Sphere Entertainment (SPHR) - 2025 Q4 - Annual Report

PART I. FINANCIAL INFORMATION This section provides Sphere Entertainment Co.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2025 Item 1. Financial Statements This section presents Sphere Entertainment Co.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets The balance sheets show decreased total assets and current liabilities, increased total stockholders' equity, and a shift from current to non-current long-term debt | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total assets | $4,199,061 | $4,515,300 | $(316,239) | | Total liabilities | $1,885,374 | $2,313,881 | $(428,507) | | Total stockholders' equity | $2,313,687 | $2,201,419 | $112,268 | | Current portion of long-term debt, net | $58,799 | $829,125 | $(770,326) | | Long-term debt, net | $830,535 | $524,010 | $306,525 | Condensed Consolidated Statements of Operations The company achieved net income for the three and six months ended June 30, 2025, driven by a debt extinguishment gain, despite mixed revenue performance | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $282,677 | $273,395 | $563,251 | $594,725 | | Operating loss | $(50,159) | $(71,377) | $(128,768) | $(111,770) | | Gain on extinguishment of debt | $346,092 | — | $346,092 | — | | Net income (loss) | $151,816 | $(46,586) | $69,862 | $(93,826) | | Basic income (loss) per common share | $4.18 | $(1.31) | $1.93 | $(2.64) | | Diluted income (loss) per common share | $3.39 | $(1.31) | $1.56 | $(2.64) | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income significantly improved for the three and six months ended June 30, 2025, due to net income and positive cumulative translation adjustments | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $151,816 | $(46,586) | $69,862 | $(93,826) | | Other comprehensive income (loss), net of income taxes | $5,489 | $407 | $7,474 | $(253) | | Comprehensive income (loss) | $157,305 | $(46,179) | $77,336 | $(94,079) | Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash for the six months ended June 30, 2025, primarily from debt repayments and operating activities, partially offset by investing activities | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(52,711) | $28,570 | | Net cash provided by (used in) investing activities | $16,441 | $(46,156) | | Net cash used in financing activities | $(111,059) | $(36,242) | | Net decrease in cash, cash equivalents, and restricted cash | $(146,706) | $(54,604) | | Cash, cash equivalents, and restricted cash at end of period | $368,927 | $573,223 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from December 31, 2024, to June 30, 2025, due to net income and other comprehensive income | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :------------------ | :-------------- | | Total Equity | $2,201,419 | $2,313,687 | | Net income (loss) for the period | $(81,954) (Q1 2025) / $151,816 (Q2 2025) | N/A | | Share-based compensation | $21,921 (Q1 2025) / $19,070 (Q2 2025) | N/A | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on business operations, accounting policies, financial performance, and subsequent events supporting the consolidated financial statements Note 1. Description of Business and Basis of Presentation Sphere Entertainment Co. operates two segments: Sphere (live entertainment) and MSG Networks (regional sports media), with financial statements prepared under GAAP - Sphere Entertainment Co. is comprised of two reportable segments: Sphere (next-generation entertainment medium) and MSG Networks (regional sports and entertainment networks, including DTC streaming)[23] - The first Sphere venue opened in Las Vegas in September 2023, offering immersive productions, concerts, and corporate events, with plans underway for a second Sphere in Abu Dhabi, UAE, announced in October 2024[24] - MSG Networks serves the New York designated market area, broadcasting live local games for NBA (Knicks) and NHL (Rangers, Islanders, Devils, Sabres), and NFL (Giants, Bills)[24] Note 2. Accounting Policies This note details the company's accounting policies, including consolidation principles, use of estimates, and the impact of new and adopted accounting pronouncements - The company's condensed consolidated financial statements include Sphere Entertainment Co. and its subsidiaries, with all significant intercompany transactions