Madison Square Garden Sports - Earnings Call - Q2 2025

Executive Summary

• Q2 FY25 revenue rose 9% YoY to $357.8M on stronger per‑game demand across tickets, suites, sponsorship, and in‑arena spend, but operating income fell 54% to $13.3M and AOI declined 45% to $20.2M on higher team personnel costs and luxury tax; diluted EPS was $0.05.
• Management highlighted robust season ticket renewals (~97%) and continued pricing power; however, media rights risk increased as MSG Networks seeks to renegotiate fees and Altice USA dropped MSGN on Jan 1, pressuring the RSN ecosystem.
• No formal numeric guidance was provided; management noted FY25 sponsorship is “on track for solid growth,” ticket revenue is “on track to drive modest overall growth,” and Q3/Q4 will have three fewer home games vs last year, which could affect YoY comparisons.
• Liquidity remains solid (cash ≈$108M; total debt $305M) with $250M borrowing capacity on the Rangers revolver; if MSGN were to file bankruptcy, waivers would be required to draw under team revolvers, but other funding sources are available, per management.

What Went Well and What Went Wrong

• What Went Well

  • Per‑game revenue growth across every key category (tickets, suites, sponsorship, food/beverage/merch) versus Q2 FY24, reinforcing pricing power and demand durability.
  • Sponsorship momentum: new jersey patch with Experience Abu Dhabi and multi‑year deals with Lenovo/Motorola; renewals with Verizon and Benjamin Moore; C4 Energy named Official Energy Drink of the Knicks on Feb 4.
  • Strong fan engagement: ~97% combined season ticket renewal rate; elevated in‑arena per‑cap spending; marquee collabs (Kith, New York or Nowhere) drove some of the highest single‑game merchandise sales in team history.

• What Went Wrong

  • Profitability compression: OI down 54% YoY to $13.3M and AOI down 45% YoY to $20.2M as team personnel compensation, NBA luxury tax, and certain personnel transactions drove higher direct operating expenses.
  • RSN/Local media rights headwinds: MSG Networks is pursuing a workout and approached MSGS to renegotiate rights (potential reduction); Altice USA dropped MSG Networks, increasing distribution risk.
  • Mix/seasonality considerations: management flagged that Q3 and Q4 will have three fewer regular‑season home games combined vs prior year, creating potential revenue headwinds for YoY comps in 2H FY25.

Transcript

Benjamin Swinburne (Equity Research Analyst)

Good morning. Thank you for standing by and welcome to the Madison Square Garden Sports Corp. Fiscal 2025 second quarter 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 Danes, Investor Relations. Please go ahead.

Ari Danes (Head of Investor Relations)

Thank you, Operator. Good morning and welcome to MSG Sports Fiscal 2025 second quarter earnings conference call. Our Chief Operating Officer, Jamaal Lesane, will begin this morning's call with an update on the company's strategy and operations. This will be followed by a review of our financial results with Victoria Mink, our EVP, Chief Financial Officer, and Treasurer. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the investor section of our corporate website. Please take note of the following: today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. With that, I'll now turn the call over to Jamaal.

Jamaal Lesane (COO)

Thank you, Ari. Good morning, everyone. The Knicks and Rangers' 2024-25 seasons are in full swing. For the fiscal '25 second quarter, MSG Sports generated revenues of approximately $358 million and adjusted operating income of approximately $20 million. These results reflect strong overall demand, while adjusted operating income also reflects our continued investment in our teams. The robust demand from fans and corporate partners alike has driven positive momentum in all key revenue areas: ticketing, suites, sponsorship, and food, beverage, and merchandise. In fact, per-game revenues across every key category were up as compared to the fiscal '24 second quarter. With our iconic sports franchises and the strong top-line trends we are seeing, we remain confident in the outlook for our business. Let's discuss our operations in more detail.

Since we last spoke with you in August, the Knicks' offseason, which had already included a number of significant roster moves, culminated with the trade for now five-time NBA All-Star, Karl-Anthony Towns. More than halfway through the season, we are pleased with the team's performance so far, and we're excited to see both Towns and Jalen Brunson recently selected as starters for the 2025 NBA All-Star Game. On the hockey side, the Rangers signed an eight-year contract extension with the team's star goalie, Igor Shesterkin, in December, and next week, a number of our players will participate in the NHL's 4 Nations Face-Off Tournament, which is being held in place of an All-Star Game this year. As the seasons continue to unfold, we look forward to watching the coming months of competition. Throughout this year, our fans have continued to show their support for the Knicks and Rangers.

