Madison Square Garden Sports Corp.

Good morning. Thank you for standing by and welcome to the Madison Square Garden Sports Corp Fiscal 2025 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. Good morning and welcome to MSG Sports Fiscal 2025 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 4 and 5 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. MSG Sports reported fiscal 2025 full-year results with revenues of more than $1 billion and adjusted operating income of $38 million. Driven by sustained consumer and corporate demand for the Knicks and Rangers, we saw increases in key in-game revenue categories, including ticketing, sponsorship, and suites. This year's results also reflect the partial year impact of our recently amended local media rights agreements with MSG Networks, as well as our investment in our teams. And as we look ahead with the company's marquee assets and strong business fundamentals, we believe we are well positioned to drive long-term value for our shareholders. Now let's discuss our operations in more detail. The Knicks capped off their season with a run to the Eastern Conference Finals which generated the highest per-game gate revenues in team history. Since then, the team has welcomed two-time NBA Coach of the Year Mike Brown. On the hockey side, the Rangers have also had a productive offseason, including naming two-time Stanley Cup winner Mike Sullivan as head coach. We are looking forward to the 25-26 seasons for both teams. Supporting the Knicks and Rangers along the way has been their loyal fans. This past regular season, both combined average ticket yield and average paid attendance were up, which helped drive growth in ticketing revenue. And for the upcoming 2025-26 seasons, the average combined season ticket renewal rate is currently at approximately 90%. I would note that While we made the decision to not raise season ticket prices for the Rangers, as the team did not qualify for the playoffs, we did raise season ticket prices for the Knicks. In addition, we will continue to optimize pricing and mix of individual and group sales to maximize revenues in the year ahead. Fan enthusiasm also translated into higher food and beverage per cap spending at the arena for fiscal 25 as compared to the prior year. In terms of merchandise, while in arena per cap spending was up modestly in fiscal 25, overall merchandise revenues, including online sales, did not reach last year's levels, which had included the positive impact of two New Jersey launches for the Rangers as compared to none in the current year. That said, we introduced several unique offerings this past season that resonated with fans, including exclusive merchandise drops, with existing partners such as New York or Nowhere and Siegelman Stable. In fact, with the team's postseason performance, in-arena, single-game Knicks merchandise sales hit new highs during the Eastern Conference Finals. Beyond the arena, the thrill of the Knicks playoff run could be felt across the city, where we hosted a number of special programs for our fans. That included numerous watch parties at various locations, including the Garden and Radio City Music Hall, as well as outdoor venues such as Central Park and the Fan Plaza outside the arena. Throughout the playoffs, we also continued our efforts to deliver compelling content on social media, which helped drive over 775,000 net new followers across the Knicks and Rangers throughout the year. The team's combined following was almost 20 million as of the end of fiscal 25. This year, we are gearing up for the Rangers' 100th anniversary season and have special offerings and initiatives planned throughout the season to celebrate the team's centennial year. This is one way we will continue to forge stronger connections with our fans in the year ahead. Turning to meteorites. As a reminder, the NBA's new national media deals with Disney, NBC Universal, and Amazon begin this upcoming season and will be reflected in our fiscal 26 results. The NHL also recently announced a new 12 year agreement with Rogers Communications for the league's Canadian national media rights, which will start with the 26-27 season. In addition, At the end of June, our local media rights partner, MSG Networks, completed a restructuring of its credit facilities. As part of that restructuring, the NICs and Rangers amended their respective local media rights agreements, which reflects ongoing changes across the RSN landscape. Those amendments included 28% and 18% reductions in annual rights fees payable to the NICs and Rangers, respectively. effective January 1st, 2025, along with an elimination of annual rights fee escalators. They also include a shortening of the contract expirations to the end of the 2028-29 seasons. Turning to marketing partnerships. This past year, we welcomed several new marketing partners. That included Abu Dhabi's Department of Culture and Tourism, and its experienced Abu Dhabi brand as the official patch partner of the NYX, as well as Lenovo and its subsidiary, Motorola. In addition, we reached multi-year renewals with Verizon, Pepsi, and Benjamin Moore. As we look to fiscal 26, we believe we are well positioned to drive growth in this area of our business. In terms of our premium hospitality business, we saw another year of record suite revenues in fiscal 25. We benefited from the expanded event level club space, as well as a number of event and Lexus level suites that were renovated ahead of the seasons. On the heels of this successful initiative, several more suites are in the process of being renovated, which we believe will again drive incremental revenue for our business in fiscal 26. So in summary, we are pleased with how our business has performed this past fiscal year. And with recently announced franchise transactions at record level valuations across the professional sports landscape, we remain as confident as ever in the value of owning two iconic sports franchises. With that, I'll now turn the call over to Victoria.