eliminated[31] - Management uses estimates for items such as credit losses, valuation of investments, goodwill, intangible assets, deferred production content, deferred tax assets, and pension obligations[32] - Recently issued ASUs include 2024-03 (Disaggregation of Income Statement Expenses, effective Dec 31, 2027), 2024-04 (Induced Conversions of Convertible Debt Instruments, effective Dec 31, 2026), and 2025-05 (Measurement of Credit Losses for Accounts Receivable and Contract Assets, effective Q1 2026)[34][35][36] - Recently adopted ASUs include 2023-07 (Improvements to Reportable Segment Disclosures, effective Dec 31, 2024) and 2023-09 (Improvements to Income Tax Disclosures, effective Dec 31, 2025)[37][38] Note 3. Revenue Recognition This note outlines revenue recognition policies and disaggregates revenue by source and segment, distinguishing between event-related and media-related revenues | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sphere | $175,587 | $151,217 | $333,132 | $321,581 | | MSG Networks | $107,090 | $122,178 | $230,119 | $273,144 | | Total Revenues | $282,677 | $273,395 | $563,251 | $594,725 | | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ticketing and venue license fee revenues | $124,640 | $104,973 | $237,618 | $215,628 | | Sponsorship, signage, Exosphere advertising, and suite license revenues | $22,624 | $20,356 | $46,798 | $60,867 | | Food, beverage, and merchandise revenues | $27,884 | $25,074 | $47,773 | $43,549 | | Media networks revenues | $107,090 | $122,178 | $230,119 | $273,144 | | Total revenues from contracts with customers | $282,238 | $272,581 | $562,308 | $593,188 | - As of June 30, 2025, remaining performance obligations were $208,881 thousand, of which 66% is expected to be recognized over the next two years and 34% thereafter, primarily from sponsorship agreements[50] Note 4. Restructuring Charges The company incurred restructuring charges for employee termination benefits in the Sphere segment, leading to a decrease in the restructuring liability | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended June 30, | $947 | $141 | | Six Months Ended June 30, | $2,788 | $4,808 | | Metric | Amount | | :-------------------------- | :----- | | Balance as of December 31, 2024 | $3,590 | | Restructuring charges | $2,788 | | Payments | $(4,115) | | Balance as of June 30, 2025 | $2,263 | Note 5. Investments The company's investments, primarily equity method holdings, increased slightly, with recognized unrealized gains on other equity investments | Investment | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------- | :-------------- | :---------------- | | SACO Technologies Inc. (30% ownership) | $19,151 | $18,095 | | Gotham Advanced Media and Entertainment, LLC (50% ownership) | $9,718 | $10,000 | | Equity investments without readily determinable fair values | $8,721 | $8,721 | | Other equity investments with readily determinable fair values | $3,721 | $3,580 | | Total investments | $41,311 | $40,396 | - The Company recognized unrealized gains on equity investments of $219 thousand (three months) and $240 thousand (six months) for the period ended June 30, 2025[53] Note 6. Property and Equipment, net Net property and equipment decreased due to depreciation and a pre-tax loss from the sale of land in Stratford, London | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Total property and equipment, gross | $3,508,527 | $3,528,414 | | Less accumulated depreciation and amortization | $(656,549) | $(492,684) | | Property and equipment, net | $2,851,978 | $3,035,730 | - The Company completed the sale of its land in Stratford, London, for $48,757 thousand, recognizing a pre-tax loss of $3,741 thousand[57] | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended June 30, | $82,251 | $80,885 | | Six Months Ended June 30, | $164,880 | $159,973 | Note 7. Original Immersive Production Content Deferred production content costs for original immersive productions significantly increased, particularly for in-process content, with amortization reported in direct operating expenses | Production Content | June 30, 2025 | December 31, 2024 | | :------------------- | :-------------- | :---------------- | | Released, less amortization | $39,880 | $52,782 | | In-process | $114,979 | $49,837 | | Total production content | $154,859 | $102,619 | | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended June 30, | $5,845 | $7,093 | | Six Months Ended June 30, | $13,089 | $14,882 | Note 8. Goodwill and Intangible Assets Goodwill remained stable after a $61.2 million impairment charge for MSG Networks, while amortizable intangible assets slightly decreased | Segment | June 30, 2025 | December 31, 2024 | | :---------- | :-------------- | :---------------- | | Sphere | $46,864 | $46,864 | | MSG Networks | $363,308 | $363,308 | | Total Goodwill | $410,172 | $410,172 | - A non-cash goodwill impairment charge of $61.2 million was recorded for the MSG Networks segment as of December 31, 2024, following an interim impairment test triggered by the expiration of an affiliation agreement with Altice[62] | Intangible Asset | June 30, 2025 | December 31, 2024 | | :----------------- | :-------------- | :---------------- | | Affiliate relationships | $11,680 | $13,238 | | Technology | $11,889 | $13,440 | | Trade name | $1,560 | $1,705 | | Total | $25,129 | $28,383 | Note 9. Commitments and Contingencies The company has significant broadcast rights commitments and settled Networks Merger litigations, with an ongoing insurance coverage dispute for one settlement | Segment | 2025 (Remainder) | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | | :---------------------- | :--------------- | :----- | :----- | :----- | :----- | :--------- | :------ | | Sphere | $23,890 | $20,103 | $15,333 | $— | $— | $— | $59,326 | | MSG Networks | $114,918 | $219,363 | $225,092 | $204,742 | $113,008 | $39,393 | $916,516 | | Total Commitments | $138,808 | $239,466 | $240,425 | $204,742 | $113,008 | $39,393 | $975,842 | - The MSG Entertainment Litigation was settled for approximately $85 million, paid to the Company by insurers[69] - The MSG Networks Litigation settled for approximately $48.5 million, with $28 million paid by the Company and $20.5 million by insurers, with an ongoing dispute over remaining insurance coverage[71] Note 10. Credit Facilities and Convertible Notes This note details the company's debt structure, including the MSG Networks debt restructuring that yielded a $346.092 million gain, and terms for other credit facilities and convertible notes - On June 27, 2025, MSG Networks' prior credit facilities were replaced with a new $210 million MSGN Term Loan Facility, maturing December 31, 2029, following a troubled debt restructuring[79] - The troubled debt restructuring resulted in a gain on extinguishment of debt of $346.092 million[93] - The MSGN Term Loan Facility requires fixed amortization of $10 million per quarter starting September 30, 2025, and mandatory prepayments from excess cash sweep[84] - The LV Sphere Term Loan Facility is a $275 million senior secured term loan maturing December 22, 2027, with principal due at maturity and no prior amortization payments[94][96] - The Company has $258.750 million in 3.50% Convertible Senior Notes due 2028[101] | Year | MSGN Term Loan Facility | LV Sphere Term Loan Facility | 3.50% Convertible Senior Notes | Total Debt | | :--------- | :---------------------- | :--------------------------- | :----------------------------- | :--------- | | 2025 (rem) | $20,000 | $— | $— | $20,000 | | 2026 | $40,000 | $— | $— | $40,000 | | 2027 | $40,000 | $275,000 | $— | $315,000 | | 2028 | $40,000 | $— | $258,750 | $298,750 | | 2029 | $70,000 | $— | $— | $70,000 | | Thereafter | $— | $— | $— | $— | | Total debt | $210,000 | $275,000 | $258,750 | $743,750 | | Liability | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Fair Value | | :-------------------------------- | :----------------------------- | :------------------------- | :------------------------------- | :------------------------- | | MSG Networks term loan facility | $363,970 | $168,000 | $829,125 | $335,796 | | LV Sphere Term Loan Facility | $275,000 | $270,875 | $275,000 | $273,625 | | 3.50% Convertible Senior Notes | $253,863 | $363,984 | $253,155 | $353,246 | | Total debt | $892,833 | $802,859 | $1,357,280 | $962,667 | Note 11. Pension Plans and Other Postretirement Benefit Plan The company sponsors various pension and postretirement plans, with net periodic benefit costs for pension plans and increased expenses for defined contribution plans - The Company sponsors both funded and unfunded, qualified and non-qualified pension plans (Networks Plans, Sphere Excess Plan) and