Madison Square Garden Sports Corp.

Thank you, Operator. Good morning, and welcome to MSG Sports Fiscal 2025 Second Quarter Earnings Conference Call. Our Chief Operating Officer, Jamal Lussain, 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. The Knicks and Rangers 2024-25 seasons are in full swing. For the fiscal 25 second quarter, MSG Sports generated revenues of approximately $358 million and adjusted operating income of approximately $20 million. These results reflect strong overall demand. while adjusted operating income also reflects our continued investment in our teams. The robust demand from fans and corporate partners alike has driven positive momentum in all key revenue areas. Ticketing, suites, sponsorship, and food, beverage, and merchandise. In fact, per game revenues across every key category were up as compared to the fiscal 24 second quarter. So with our iconic sports franchises and the strong top line trends we are seeing, we remain confident in the outlook for our business. Let's discuss our operations in more detail. Since we last spoke with you in August, the Knicks off season, which had already included a number of significant roster moves, culminated with the trade for now five-time NBA All-Star, Karl-Anthony Towns. More than halfway through the season, we are pleased with the team's performance so far, and we're excited to see both Towns and Jalen Brunson recently selected as starters for the 2025 NBA All-Star Game. On the hockey side, the Rangers signed an eight-year contract extension with the team's star goalie, Igor Shostakhin, in December. And next week, a number of our players will participate in the NHL's four-nations face-off tournament. which is being held in place of an all-star game this year. As the seasons continue to unfold, we look forward to watching the coming months of competition. Throughout this year, our fans have continued to show their support for the Knicks and Rangers. This season, our average combined season ticket renewal rate was approximately 97%. In addition, we have been opportunistically pricing our other ticketing offerings including new season ticket packages as well as individual and group tickets. We have also continued to provide our fans with more options and have seen increased demand for our flexible ticket plans as a result. Putting it all together, we saw year-over-year increases in both average ticket yield and average paid attendance on a per-game basis in the fiscal second quarter, which helped drive growth in ticketing revenues. Fan enthusiasm has also extended to in-arena spending, where food, beverage, and merchandise per-cap spending was up as compared to the fiscal 24 second quarter. Contributing to this growth are our continued efforts to introduce innovative merchandise offerings. The Knicks are once again partnering with unique brands, including KISS and New Yorker Nowhere. And given the ongoing success of these two collaborations, We expanded those partnerships to the Rangers for the first time this season. It is clear that these initiatives are resonating. In fact, when the Knicks debuted their new Kiff collection and the Rangers launched with New York or nowhere this season, in arena single game merchandise sales were amongst their highest in each team's history. We also continue to introduce exciting event offerings to foster fan engagement. For example, we recently held our first Knicks homecoming weekend, celebrating the team's alumni and rich history. The celebration included a free daytime event sponsored by Chase with alumni and hundreds of fans, and culminated that night with the official homecoming game presented by DoorDash, which honors a number of team alumni. Turning to meteorites. As a reminder, The NBA has entered into new national media deals, which are scheduled to begin next year. While these deals will include a step up in average annual value compared to the current agreements, as well as increased escalators, it will also result in a reduction in the number of exclusive live telecasts made available to RSNs, which impacts a valuable part of our ecosystem. As you may also know, in August, Our local media rights partner, MSG Networks, announced that it is pursuing a refinancing of