Madison Square Garden Sports (MSGS) - 2023 Q4 - Annual Report

PART I Item 1. Business Madison Square Garden Sports Corp. (MSG Sports) owns and operates professional sports franchises, the New York Knicks (NBA) and New York Rangers (NHL), leveraging strong brands and market position for growth - MSG Sports owns and operates the New York Knicks (NBA) and New York Rangers (NHL), along with development league teams (Hartford Wolf Pack, Westchester Knicks) and a performance center[16] - In April 2023, the Company sold its controlling interest in Counter Logic Gaming (CLG), an esports organization, for a noncontrolling equity interest in the combined NRG/CLG company[16][162] - Key strengths include iconic sports franchises, a strong presence in the New York market, deep fan connections, multi-year sponsorship and suite agreements with MSG Entertainment, and long-term local media rights with MSG Networks[18] - The company's strategy focuses on developing championship-caliber teams, employing a direct ticketing policy, maximizing exclusive live sports content through media rights, utilizing unique assets for sponsorship and suite sales, and investing in the fan experience[19][20] - The Knicks and Rangers have 20-year local media rights agreements with MSG Networks (expiring 2035) and receive pro-rata shares from NBA and NHL national media rights (NBA agreements expire after 2024-25, NHL after 2027-28)[19] - The company operates under 35-year Arena License Agreements with MSG Entertainment for the Knicks and Rangers to play home games at Madison Square Garden, sharing revenues from suites, clubs, sponsorship, signage, food, beverage, and merchandise[18][26] - The company is subject to various regulations, including ticket sales, consumer protection, building codes, zoning, data privacy laws (CCPA, CPRA), and league rules (NBA, NHL) which can impact operations[36][37] - MSG Sports faces intense competition from numerous other professional sports teams and entertainment options in the New York metropolitan area, competing on team quality, success, entertainment environment, and ticket pricing[38][39] - The company emphasizes diversity and inclusion through talent actions, building an inclusive workplace, and expanding to diverse stakeholders, including increasing ERG involvement by 80.1% in fiscal year 2023[42][45] - As of June 30, 2023, MSG Sports had 558 full-time and 404 part-time employees, with approximately 11.3% represented by unions (primarily players)[47][50] Overview This section provides a general introduction to the company's business and operations Our Strengths The company's strengths include iconic franchises, market presence, fan connections, and strategic agreements Our Strategy The company's strategy focuses on team development, direct ticketing, media rights, sponsorship, and fan experience investment Our Business This section details the company's core business operations, including sports franchises and arena agreements Our Sports Franchises The company's core business revolves around its professional NBA and NHL sports franchises Arena License Agreements The company operates under long-term agreements for its teams to play home games at Madison Square Garden Our Professional Sports Teams Performance Center This section describes the company's dedicated training and performance facility for its professional sports teams The Role of the Leagues in Our Operations The NBA and NHL leagues significantly influence the company's operations, rules, and financial performance Media Rights The company generates substantial revenue from local and national media rights agreements for its sports content Our Community This section outlines the company's engagement and initiatives within its community Garden of Dreams Foundation The company supports the Garden of Dreams Foundation, a non-profit organization dedicated to helping children Supplier Diversity The company is committed to promoting diversity within its supplier network Regulation The company is subject to various regulations, including ticket sales, consumer protection, and league rules Competition The company faces intense competition from other sports and entertainment options in its market Human Capital Resources This section details the company's approach to managing its workforce, including diversity and talent initiatives Diversity and Inclusion ("D&I") The company prioritizes diversity and inclusion through talent actions and an inclusive workplace Talent This section describes the company's focus on attracting, developing, and retaining talent Financial Information about Geographic Areas The company's financial information is primarily concentrated within a single geographic area Available Information This section provides details on where the company's public filings and information can be accessed Item 