a postretirement benefit plan[108] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net periodic benefit cost (Pension Plans) | $389 | $475 | $778 | $851 | | Net periodic benefit cost (Postretirement Plan) | $28 | $69 | $56 | $74 | | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended June 30, | $2,417 | $1,420 | | Six Months Ended June 30, | $4,012 | $3,163 | Note 12. Share-based Compensation Share-based compensation expense increased, with $91.391 million in unrecognized compensation cost for unvested awards to be recognized over 2.1 years | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended June 30, | $19,497 | $13,263 | | Six Months Ended June 30, | $40,918 | $30,427 | - As of June 30, 2025, there was $91.391 million of unrecognized compensation cost related to unvested RSUs, PSUs, stock options, and SARs, with a weighted-average recognition period of approximately 2.1 years[119] - For the six months ended June 30, 2025, approximately 465 RSUs, 368 PSUs, and 1,685 stock options were granted[122][123][125] Note 13. Stockholders' Equity The company has no outstanding preferred stock, a re-authorized $350 million share repurchase program with no activity, and significantly improved accumulated other comprehensive loss - The Company is authorized to issue 15,000 shares of preferred stock, but none were outstanding as of June 30, 2025[126] - A share repurchase program for up to $350 million of Class A Common Stock was re-authorized on March 29, 2023, but no shares have been repurchased to date[127] | Metric | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :------------------ | :-------------- | | Balance of Accumulated Other Comprehensive Loss | $(7,508) | $(34) | | Other comprehensive income (loss), total (Q2 2025) | $5,489 | N/A | | Other comprehensive income (loss), total (YTD 2025) | $7,474 | N/A | Note 14. Related Party Transactions The Dolan Family Group controls the company, with significant related party transactions including amended MSG Networks media rights and issued penny warrants to MSG Sports - The Dolan Family Group beneficially owns 100% of Class B Common Stock and approximately 6.0% of Class A Common Stock, representing about 71.8% of aggregate voting power[133] - MSG Networks' media rights agreements with New York Knicks, LLC and New York Rangers, LLC were amended on June 27, 2025, to reduce annual rights fees by 28% and 18% respectively, eliminate escalators, and shorten terms to expire after the 2028-29 seasons[135][188] - MSG Networks issued penny warrants to MSG Sports, exercisable for 19.9% of MSG Networks' common stock, with an estimated fair value of $0 at inception[136] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $1,202 | $323 | $2,486 | $1,538 | | Total operating expenses, net | $(44,800) | $(75,619) | $(111,718) | $(154,182) | | - Media fees | $(24,181) | $(42,845) | $(69,124) | $(86,792) | | - Corporate G&A (MSG Ent. Agreement) | $(17,188) | $(27,355) | $(34,522) | $(54,849) | Note 15. Segment Information The company's two reportable segments, Sphere and MSG Networks, are evaluated by Adjusted Operating Income, with detailed financial results and reconciliation provided - The company's two reportable segments are Sphere and MSG Networks, with performance evaluated using Adjusted Operating Income (AOI)[140][141] | Period | 2025 | 2024 | Change | | :------------------------------------ | :----- | :----- | :----- | | Three Months Ended June 30, | $61,466 | $25,657 | $35,809 | | Six Months Ended June 30, | $97,434 | $87,178 | $10,256 | | Period | 2025 | 2024 | Change | | :------------------------------------ | :----- | :----- | :----- | | Three Months Ended June 30, | $24,949 | $(5,473) | $30,422 | | Six Months Ended June 30, | $38,096 | $7,436 | $30,660 | | Period | 2025 | 2024 | Change | | :------------------------------------ | :----- | :----- | :----- | | Three Months Ended June 30, | $36,517 | $31,130 | $5,387 | | Six Months Ended June 30, | $59,338 | $79,742 | $(20,404) | | Customer | Accounts Receivable (June 30, 2025) | Accounts Receivable (Dec 31, 2024) | Revenues (Q2 2025) | Revenues (Q2 2024) | Revenues (YTD 2025) | Revenues (YTD 2024) | | :--------- | :---------------------------------- | :--------------------------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Customer A | 13% | 14% | N/A | N/A | N/A | N/A | | Customer B | 12% | 