its credit facilities through a workout, which is ongoing. As part of that process, MSG Networks has approached us to renegotiate our local media rights agreements, including a potential reduction in our rights fees. In addition, on January 1st, Altice USA dropped MSG Networks from its optimum offerings demonstrating the challenging environment that the RSN industry continues to face. We are actively assessing the best path forward for our business and will continue to keep you updated. With respect to marketing partnerships, fiscal 2025 has been highlighted by a number of new deals and renewals so far. In October, the company announced a significant multi-year agreement with Abu Dhabi's Department of Culture and Tourism which included naming Experience Abu Dhabi as the official patch partner of the Knicks. Their logo now appears on all Knicks game jerseys, as well as warm-up jackets and shooting shirts. In addition, over the last several months, we signed new multi-year sponsorships with Lenovo and its subsidiary, Motorola, and reached multi-year renewals with Verizon and Benjamin Moore. In terms of premium hospitality, we continue to see strong new sales and renewal activity for suites at the gardens. That includes the event-level club space, which was introduced last year and was expanded ahead of the 2024-25 season. In addition, we are seeing the benefit of incremental revenue this year from a number of event and Lexus-level suites that were recently renovated. Our business continues to demonstrate strong underlying fundamentals. And while the ecosystem for RSNs continues to evolve, as we look ahead, we remain confident in the value of owning marquee sports 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. Results for the fiscal second quarter reflect preseason play and the start of the 24-25 regular seasons for the Knicks and Rangers. In aggregate, we hosted 35 pre- and regular-season games across both teams as compared to 32 games last year, which positively impacted this quarter's results. I'd also note that our fiscal third and fourth quarters will reflect three fewer regular-season home games in total as compared to the prior year periods. So the fiscal 25 second quarter total revenues were $357.8 million as compared to $326.9 million in the prior year period, which reflected the impact of more home games at the garden versus the prior year, as well as increases across every key revenue category on a per game basis. Event related revenues of $139.4 million which mainly consists of ticketing, food, beverage, and merchandise revenue, increased 14% year-over-year, while suites and sponsorship revenues of $79.4 million increased 15% year-over-year. National and local media rights fees of $126.9 million increased 4%, primarily due to the impact of contractual rate increases on our local and national media rights deals partially offset by the impact of a decrease in the number of gains exclusively available to MSG networks during the current year as compared to the prior year. Adjusted operating income decreased $16.8 million to $20.2 million, primarily due to an increase in direct operating expenses, and to a lesser extent, higher selling general and administrative expenses, partially offset by the increase in revenues. Our fiscal 25 second quarter results include $9.3 million of non-cash ARENA license fees expense as compared to $9 million in the prior year period. The increase in direct operating expenses primarily reflects higher team personnel compensation and corresponding luxury tax, as well as the impact of certain team personnel transactions. These direct operating expenses reflect the company's expectation that the NICs will be a significant luxury taxpayer for the 24-25 season based on the team's current roster. Turning to our balance sheet. At the end of the quarter, our cash balance was approximately $108 million, and our debt balance was $305 million. This was comprised of $275 million under the next senior secured revolving credit facility and $30 million advanced from the NHL. We are pleased with the demand trends we are seeing across our business so far in fiscal 25 and remain confident in its long-term trajectory. I will now turn the call back over to Ari.