1A. Risk Factors MSG Sports faces significant risks from competition, team performance, economic conditions, and corporate governance - The business faces intense competition from other live sporting events, media, and leisure activities in the New York City metropolitan area, impacting attendance, viewership, and advertising[58][59] - Financial results are substantially dependent on the continued popularity and competitive success of the Knicks and Rangers, which drives ticket sales, premium seating, sponsorships, and merchandise revenue[62] - Basketball and hockey decisions, particularly player selection and salaries, can significantly impact business and results, with player compensation generally increasing and potential luxury tax obligations for the NBA[63][64] - Actions by the NBA and NHL, including rules, regulations, media rights agreements, and potential expansion, can materially affect MSG Sports' business and financial performance[65][67][69] - Player injuries or illnesses can hinder team success and result in significant financial commitments due to guaranteed contracts, even with insurance policies[69][70][71] - The COVID-19 pandemic materially impacted operations and results, and future pandemics or public health emergencies could lead to renewed restrictions, reduced attendance, and declines in discretionary spending[72][74] - Economic downturns, recessions, financial instability, or inflation can adversely impact consumer and corporate spending on games, suites, food, beverages, merchandise, advertising, and sponsorships[75][76] - Subsidiaries have substantial indebtedness ($235 million for Knicks, $60 million for Rangers as of June 30, 2023, plus a $30 million NHL advance), with covenants that could be implicated by revenue shortfalls[77][79] - The company does not own Madison Square Garden and relies on Arena License Agreements with MSG Entertainment; failure to renew or MSG Entertainment's non-compliance could negatively impact the business[81][84] - A potential change or withdrawal of a New York City real estate tax exemption for The Garden ($42.4 million in fiscal year 2023) could materially negatively affect the business, as teams are responsible for 100% of such taxes[85][86][88] - The Dolan Family Group controls approximately 71.0% of the total voting power, enabling them to prevent or cause a change in control and influence corporate actions, potentially leading to conflicts of interest with other Dolan-controlled entities[125][126][127][132] - The company is subject to continually evolving cybersecurity risks, including data breaches, which could result in loss of confidential information, business disruption, reputational damage, legal exposure, and financial losses[109][110][112] Sports Business Risks Risks include intense competition, team performance dependence, player decisions, and league actions Economic and Business Relationship Risks Economic downturns, substantial indebtedness, and reliance on affiliated entities pose financial risks Operational Risks Operational challenges include cybersecurity threats, system unavailability, and potential litigation Corporate Governance Risks Corporate governance risks stem from controlling ownership and potential conflicts of interest Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report - No unresolved staff comments[135] Item 2. Properties MSG Sports licenses Madison Square Garden and owns a training center, while subleasing office space - MSG Sports licenses Madison Square Garden (capacity ~19,800 for Knicks, ~18,000 for Rangers) from MSG Entertainment via Arena License Agreements[136] - The company owns the 114,000 sq ft Madison Square Garden Training Center in Greenburgh, NY[136] - MSG Sports subleases approximately 47,000 sq ft of office space at Two Pennsylvania Plaza, New York City, from MSG Entertainment[137] - The lease for the CLG Performance Center in Los Angeles, CA (8,000 sq ft) ended in April 2023[136] Item 3. Legal Proceedings MSG Sports is a defendant in various lawsuits, but management expects no material adverse financial effect - The Company is a defendant in various lawsuits[138] - Management does not believe the resolution of these lawsuits will have a material adverse effect on the Company[138] Item 4. Mine Safety Disclosures This item is not applicable to Madison Square Garden Sports Corp - Not applicable[139] PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MSG Sports' Class A Common Stock is listed on the NYSE, and the company executed a special dividend and share repurchase program - Class A Common Stock is listed on the NYSE under the symbol 'MSGS'[142] - As of June 30, 2023, there were 569 holders of record for Class A Common Stock and 16 for Class B Common Stock (which has no public trading market)[144] - A special cash dividend of $7.00 per share was declared on