Thank you, Jamal. And good morning, everyone. For fiscal 25, we generated total revenues of $1.04 billion and adjusted operating income of $38.2 million. Our results for the fiscal 25 fourth quarter reflected strong consumer and corporate demand for our teams as they completed their 24-25 regular seasons, followed by an extended playoff appearance from the Knicks. Our results also reflected a combined one fewer Knicks and Rangers regular season home game and six fewer playoff home games in our fourth quarter as compared to the prior year period. As a result, total revenues for the quarter were $204 million as compared to $227.3 million in the prior year period. Event-related revenues of $140.3 million which mainly consists of ticket, food, beverage, and merchandise revenues, inclusive of the playoffs, decreased 8% year over year. Suites, sponsorship, and signage revenues, also inclusive of the playoffs, with $31.9 million, a decrease of 8% year over year. In addition, national and local media rights fees of $27.8 million decreased 2% which included the impact of our amended local media rights agreements with MSG Networks. Adjusted operating income decreased $73.3 million to an adjusted operating loss of $16.8 million, primarily due to higher direct operating expenses and to a lesser extent, the decrease in revenues. AOI for our fiscal 25 fourth quarter includes $2.1 million of non-cash ARENA operating lease costs as compared to $2.4 million in the prior year period. The increase in direct operating expenses primarily reflected higher net provisions for certain team personnel transactions, higher team personnel compensation and corresponding luxury tax, as well as higher revenue sharing expenses net of escrow. These increases were partially offset by lower playoff related expenses, as well as other cost decreases. As we look ahead, we believe our business is poised to deliver revenue growth across all in arena categories in fiscal 26. In addition, our results will reflect the impact of the NDA's new national media rights deals, a full year of our amended local media rights agreements, as well as our continued investment in our teams. Turning to our balance sheet. At the end of the quarter, our cash balance was approximately $145 million and our debt balance was $291 million. This was comprised of $267 million under the NICS Senior Secured Revolving Credit Facility and $24 million advanced from the NHL. So, in summary, we are pleased with the strong demand we continue to see for our teams and remain confident in our ability to drive long-term value for our shareholders. I will now turn the call back over to Ari.

Operator, can we now open the line for questions?

Certainly. 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 today comes from the line of Brandon Ross from Light Shed Partners. Your line is open.

Good morning. Thanks for taking the questions. Two for me. First, with the rework of the MSG Network's media rights, just wanted to see if that'll mean anything for capital returns going forward. And then secondly, you alluded in the prepares, but last week the Bears sold a minority stake, I think, at an A-plus billion valuation and your closest comp, the Lakers, sold for $10 billion. And wondering if now it makes sense for MSGS to look to sell some small minority stakes in the Knicks or the Rangers. Thank you.

Hi, Brandon. Thanks for the questions. I think I'll start. I'll take the capital returns and then maybe pass it over to Jamal on the the second part of your question. So first let me start by saying that we believe our liquidity position is strong. We ended the fiscal year with approximately 145 million in cash on hand. I would note that we have a number of scheduled payments in the first quarter, including payroll and luxury tax. So that will all be reflected in our cash balance at September 30th. You know, but in addition to our cash on hand, We have the Nixon Rangers revolving credit facilities in place with $250 million in borrowing capacity, you know, currently available on the Rangers revolver. So we believe we have substantial financial flexibility. You know, in terms of capital allocation, our long-term priorities remain the same. You know, the first is to maintain appropriate liquidity to fund our operations and invest in our core business. And second, we want to make sure we have a strong balance sheet. And third, we plan to be opportunistic about other uses of our cash. Yeah, so right now we do have greater clarity. We can make our near-term capital allocation decisions, you know, with the amendments to our local media rights agreements being completed. You know, but we wouldn't rule out a return of a capital program in the future.