14% | N/A | N/A | N/A | N/A | | Customer C | 10% | 10% | N/A | N/A | N/A | N/A | | Customer 1 | N/A | N/A | 11% | 12% | 11% | 11% | | Customer 2 | N/A | N/A | 9% | 12% | 6% | 12% | | Customer 3 | N/A | N/A | 8% | 9% | 8% | 9% | Note 16. Additional Financial Information This note summarizes cash, prepaid expenses, accrued liabilities, and income tax payments, providing additional financial details | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Cash and cash equivalents | $355,661 | $501,954 | | Restricted cash | $13,266 | $13,679 | | Total cash, cash equivalents and restricted cash | $368,927 | $515,633 | | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Accrued payroll and employee related liabilities | $41,058 | $42,892 | | Cash due to promoters | $94,827 | $109,078 | | Capital expenditure accruals | $131,930 | $142,989 | | Accrued legal fees | $25,683 | $22,046 | | Other accrued expenses | $53,427 | $71,365 | | Total Accrued expenses and other current liabilities | $346,925 | $388,370 | - Income tax payments, net of refunds, for the six months ended June 30, 2025, were $1,939 thousand, compared to $(140) thousand in the prior year[159] Note 17. Subsequent Events Post-period, Sphere Entertainment Group finalized agreements with DCT Abu Dhabi for Sphere Abu Dhabi, securing franchise rights, technology licenses, and future royalties - On July 25, 2025, Sphere Entertainment Group and DCT Abu Dhabi finalized agreements for Sphere Abu Dhabi, granting DCT Abu Dhabi exclusive rights to build and operate the venue and additional Spheres in the MENA region[160][161] - Sphere Entertainment Group will receive a franchise initiation fee (partially paid, with installments tied to milestones) and royalties based on Sphere Abu Dhabi's total revenues and ticket sales for licensed content, plus fees for pre-construction and construction services[163][164] - The Franchise Agreement has an initial term of 25 years from opening, with two 10-year renewal options[163] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Sphere Entertainment Co.'s financial condition and results for the three and six months ended June 30, 2025, covering business, recent developments, performance, liquidity, and accounting estimates Introduction This MD&A introduction supplements financial statements, discusses forward-looking statements and risks, and outlines the company's primary business activities - The MD&A contains forward-looking statements regarding future operating and financial performance, including the success of Sphere, development of immersive productions, plans for Sphere Abu Dhabi, debt financing, and MSG Networks subscriber trends[165] - Investors are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, which are detailed in the 'Risk Factors' section[165][167] Business Overview Sphere Entertainment Co. operates two segments: Sphere, a next-generation entertainment medium, and MSG Networks, a regional sports and entertainment network - Sphere segment focuses on multi-sensory experiences at its Las Vegas venue, hosting immersive productions, concerts, and corporate events, supported by Sphere Studios, with a second Sphere planned for Abu Dhabi[171] - MSG Networks segment includes MSG Network and MSG Sportsnet, providing exclusive live local games and programming for major New York-area sports teams (Knicks, Rangers, Islanders, Devils, Sabres, Giants, Bills), along with the MSG+ streaming service[172][175] Factors Affecting Operating Results Operating results are influenced by Sphere's audience and event attraction, MSG Networks' subscriber trends and media rights, and broader economic conditions - Sphere segment's operating results are dependent on attracting audiences to The Sphere Experience, advertisers, marketing partners, and guests/artists for events[178] - MSG Networks' operating results are influenced by affiliation agreements with distributors, subscriber numbers, media rights agreements, debt service payments, the success of MSG+ streaming, and advertising rates[178] - General economic conditions, especially in Las Vegas and New York City, can impact tourism, demand for entertainment, advertising, sponsorship, and concession sales, potentially affecting the number of events and immersive productions[179] Recent Developments Recent developments include MSG Networks' debt restructuring with reduced