October 6, 2022, and paid on October 31, 2022[145] - The company completed a $75 million accelerated share repurchase (ASR) program, repurchasing 456,458 shares of Class A Common Stock at an average price of $164.31 per share[235][560] - As of June 30, 2023, approximately $185 million remained under the $525 million Class A Common Stock share repurchase program[146][562] Stock Performance Comparison (June 30, 2018 - June 30, 2023) | | 6/30/18 | 6/30/19 | 6/30/20 | 6/30/21 | 6/30/22 | 6/30/23 | |:---|:---|:---|:---|:---|:---|:---|\ | Madison Square Garden Company Sports Corp. | $100.00 | $90.25 | $66.41 | $78.02 | $68.27 | $89.00 | | Russell 3000 Index | 100.00 | 108.98 | 116.10 | 167.37 | 114.17 | 171.49 | | Bloomberg Americas Entertainment Index | 100.00 | 110.35 | 89.68 | 206.40 | 109.09 | 129.16 | Performance Graph This section illustrates the company's stock performance compared to relevant indices over time Issuer Purchases of Equity Securities Details on the company's share repurchase programs and activities are provided here Securities Authorized for Issuance Under Equity Compensation Plans This section outlines the securities available for issuance under the company's equity compensation plans Item 6. (Reserved) This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MSG Sports' FY23 revenues increased by 8% to $887.4 million, driven by ticket and sponsorship sales, while operating income slightly decreased to $85.2 million due to higher expenses - The Company's business operates in one segment, focusing on its sports teams, the Knicks and Rangers, and related assets[155][162] - Primary revenue sources include ticket sales, suite rental fees, league distributions from national/international media contracts, venue signage and sponsorships, food and beverage sales, and merchandising[163] - Long-term performance is tied to the success and popularity of sports teams, with revenues typically concentrated in the second and third fiscal quarters due to NBA and NHL playing seasons[163][422] - Significant expenses include player and team personnel salaries, costs for injuries/trades/terminations, travel, player insurance, league operating assessments, and NBA/NHL revenue sharing and luxury tax[176] - The NBA and NHL CBAs impose salary floors and caps, and revenue sharing/escrow systems, which impact player compensation and team finances. The Knicks received approximately $15.1 million in luxury tax proceeds in FY23[179][180][181][182][183][184][186][187][188] - Revenues increased by $66.1 million (8%) in FY23, driven by higher pre/regular season ticket-related revenues ($33.3 million), suite revenues ($15.2 million), sponsorship and signage revenues ($9.5 million), and local media rights fees ($9.3 million)[200][201] - Direct operating expenses increased by $48.2 million (10%) in FY23, primarily due to higher team personnel compensation ($56.0 million) and other team operating expenses ($8.3 million), partially offset by a decrease in league revenue sharing expense ($21.3 million)[205][206][209] - Selling, general and administrative expenses increased by $20.2 million (9%) in FY23, mainly due to higher employee compensation ($10.2 million), increased sales and marketing costs ($5.2 million), and professional fees ($2.1 million)[212] - Operating income decreased by $0.9 million (1%) in FY23 to $85.2 million, primarily due to higher expenses offsetting revenue growth[214] - Net interest expense increased by $9.1 million (79%) in FY23 to $20.5 million, mainly due to higher average interest rates on revolving credit facilities[215] - Miscellaneous income (expense), net, improved by $26.0 million in FY23, primarily due to unrealized gains on investments in Xtract One common stock and warrants[216] - Adjusted operating income increased slightly by $0.1 million in FY23 to $115.0 million, reflecting higher revenues offset by increased operating and administrative expenses[226] - As of June 30, 2023, the company had $40.4 million in cash and cash equivalents and $230 million in available borrowing capacity under existing credit facilities[230][232] - Net cash provided by operating activities decreased by $25.6 million in FY23, primarily due to lower net income adjusted for non-cash items, partially offset by changes in working capital[238] - Net cash used in investing activities increased by $14.8 million in FY23, mainly due to higher purchases of investments and cash balances disposed of with the CLG sale[239] - Net cash used in financing activities increased by $29.1 million in FY23, primarily due to the special dividend payment and accelerated share repurchase, partially offset by additional net borrowings[240] Consolidated Statements of Operations (in thousands) | | Years Ended June 30, | |:---|:---|:---|\ | | 2023 | 2022 | | Revenues | $887,447 | $821,354 | | Direct operating