MSGS Madison Square Garden Sports Corp

NEW YORK, May 4, 2023 /PRNewswire/ -- Madison Square Garden Sports Corp. (NYSE: MSGS) today reported financial results for the fiscal third quarter ended March 31, 2023.  

The Company continued to see robust demand for the New York Knicks ("Knicks") and New York Rangers ("Rangers") as the 2022-23 NBA and NHL regular seasons approached their conclusion. This sustained momentum was reflected in the Company's key revenue categories, where average per-game revenues for tickets, suites, sponsorship and food, beverage and merchandise for the fiscal 2023 third quarter all exceeded the prior year period. This growth reflected strong results across paid attendance, average ticket prices and ancillary per-capita spending, as well as new sales and renewal activity for suites and marketing partnerships. In addition, local and national media rights fees were higher, including the impact of contractual rate increases.

Subsequent to the end of the quarter, both teams concluded their regular seasons and advanced to the playoffs, with the Knicks currently competing in the Eastern Conference Semifinals. In addition, continued fan enthusiasm has led to strong season ticket renewals to date for the 2023-24 Knicks and Rangers seasons.

For the fiscal 2023 third quarter, the Company generated revenues of $382.7 million, an increase of $45.0 million, or 13%, as compared to the prior year period.  In addition, the Company reported operating income of $81.8 million, an increase of $20.4 million, or 33%, and adjusted operating income of $98.1 million, an increase of $16.7 million, or 20%, both as compared to the prior year period.⁽¹⁾

Madison Square Garden Sports Corp. Executive Chairman James L. Dolan said, "Robust demand for the Knicks and Rangers led to solid third quarter results and has put our Company on track to achieve another year of strong operating and financial performance. We are confident in the strength of our business and remain well-positioned to drive long-term shareholder value."

Summary of Reported Results from Operations
For the fiscal 2023 third quarter, revenues of $382.7 million increased $45.0 million, or 13%, as compared to the prior year period. This increase was primarily due to higher pre/regular season ticket-related revenues, suite revenues, local media rights fees, sponsorship and signage revenues, and food, beverage and merchandise sales. The Knicks and Rangers played a combined 40 regular season home games at the Madison Square Garden Arena ("The Garden") as compared to 38 home games in the prior year period.

Pre/regular season ticket-related revenues increased $21.9 million as compared to the prior year period, primarily due to higher average per-game revenue and, to a lesser extent, the impact of additional home games played at The Garden during the current year period.

Suite revenues increased $8.9 million as compared to the prior year period, primarily due to higher sales of suite products and, to a lesser extent, the impact of additional home games played at The Garden during the current year period.

Local media rights fees increased $6.9 million as compared to the prior year period, primarily due to contractual rate increases and the timing of the NHL 2021-22 season, which resulted in revenue being recognized over a longer time frame in the prior fiscal year.

Sponsorship and signage revenues increased $4.8 million as compared to the prior year period, primarily due to the impact of additional home games played at The Garden during the current year period, higher net sales of existing sponsorship and signage inventory, and sales of new sponsorship and signage inventory.

Pre/regular season food, beverage and merchandise sales increased $3.2 million as compared to the prior year period, primarily due to higher average per-game revenue and, to a lesser extent, the impact of additional home games played at The Garden in the current year period.

Direct operating expenses of $239.1 million increased $32.8 million, or 16%, as compared with the prior year period.  This increase was primarily driven by an increase in team personnel compensation of $38.3 million, as well as an increase in other team operating expenses of $6.2 million, partially offset by a decrease of $14.8 million in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax, all as compared to the prior year period.

Selling, general and administrative expenses of $61.1 million decreased $7.8 million, or 11%, as compared to the prior year period. This decrease was primarily due to lower employee compensation and related benefits of $8.0 million, a result of executive management transition costs recognized in the prior year period.

Operating income of $81.8 million increased $20.4 million, or 33%, as compared to the prior year period, primarily due to the increase in revenues, and, to a lesser extent, a decrease in selling, general and administrative expenses (including share-based compensation), partially offset by higher direct operating expenses. Adjusted operating income of $98.1 million increased by $16.7 million, or 20%, as compared to the prior year period, primarily due to the increase in revenues, and, to a lesser extent a decrease in selling, general and administrative expenses (excluding share-based compensation), partially offset by higher direct operating expenses.

About Madison Square Garden Sports Corp.
Madison Square Garden Sports Corp. (MSG Sports) is a leading professional sports company, with a collection of assets that includes the New York Knicks (NBA) and the New York Rangers (NHL), as well as two development league teams – the Westchester Knicks (NBAGL) and the Hartford Wolf Pack (AHL). MSG Sports also operates a professional sports team performance center – the MSG Training Center in Greenburgh, NY. More information is available at www.msgsports.com.

Non-GAAP Financial Measures
We define adjusted operating income (loss), which is a non-GAAP financial measure, as operating income (loss) excluding (i) deferred rent expense under the arena license agreements with Madison Square Garden Entertainment Corp. ("MSG Entertainment"), (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, (vi) the impact of purchase accounting adjustments related to business acquisitions, and (vii) gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan (which was established in November 2021). Because it is based upon operating income (loss), adjusted operating income (loss) also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that given the length of the arena license agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance. We believe that this adjustment is beneficial for other incremental reasons as well. This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with MSG Entertainment. In addition, this adjustment is a component of the performance measures used to evaluate, and compensate, senior management of the Company. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of our business without regard to the settlement of an obligation that is not expected to be made in cash. In addition, we believe that the exclusion of gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan provides investors with a clearer picture of the Company's operating performance given that, in accordance with U.S. generally accepted accounting principles ("GAAP"), gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the Company's Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).

We believe adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of our Company.  Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance.  Internally, we use revenues and adjusted operating income (loss) as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with "GAAP". Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income (loss) to adjusted operating income (loss), please see page 5 of this release.

Forward-Looking Statements
This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors, including financial community and rating agency perceptions of the Company and its business, operations, financial condition and the industry in which it operates, and the factors described in the Company's filings with the Securities and Exchange Commission, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. The Company disclaims any obligation to update any forward-looking statements contained herein.

MADISON SQUARE GARDEN SPORTS CORP.
ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO
ADJUSTED OPERATING INCOME (LOSS)

The following is a description of the adjustments to operating income in arriving at adjusted operating income as described in this earnings release:

• Deferred rent. This adjustment eliminates the impact of the non-cash portion of rent expense associated with the Arena License Agreements with MSG Entertainment.
• Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets in all periods.
• Share-based compensation. This adjustment eliminates the compensation expense related to restricted stock units and stock options granted under the Company's employee stock plan and non-employee director plan in all periods.
• Remeasurement of deferred compensation liabilities. This adjustment eliminates the impact of gains and losses related to the remeasurement of liabilities under the Company's executive deferred compensation plan.

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SOURCE Madison Square Garden Sports Corp.