Hey, Brendan. Great.

I can respond to you, Chris, and as I mentioned earlier, we remain as confident as ever in the value of our teams, but the should answer is we don't have anything to report. You know, you mentioned the two recent transactions, but it's not just those two. There have been several other recent transactions, both rumored, early stage, recently finalized, that demonstrate that these are scarce, valuable assets. And in the case of MSG Sports, we don't think that that value is appropriately reflected in our current stock price. We just don't. We would never rule out the possibility of a minority stake sale. But as I said, we also have nothing to report at this time.

Thank you.

Your next question comes from a line of Peter Cipino from Wolf Research. Your line is open.

Hello, good morning. A question about the NBA's current looking for a national RSN possibility, one that might include several different or many teams. We're wondering if you'd be open to participating in something like this once your deal with MSG Networks expires Or how else do you see the RSN business evolving over the long term?

Good morning, Peter. And thanks for that question. You know, media rights are certainly a complex ecosystem. And while we aren't going to comment on hypotheticals, we continue to monitor the changes. And those changes are impacting both national and local rights. With respect to national rights, The NBA's new national media deals are scheduled to begin this upcoming season. And then on the hockey side, the NHL's Canadian media deals run through the 25-26 season. And they also recently announced the new 12-year agreement starting thereafter. And then their U.S. national media deals run through the 27-28 season. And then there are the local rights, which includes regional sports networks. And the RSN industry just continues to evolve. That said, we continue to believe that local media coverage is a valuable part of our ecosystem in that RSNs drive enhanced fan engagement through content that is tailored for local markets. And in our case, we are a rights holder for two marquee sports franchises. So from that standpoint, we will continue to monitor the changes, but from that position as a rights holder for two marquee sports franchises.

All right, thank you. And then a second question, if I may. There are some scheduled changes to the tax deductibility of compensation for 2027. Could you help us think about that for earnings purposes question?

Yeah, hi, Peter. You know, so we're assessing the impact of these changes in tax regulations. You know, just to be clear, for our company, you know, those changes would become effective for our year ended June 30th, 2028. So at this time, you know, we just have nothing further to share on that front.

All right, thank you.

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

Thank you. A little bit more on the rights front, please. Could you remind us of the net financial impact of the national deal versus the local deal in terms of the cadence of how the NBA revenues would be reflecting throughout the year? and what is changing in the availability of games on either of those platforms. And then if you could also delve in some more to the impact of the Knicks playoffs games from a financial perspective. Thanks.

Sure. Hi, David. Yeah, so taking a step back, as you know, all NBA teams share equally in national media rights fees. And at the league level, players receive about 50% of the league-wide revenues, including from the national media rights fees. So starting with the upcoming season, the NBA will see a step up in the average annual value for its national media rights, as well as increased escalators thereafter. So in turn, we will see an increase in our national media rights revenue. Now fiscal 26 will also reflect the full run rate impact of lower local meteorites fees or about a $24 million decrease in our contractual fees year over year. However, you know, even taking into account local, you know, lower local meteorites, we still expect an increase in our overall meteorites revenue in fiscal 26. And I would note, right, that our local rights agreements include thresholds around the number of live game telecasts to be exclusively provided to MSG networks, such as a minimum number of total regular season games. So if certain of those thresholds aren't met as a result of the new NBA national deals, our local rights agreements would provide for a further reduction in our local media rights fees.