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

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of David Karnofsky from JP Morgan. Your line is open.

Hey, thank you for the question. You know, just given the ongoing process with MSG Networks and its lenders and then blackout with optimum, obviously there's some risk here to your local rights revenue. So should investors look at the range of outcomes here as simply a reduction to Nixon Rangers fees, or is there also an opportunity through this process to maybe rethink a bit your distribution structure and look at alternatives like broadcast or streaming, for instance?

Good morning, David, and thanks for the question. Our focus continues to be on maximizing value for our shareholders and maintaining our connection with our local fans. Now, obviously, there has been industry-wide pressure on local media rights, which includes, as I mentioned earlier, MSG Networks has approached us about negotiating a reduction in our rights fees. MSC Networks is a great partner of ours. Their content helps drive and grow our engagement with our local fan base. That being said, I'm not going to speculate on hypotheticals other than we continue to assess the best path forward for our business, and we remain focused on maximizing long-term value for our shareholders and maintaining that important connection we have with our local fans.

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

Morning. Thanks for taking the question. But maybe a follow up to what David just asked. If there does end up being a pause in local rights payments from an MSGN bankruptcy or you have to take a significant reduction of rights fees, can you walk us through your liquidity position to fund team operations including access to your revolvers and any other sources of capital that you may have.

Sure. Good morning, Brandon, and thank you for the question. So I guess before I get into liquidity, let me just take a step back. So if there were a reduction in our local media rights fees in the future, it's important to note that a $1 reduction in revenue doesn't translate into a $1 reduction in cash flow, as there are significant offsetting factors. So for example, our revenue sharing expense would decrease, as would our income taxes, given the company's status as a full income cash taxpayer. So it's not a one for one. But with that said, our liquidity position is strong. We ended the calendar year with over $100 million of cash on hand. In addition, we have the Nixon Rangers revolving credit facilities in place with $250 million in borrowing capacity available on the Rangers revolver. Now, in the event of a network, an MSG network bankruptcy, we would need to seek waivers from our lenders to borrow additional funds against either of the facilities. but irrespective of that we have substantial financial flexibility and are confident we'd be able to borrow funds from a number of other sources if needed thank you your next question comes from a line of ben swinburne from morgan stanley your line is open good morning um

I guess two topics. I wonder if you could help us understand how the potential of additional franchise expansion in the NBA impacts MSCS, MSC Sports P&L. In particular, you get your share of those fees, but does that go into the player payroll pot, or does that fall through to the bottom line? And then maybe to revisit a topic from a while ago, which is selling a minority stake in the teams, either of the teams which had been talked about a while ago. The NBA and NHL, I think, continue to consider and expand pools of capital that can invest in sports franchises. What's your appetite to let that happen with the teams? And any gain that you would generate, would that be something we should be thinking about as taxable? Thanks so much for all the time.

Great. Good morning, Ben. Let me start. I'll take the first part of your question regarding the expansion. So first, we're not going to comment on league matters or hypotheticals. But I think what I can say here is that any potential expansion fee is divided equally among the 30 existing NBA teams. Just by way of example, as you may recall, back in fiscal 21, when the Seattle Kraken joined the NHL, we recognized our pro rata share of that expansion fee in that fiscal year, and it basically drops right to the bottom line. However, I would note, following any potential expansion, league distributions are For example, including the revenue from our national meteorites agreements, that would be divided pro rata amongst the increased number of teams on a go-forward basis. Right.

That's a good point. And with respect to the second part of your question, Ben, we are as confident as ever in the value of our teams. They are scarce assets. They have strong business fundamentals. And we don't think that those are appropriately reflected in our current stock price. So we would never rule out the possibility of minority stake sale. But we also at this time have nothing concrete to report. And with that, I can't speculate on any tax implications of your hypothetical.

Okay. Fair enough. Thank you.

Thanks, Ben. Operator, we'll take one last caller.

Your final question comes from a line of David Joyce from Seaport Research Partners. Your line is open.

Thank you. A couple questions, please. First, on sponsorship, you touched on the experience of the Navi Jersey patch. Can you provide some more color on that arrangement and more broadly the the outlook for sponsorship going forward, given you also announced C4 Energy sponsor this morning, and what are the other areas where you can still be growing that revenue line? And then secondly, given the various puts and takes on the revenue growth and new team performance, what are your thoughts about ticket pricing for the next year? Thanks.

Sure. Good morning, David. Again, I'll take, I think, the first part of your question here around sponsorship. So while we don't discuss the specifics of any individual marketing partnership deal, we believe our overall sponsorship category is on track for a solid growth in fiscal 25. This fiscal year has been highlighted so far by a number of new deals and renewals. And as Jamal had mentioned earlier, we announced multi-year extensions with Verizon and Benjamin Moore, as well as new multi-year deal with Lenovo and its subsidiary, Motorola. So we formed a multifaceted partnership with Abu Dhabi's Department of Culture and Tourism, with Experience Abu Dhabi becoming a next global marketing partner and the official patch partner of the team. And as a global partner, Experience Abu Dhabi can also leverage the Knicks' marks outside the U.S. and Canada, expanding the team's brand presence in international markets. So as we've always said, you know, the jersey patch, we believe, is real premium inventory, and we are pleased with this deal.

And with respect to our season ticket pricing, you know, You know, those decisions are made both annually and also with a long-term view. We're factoring in how we manage our relationships with our season ticket holders, as well as our goal of maximizing long-term shareholder value. As you may recall, last season or last fiscal, coming off of two successful Knicks and Rangers seasons, we made the decision to not increase season ticket prices for our renewing holders, while at the same time, we have, and we continue to opportunistically price both our new season ticket packages, as well as our individual and group tickets. And, you know, with that, we're on track to drive modest overall ticket revenue growth this fiscal year. And then looking ahead, we still see opportunity around ticket yield and we'll continue as we do every year to reevaluate our season ticket pricing on an annual basis.

Great. Thank you very much.

And that concludes 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.