media rights fees and finalized agreements for Sphere Abu Dhabi, securing franchise fees and royalties MSG Networks Debt Restructuring MSG Networks completed a debt restructuring on June 27, 2025, establishing a new $210 million term loan, involving a capital contribution, cash payment, and amended media rights agreements - MSG Networks' debt was restructured on June 27, 2025, replacing prior facilities with a $210 million MSGN Term Loan Facility maturing December 31, 2029[182] - The Company made a $15 million capital contribution to MSG Networks, and MSGN L.P. made an $80 million cash payment to lenders[183] - Media rights agreements with the New York Knicks and New York Rangers were amended, reducing annual rights fees by 28% and 18% respectively, eliminating escalators, and setting new expiration dates after the 2028-29 seasons[185][188] - MSG Networks issued penny warrants to MSG Sports, exercisable for 19.9% of MSG Networks' common stock[186] Sphere Abu Dhabi Sphere Entertainment Group finalized agreements with DCT Abu Dhabi for Sphere Abu Dhabi, granting exclusive rights for development and operation in exchange for franchise fees and royalties - On July 25, 2025, Sphere Entertainment Group and DCT Abu Dhabi finalized agreements for Sphere Abu Dhabi, granting DCT Abu Dhabi exclusive rights to build and operate the venue and additional Spheres in the MENA region[187][189] - Sphere Entertainment Group will receive a franchise initiation fee (partially paid, with installments tied to milestones) and annual royalties based on Sphere Abu Dhabi's total revenues and ticket sales for licensed content, plus fees for pre-construction and construction services[191][192] - The Franchise Agreement has an initial term of 25 years from opening, with two 10-year renewal options[191] Other Matters The "One Big Beautiful Bill Act" was signed into law on July 4, 2025, and the company is evaluating its impact on financial statements - The 'One Big Beautiful Bill Act' (OBBBA) was signed into law on July 4, 2025, introducing tax reform provisions[193] - The Company is currently evaluating the impact of OBBBA's tax reform provisions on its consolidated financial statements[193] Condensed Consolidated Results of Operations The company reported net income for the three and six months ended June 30, 2025, driven by a $346.092 million debt extinguishment gain, despite mixed revenue and operating loss trends | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $282,677 | $273,395 | $563,251 | $594,725 | | Direct operating expenses | $(131,318) | $(149,519) | $(289,641) | $(303,559) | | Selling, general, and administrative expenses | $(113,023) | $(107,040) | $(227,292) | $(230,189) | | Operating loss | $(50,159) | $(71,377) | $(128,768) | $(111,770) | | Gain on extinguishment of debt | $346,092 | — | $346,092 | — | | Net income (loss) | $151,816 | $(46,586) | $69,862 | $(93,826) | | Adjusted operating income | $61,466 | $25,657 | $97,434 | $87,178 | - The $346.092 million gain on extinguishment of debt for the three and six months ended June 30, 2025, was a primary driver of the net income turnaround[201] - Interest income decreased by $3,645 thousand (Q2) and $7,421 thousand (YTD) due to lower average cash balances, while interest expense decreased by $1,059 thousand (Q2) and $1,972 thousand (YTD) due to a reduction in the average outstanding principal balance of the MSGN Term Loan Facility[202][203] - Income tax expense for the six months ended June 30, 2025, was $101,616 thousand (59% effective rate), significantly impacted by cancellation of debt income (CODI) excluded from taxable income under insolvency provisions[206][207] Business Segment Results This section analyzes Sphere and MSG Networks segment performance, highlighting Sphere's revenue growth and improved operating income, and MSG Networks' revenue declines despite reduced media rights expenses Sphere Segment Sphere segment revenues increased due to more concerts and corporate events, improving operating loss and adjusted operating income, despite lower Sphere Experience revenues | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $175,587 | $151,217 | $333,132 | $321,581 | | Direct operating expenses | $(76,351) | $(67,870) | $(146,887) | $(130,164) | | Selling, general, and administrative expenses | $(96,389) | $(102,109) | $(192,793) | $(211,085) | | Operating