And then I will, HAPPILY TALK ABOUT THE PLAYOFFS. I MEAN, MY GOSH, WHAT A THRILL RIDE THAT WAS FOR THIS ENTIRE CITY. I MEAN, WOW. AND WHAT A RUN LIKE THAT DOES IS IT RESULTS IN SEVERAL BENEFITS TO OUR BUSINESS. FROM A TICKETING STANDPOINT, A PLAYOFF RUN 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 average combined renewal rate for season ticket packages is already approximately 90%, and that reflects next season ticket price increases given the team's strong performance. From a fan engagement standpoint, it also drives new fans. I mentioned the 775,000 net new social media followers that we added in fiscal 25. Of those new followers, almost half were added during that playoff run. And then that increased demand also extends to the corporate side of our business, which allows us to sell more premium hospitality and more marketing partnerships. So we are already seeing the momentum from the playoffs carry forward as we approach next season. I'll let Victoria talk about the financial impact in a little bit more detail.

Let me provide a little bit more color here. So the playoffs result in significant incremental business for our company, depending on the length of the playoff run, as you can see in our results today. So in general, playoff tickets are priced at a premium to regular season games and increase each round. And as noted earlier, the Knicks Eastern Conference Finals run generated the highest per game gain in team history. And food and beverage and merchandise per cap spending typically runs above regular season averages. So this past quarter, we hosted nine playoff games at the Garden as compared to 15 last year. And as a result, our playoff related revenues for the fourth quarter were $115.2 million. as compared to $128 million in the prior year period. This translates to about $12.8 million in average per-game revenues. In addition, there were approximately $5.8 million in average per-game direct operating expenses, as well as we incur some additional marketing and administrative costs in connection with the overall playoff participation. You know, but as Jamal mentioned, you know, we expect to see the positive impact of the playoffs this past season across our entire business in fiscal 26.

Great. Thank you very much.

Your final question today comes from a line of Joseph Stoff from Susquehanna. Your line is open.

Thank you. Good morning. Wondering if you could talk about, you know, your OpEx outlook, and upcoming season in particular how to think about team comp and other relevant inputs and then for my second question you know kind of given the success of the season last year jamal you had mentioned a number of the sponsorship renewals and relationships that you have you know what's the right way to think about sponsorship growth uh in the upcoming season please

Hi, Joe. So regarding operating expenses, so while we're not providing specific guidance, we expect our results for fiscal 26 to reflect those higher team operating expenses. And that's going to include higher team personnel compensation and luxury tax with the next current roster above the threshold. Now, as you may know, the NBA salary cap increased from $140.6 million for under the $54.6 million for the 25-26 season. And the NHL salary cap increased from $88 million to $95.5 million. In addition, the NBA luxury tax threshold for the 25-26 season, it increased to $187.9 million, which is up from $170.8 million this past season, which is measured by the roster at the end of the season. But I'd also remind you that in fiscal 25, our results included expenses for certain team personnel transactions, so we would also expect, you know, that to impact our year-over-year comparison in fiscal 26.

Good morning, Joan. Thanks for the question. we're seeing good momentum in marketing partnerships. And that's following a year of growth in fiscal 25. Just to look back once more on fiscal 25, you know, I mentioned the multi-year extensions with Verizon and Benjamin Moore and the new multi-year deal with Lenovo and subsidiary Motorola and the partnership with Abu Dhabi's Department of Culture and Tourism and Experience Abu Dhabi becoming a global marketing partner and the official patch partner of the next. So as we sit here today and, you know, coming off that extended next playoff run, which, as we discussed earlier, will allow us to sell more marketing partnerships and to capitalize on a number of opportunities, including renewals and premium available inventory. So when you take all that and as we look ahead to fiscal 26, While, as Victoria mentioned, we are not providing specific guidance, we believe we are well positioned to drive another year of growth in fiscal 26.

If I could have a quick follow-up, like prior to the season or right before the season, is there a way to think about how much, you know, of those, you know, larger sponsorship deals are locked in? You know, one would think most of it, but I was just curious to think about, you know, what that actual percentage is.

Yeah, sure, as a follow-up there. Yeah, I mean, we have a number of multi-year deals, and, you know, this is how we like to position ourselves with our marketing partners is to always have sort of a continuing pipeline of deals partners under contract, and then, you know, new partnership opportunities that we can pursue.

Got it. Thanks a lot.

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.