This season, our average combined season ticket renewal rate was approximately 97%. In addition, we have been opportunistically pricing our other ticketing offerings, including new season ticket packages as well as individual and group tickets. We have also continued to provide our fans with more options and have seen increased demand for our flexible ticket plans as a result. Putting it all together, we saw year-over-year increases in both average ticket yield and average paid attendance on a per-game basis in the fiscal second quarter, which helped drive growth in ticketing revenue. Fan enthusiasm has also extended to in-arena spending, where food, beverage, and merchandise per-cap spending was up as compared to the fiscal 2024 second quarter. Contributing to this growth are our continued efforts to introduce innovative merchandise offerings. The Knicks are once again partnering with unique brands, including Kith and New York or Nowhere.

Given the ongoing success of these two collaborations, we expanded those partnerships to the Rangers for the first time this season. It is clear that these initiatives are resonating. In fact, when the Knicks debuted their new Kith collection and the Rangers launched with New York or Nowhere this season, in-arena single-game merchandise sales were among their highest in each team's history. We also continue to introduce exciting event offerings to foster fan engagement. For example, we recently held our first Knicks homecoming weekend, celebrating the team's alumni and rich history. The celebration included a free daytime event sponsored by Chase with alumni and hundreds of fans and culminated that night with the official homecoming game presented by DoorDash, which honored a number of team alumni. Turning to media rights. As a reminder, the NBA has entered into new national media deals, which are scheduled to begin next year.

While these deals will include a step up in average annual value compared to the current agreements, as well as increased escalators, they will also result in a reduction in the number of exclusive live telecasts made available to RSNs, which impacts a valuable part of our ecosystem. As you may also know, in August, our local media rights partner, MSG Networks, announced that it is pursuing a refinancing of its credit facilities through a workout, which is ongoing. As part of that process, MSG Networks has approached us to renegotiate our local media rights agreements, including a potential reduction in our rights fees. In addition, on January 1st, Altice USA dropped MSG Networks from its Optimum offerings, demonstrating the challenging environment that the RSN industry continues to face. We are actively assessing the best path forward for our business and will continue to keep you updated.

With respect to marketing partnerships, fiscal 2025 has been highlighted by a number of new deals and renewals so far. In October, the company announced a significant multi-year agreement with Abu Dhabi's Department of Culture and Tourism, which included naming Experience Abu Dhabi as the official patch partner of the Knicks. Their logo now appears on all Knicks game jerseys, as well as warm-up jackets and shooting shirts. In addition, over the last several months, we signed new multi-year sponsorships with Lenovo and its subsidiary Motorola and reached multi-year renewals with Verizon and Benjamin Moore. In terms of premium hospitality, we continue to see strong new sales and renewal activity for suites at the Gardens. That includes the event-level club space, which was introduced last year and was expanded ahead of the 2024-25 season.

In addition, we are seeing the benefit of incremental revenue this year from a number of event and Lexus-level suites that were recently renovated. Our business continues to demonstrate strong underlying fundamentals, and while the ecosystem for RSNs continues to evolve, as we look ahead, we remain confident in the value of owning MSG Sports franchises and our ability to drive long-term shareholder value. With that, I'll now turn the call over to Victoria.

Victoria Mink (EVP and CFO)

Thank you, Jamal, and good morning, everyone. Results for the fiscal second quarter reflect preseason play and the start of the 2024-2025 regular seasons for the Knicks and Rangers. In aggregate, we hosted 35 pre- and regular season games across both teams as compared to 32 games last year, which positively impacted this quarter's results. I'd also note that our fiscal third and fourth quarters will reflect three fewer regular season home games in total as compared to the prior year period. For the fiscal 2025 second quarter, total revenues were $357.8 million as compared to $326.9 million in the prior year period, which reflected the impact of more home games at the Garden versus the prior year, as well as increases across every key revenue category on a per-game basis.