loss | $(83,448) | $(104,530) | $(177,210) | $(188,028) | | Adjusted operating income (loss) | $24,949 | $(5,473) | $38,096 | $7,436 | - Event-related revenues increased due to 9 (Q2) and 19 (YTD) additional concert residency shows and higher corporate events at Sphere in Las Vegas[217] - Revenues for The Sphere Experience decreased due to lower average per-show revenues ($315k/performance Q2 2025 vs $358k/performance Q2 2024) and fewer overall performances for the six-month period[220][221] - Direct operating expenses increased due to higher event-related expenses and the impact of consolidating Holoplot after its acquisition in April 2024[222][224] - Selling, general, and administrative expenses decreased due to lower employee compensation and professional fees[228][229] MSG Networks Segment MSG Networks segment revenues decreased due to subscriber losses and the Altice non-carriage period, despite significant reductions in media rights fees, while SG&A expenses increased | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $107,090 | $122,178 | $230,119 | $273,144 | | Direct operating expenses | $(54,967) | $(81,649) | $(142,754) | $(173,395) | | Selling, general, and administrative expenses | $(16,634) | $(4,931) | $(34,499) | $(19,104) | | Operating income | $33,289 | $33,153 | $48,442 | $76,258 | | Adjusted operating income | $36,517 | $31,130 | $59,338 | $79,742 | - Distribution revenue decreased primarily due to a 13.0% (Q2) and 12.5% (YTD) decrease in total subscribers (excluding Altice non-carriage period) and the absence of Altice revenues during its non-carriage period (Jan 1 - Feb 21, 2025)[241] - Advertising revenue decreased due to a lower number of live regular season and postseason professional sports telecasts[242] - Direct operating expenses decreased significantly due to reductions in media rights fees for certain professional sports teams, including retroactive adjustments, following the June 27, 2025, credit facilities restructuring[243] - Selling, general, and administrative expenses increased due to higher advertising and marketing costs and increased professional fees, partly due to the absence of litigation-related insurance recoveries in the prior year[244] Liquidity and Capital Resources The company's liquidity relies on cash and operating cash flows, used for working capital, capital spending, and debt service, with future liquidity dependent on Sphere's cash flow generation - Primary liquidity sources are cash and cash equivalents and cash flows from operations, with uses including working capital, capital spending (e.g., Sphere content), and debt service[249] - As of June 30, 2025, unrestricted cash and cash equivalents were $355.661 million, down from $501.954 million at December 31, 2024[250][157] - Cash usage for the period included $105 million in principal payments and $52.711 million net cash used in operating activities[250] - The company's liquidity is highly dependent on Sphere generating significant positive cash flow, which is uncertain given the novel nature of its immersive productions[251][320] - The company has a $350 million share repurchase program authorized, but no shares have been repurchased to date[253] - Sphere Entertainment Group finalized agreements for Sphere Abu Dhabi on July 25, 2025, which will provide franchise initiation fees and future royalties[255] | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(52,711) | $28,570 | | Net cash provided by (used in) investing activities | $16,441 | $(46,156) | | Net cash used in financing activities | $(111,059) | $(36,242) | | Net decrease in cash, cash equivalents, and restricted cash | $(146,706) | $(54,604) | Seasonality of Our Business MSG Networks' annual revenues are typically higher in the first and fourth quarters, driven by advertising from live NBA and NHL programming - MSG Networks segment's annual revenues are higher in the first and fourth quarters, driven by advertising revenue from live NBA and NHL programming[283] Recently Issued Accounting Pronouncements and Critical Accounting Estimates No material changes occurred in critical accounting policies, but an interim goodwill impairment test for MSG Networks resulted in a $61.2 million non-cash charge - No material changes to critical accounting policies were reported[285] - The company performed an annual goodwill impairment