thanks so much. Just was wondering if you could give some additional detail on the financial dynamics of the playoffs this year in terms of maybe per-game margins or contribution. And as a follow-up, now that you've had a couple years of both teams having good playoff appearances, wondering if that's factoring into your planning going forward at all, assuming team stability for next year. Thanks.

And thank you for that, Paul. So let me, um, I'll jump in and just talk about playoffs in general, and then I'll turn it over to Victoria for more of the, uh, the financial impact. And, you know, typically a playoff run results in several benefits to our business. In terms of tickets, a player friend usually increases demand across all of our offerings, whether it's season ticket renewals, sales to new members or individual and group ticket sales. As I mentioned earlier, our combined renewal rate for season ticket packages is already approximately 94%. A playoff run also typically drives new fans. In fiscal 24, we added over 830,000 net new social media followers, and of those new followers, nearly 35% were added during the playoffs. This increased demand also extends to the corporate side of our business, which then in turn allows us to sell more premium hospitality and marketing partnerships. So we are already seeing the momentum from the playoffs carry forward. And I'll turn to Victoria for a little bit more detail.

Great. Sure. So, yeah, so the playoffs result in significant incremental business for our company, depending obviously on the length of the playoff run, which is, you know, very evident in our results today. Playoff tickets are priced at a premium to regular season games and increase each incremental round. F&B and merchandise per cap spending is typically above regular season averages. And then in particular, this past quarter, we hosted 15 playoff games at the Garden as compared to eight last year. So as a result, our playoff related revenues for the fourth quarter were $128 million as compared to $56.2 million in the prior year period. So this translates to approximately $8.5 million in average per game revenues, and approximately, there were approximately $4 million in average per game direct operating expenses, as well as some additional marketing and administrative costs incurred in connection with our overall playoff participation. So as Jamal mentioned, we expect to see the positive impact of the past season's playoffs runs across our business in fiscal 25.

Thanks so much.

We have reached the end of our question and answer session. I will now turn the call back over to Ari Daines for closing remarks.

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.