expenses | 548,811 | 500,564 | | Selling, general and administrative expenses | 249,885 | 229,668 | | Depreciation and amortization | 3,577 | 5,042 | | Operating income | 85,174 | 86,080 | | Interest expense, net | (20,492) | (11,422) | | Miscellaneous income (expense), net | 25,239 | (726) | | Income before income taxes | 89,921 | 73,932 | | Income tax expense | (44,293) | (25,052) | | Net income | 45,628 | 48,880 | | Net income attributable to Madison Square Garden Sports Corp.'s stockholders | $47,793 | $51,131 | Cash Flow Activities (in thousands) | | Years Ended June 30, | |:---|:---|:---|\ | | 2023 | 2022 | | Net cash provided by operating activities | $152,473 | $178,056 | | Net cash used in investing activities | (17,759) | (2,932) | | Net cash used in financing activities | (185,273) | (156,142) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(50,559) | $18,982 | Contractual Obligations and Off-Balance Sheet Arrangements (in thousands) | | Payments Due by Period | |:---|:---|:---|:---|:---|:---|\ | | Total | Year 1 | Years 2-3 | Years 4-5 | More Than 5 Years | | Off balance sheet arrangements | $671,385 | $200,561 | $341,220 | $97,690 | $31,914 | | Contractual obligations reflected on the balance sheet: | | | | | | | Short-term debt | 30,000 | 30,000 | — | — | — | | Leases | 2,306,023 | 51,577 | 103,836 | 108,435 | 2,042,175 | | Long-term debt | 295,000 | — | — | 295,000 | — | | Contractual obligations | 126,341 | 104,683 | 9,135 | 4,984 | 7,539 | | Total | $3,428,749 | $386,821 | $454,191 | $506,109 | $2,081,628 | Introduction This section provides an overview of the Management's Discussion and Analysis of Financial Condition and Results of Operations Business Overview This section details the company's revenue sources, expenses, and operational structure Revenue Sources The company generates revenue from various streams, including ticket sales, media rights, and sponsorships Ticket Sales and Facility and Ticketing Fees Revenue from ticket sales and associated facility and ticketing fees are a primary income source Media Rights The company earns significant revenue from local and national media rights for its sports content Suites and Clubs Revenue is generated from the rental and sales of premium suites and club access at Madison Square Garden Sponsorships and Signage The company derives revenue from corporate sponsorships and advertising signage within its venues Food, Beverage and Merchandise Sales Sales of food, beverages, and merchandise contribute to the company's overall revenue Other This category includes miscellaneous revenue streams not covered by the primary categories Expenses This section outlines the various operating and administrative expenses incurred by the company Factors Affecting Operating Results Key factors influencing the company's operating results include general economic conditions and the impact of COVID-19 General This subsection discusses general factors that can influence the company's financial performance Impact of COVID-19 on Our Business The COVID-19 pandemic has had a significant impact on the company's business operations and financial results Results of Operations This section provides a detailed analysis of the company's financial performance for the reported periods Comparison of the Year Ended June 30, 2023 versus the Year Ended June 30, 2022 This subsection compares the company's financial results between fiscal years 2023 and 2022 Revenues This section analyzes the various revenue streams and their changes during the reporting period Direct operating expenses This section details the direct costs associated with the company's operations Selling, general and administrative expenses This section covers the selling, general, and administrative costs incurred by the company Depreciation and amortization This section discusses the depreciation and amortization expenses for the reporting period Operating income This section analyzes the company's operating income and its contributing factors Interest expense, net This section details the net interest expenses incurred by the company Miscellaneous income (expense), net This section covers other non-operating income and expenses Income taxes This section discusses the company's income tax expense for the reporting period Adjusted operating income This section analyzes the company's adjusted operating income, a non-GAAP financial measure Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations and fund operations Overview This subsection provides a general overview of the company's liquidity and capital resources Financing Agreements and Stock Repurchases This section details the company's financing arrangements and stock repurchase activities Special Dividend and Accelerated Share Repurchase This section discusses the company's special dividend payment and accelerated share