test as of August 31, 2024, and an interim quantitative impairment test for the MSG Networks reporting unit as of December 31, 2024[285][288] - The interim impairment test for MSG Networks resulted in a non-cash goodwill impairment charge of $61.2 million, triggered by changes in the programming industry and the expiration of an affiliation agreement with Altice[288][291] | Reporting Unit | June 30, 2025 | | :------------- | :-------------- | | Sphere | $46,864 | | MSG Networks | $363,308 | | Total Goodwill | $410,172 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risk exposure, including interest rate risk on floating-rate debt and foreign currency exchange rate risk from international operations - The Company is exposed to interest rate risk from floating-rate borrowings under its credit facilities; a hypothetical 200 basis point increase in floating interest rates would increase interest payments by $12.779 million annually[293] - Foreign currency exchange rate exposure primarily relates to activities in the United Kingdom (British pound sterling) and Germany (Euro); a hypothetical 10% fluctuation in GBP/USD would change net asset value by approximately $100 thousand, and for EUR/USD by approximately $140 thousand[294][295][296] - The Company may use foreign currency forward exchange contracts to reduce translation risk but does not plan to use derivative financial instruments for speculative purposes[297] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[298] - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[299] PART II. OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity security sales, exhibits, and the report's signature Item 1. Legal Proceedings This section details Networks Merger legal proceedings, including the MSG Entertainment Litigation settled by insurers and the MSG Networks Litigation with an ongoing insurance coverage dispute - The MSG Entertainment Litigation, alleging fiduciary breaches in the Networks Merger, was settled for approximately $85 million, fully funded by the other defendants' insurers[305] - The MSG Networks Litigation, also alleging fiduciary breaches, was settled for approximately $48.5 million; the Company paid $28 million, and insurers paid $20.5 million, with an ongoing dispute regarding further insurance coverage[307] - As of June 30, 2025, approximately $18 million has been accrued in Accrued expenses and other current liabilities related to the MSG Networks Litigation settlement[307] Item 1A. Risk Factors This section outlines significant risks, including MSG Networks' debt repayment challenges, reliance on media rights, and the company's high leverage and dependence on Sphere's uncertain cash flow - MSG Networks faces risks including the inability to generate sufficient operating cash flows to repay its $210 million term loan facility (MSGN Term Loan Facility) maturing December 31, 2029, which could lead to acceleration of debt and foreclosure by lenders[310][311] - The MSG Networks business is highly dependent on media rights agreements with professional sports teams (Knicks, Rangers), which were amended on June 27, 2025, to reduce rights fees and shorten terms to the 2028-29 seasons; failure to renew these or generate sufficient revenue could materially negatively affect the business[312][314] - Sphere Entertainment Co. is highly leveraged with approximately $889.3 million in consolidated debt as of June 30, 2025; its ability to fund operations and service debt depends on Sphere generating significant positive cash flow, which is uncertain given the novel nature of its immersive productions[317][320] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a re-authorized $350 million share repurchase program for Class A Common Stock, with no shares repurchased to date - The Company's Board of Directors authorized a share repurchase program for up to $350 million of Class A Common Stock, re-authorized on March 29, 2023[327] - As of June 30, 2025, no shares have been repurchased under the share repurchase program[327] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, certifications, and XBRL data SIGNATURE The report is signed by Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, on August 11, 2025 - The report was signed by Robert Langer, Executive Vice President, Chief Financial Officer and Treasurer, on August 11, 2025[334][335]