repurchase program Cash Flow Discussion This section analyzes the company's cash flows from operating, investing, and financing activities Contractual Obligations and Of Balance Sheet Arrangements This section outlines the company's contractual obligations and off-balance sheet arrangements Seasonality of Our Business The company's business experiences seasonality, with revenues concentrated in specific fiscal quarters Recently Issued Accounting Pronouncements and Critical Accounting Policies This section discusses recent accounting pronouncements and the company's critical accounting policies Recently Issued Accounting Pronouncements This subsection details new accounting standards and their potential impact on the company Critical Accounting Policies This subsection describes the accounting policies that require significant judgment and estimation Item 7A. Quantitative and Qualitative Disclosures about Market Risk MSG Sports is exposed to interest rate risk from floating-rate borrowings, potentially mitigated by swaps - The Company has interest rate risk exposure from floating-rate borrowings under its credit facilities[270] - As of June 30, 2023, total outstanding borrowings were $295 million[271] - A hypothetical 100 basis point increase in floating interest rates would increase annual interest expense by approximately $3.0 million[271] Item 8. Financial Statements and Supplementary Data This section incorporates by reference the audited consolidated financial statements and supplementary data, starting on page F-1 - The financial statements and supplementary data are incorporated by reference and begin on page F-1[273] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure[274] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[275] - Management concluded that internal control over financial reporting was effective as of June 30, 2023, based on the COSO framework[278] - Deloitte & Touche LLP audited and expressed an unqualified opinion on the effectiveness of internal control over financial reporting[279] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2023[280] Evaluation of Disclosure Controls and Procedures Management assessed the effectiveness of disclosure controls and procedures as of June 30, 2023 Management's Report on Internal Control over Financial Reporting Management's report on the effectiveness of internal control over financial reporting is presented here Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting Item 9B. Other Information This item reports no other information - No other information to report[281] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Madison Square Garden Sports Corp - Not applicable[282] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance will be incorporated from the 2023 proxy statement - Information on directors, executive officers, and corporate governance will be incorporated by reference from the 2023 proxy statement[284] Item 11. Executive Compensation Details on executive compensation will be incorporated by reference from the 2023 proxy statement - Information on executive compensation will be incorporated by reference from the 2023 proxy statement[285] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters will be incorporated from the 2023 proxy statement - Information on security ownership and related stockholder matters will be incorporated by reference from the 2023 proxy statement[286] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence will be incorporated from the 2023 proxy statement - Information on certain relationships, related transactions, and director independence will be incorporated by reference from the 2023 proxy statement[287] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services will be incorporated from the 2023 proxy statement - Information on principal accountant fees and services will be incorporated by reference from the 2023 proxy statement[288] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, supplementary schedules, and a comprehensive list of exhibits filed as part of the 10-K report - The report includes financial statements, Schedule II – Valuation and Qualifying Accounts, and a list of exhibits[291] - Exhibits include distribution agreements, certificates of incorporation, by-laws, transfer consent agreements with NBA/NHL, registration rights agreements, employment agreements, credit agreements, and various certifications[291][292][293][294] Financial Statements and Schedules This subsection lists the financial statements and supplementary schedules included in the report Exhibits This subsection provides a comprehensive list of all exhibits filed with the report Item 16. Form 10-K Summary The company has elected not to provide summary information for this Form 10-K - The Company has elected not to provide summary information for this Form 10-K[295]