Event-related revenues of $139.4 million, which mainly consists of ticketing, food, beverage, and merchandise revenue, increased 14% year-over-year, while suites and sponsorship revenues of $79.4 million increased 15% year-over-year. National and local media rights fees of $126.9 million increased 4%, primarily due to the impact of contractual rate increases on our local and national media rights deals, partially offset by the impact of a decrease in the number of games exclusively available to MSG Networks during the current year as compared to the prior year. Adjusted operating income decreased $16.8 million to $20.2 million, primarily due to an increase in direct operating expenses and, to a lesser extent, higher selling general and administrative expenses, partially offset by the increase in revenues. Our fiscal 2025 second quarter results include $9.3 million of non-cash arena license fees expense as compared to $9 million in the prior year period.

The increase in direct operating expenses primarily reflects higher team personnel compensation and corresponding luxury tax, as well as the impact of certain team personnel transactions. These direct operating expenses reflect the company's expectation that the Knicks will be a significant luxury taxpayer for the 2024-2025 season based on the team's current roster. Turning to our balance sheet. At the end of the quarter, our cash balance was approximately $108 million, and our debt balance was $305 million. This was comprised of $275 million under the Knicks Senior Secured Revolving Credit Facility and $30 million advanced from the NHL. We are pleased with the demand trends we are seeing across our business so far in fiscal 2025 and remain confident in its long-term trajectory. I will now turn the call back over to Ari.

Ari Danes (Head of Investor Relations)

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

Benjamin Swinburne (Equity Research Analyst)

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

David Karnovsky (Executive Director)

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

Jamaal Lesane (COO)

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

David Karnovsky (Executive Director)

Thanks.

Benjamin Swinburne (Equity Research Analyst)

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

Brandon Ross (Technology Analyst)

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

Victoria Mink (EVP and CFO)

Sure. Good morning, Brandon, and thank you for the question. So I guess before I get into liquidity, let me just, you know, take a step back. So if there were a reduction in our local media rights fees in the future, it's important to note that a $1 reduction in revenue doesn't translate into a $1 reduction in cash flow, as there are significant offsetting factors. You know, so for example, our revenue sharing expense would decrease, as would our income taxes, you know, given the company's status as a full income cash taxpayer. You know, so it's not a one-for-one. You know, but with that said, our liquidity position is strong. We ended the calendar year with over $100 million of cash on hand. In addition, we have the Knicks and Rangers Revolving Credit Facilities in place with $250 million in borrowing capacity available on the Rangers revolver.

Now, in the event of a network, an MSG Networks bankruptcy, we would need to seek waivers from our lenders to borrow additional funds against either of the facilities. You know, but irrespective of that, we have substantial financial flexibility, and are confident we'd be able to borrow funds from a number of other sources if needed.

Brandon Ross (Technology Analyst)

Thank you.

Benjamin Swinburne (Equity Research Analyst)

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

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

Victoria Mink (EVP and CFO)

Great. Good morning, Ben. Let me start. I'll take the first part of your question regarding the expansion. So, you know, first, we're not going to comment on, you know, league matters or hypotheticals. But, you know, what I think I can say here is that, you know, any potential expansion fee is divided equally among the 30 existing NBA teams. You know, just by way of example, you know, as you may recall, back in fiscal 2021, when the Seattle Kraken joined the NHL, we recognized our pro rata share of that expansion fee in that fiscal year, and it basically drops right to the bottom line.

But, you know, however, I would note, right, following any potential expansion, you know, league distributions, for example, you know, including the revenue from our national media rights agreements, you know, that would be, you know, divided pro rata amongst the increased number of teams on a go-forward basis.

Benjamin Swinburne (Equity Research Analyst)

Right. That's a good point. Yeah.

Jamaal Lesane (COO)

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

Benjamin Swinburne (Equity Research Analyst)

Okay. Fair enough. Thank you.

Ari Danes (Head of Investor Relations)

Thanks, Ben. Operator will take one last caller.

Benjamin Swinburne (Equity Research Analyst)

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

David Joyce (Equity Research Analyst)

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

Victoria Mink (EVP and CFO)

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

and Canada, expanding the team's brand presence in international markets. So as we've always said, you know, the Jersey Patch, we believe, is real premium inventory, and we are pleased with this deal.

Jamaal Lesane (COO)

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

Looking ahead, we still see opportunity around ticket yield, and we'll continue, as we do every year, to reevaluate our season ticket pricing on an annual basis.

David Joyce (Equity Research Analyst)

Great. Thank you very much.

Operator (participant)

That concludes our question-and-answer session. I will now turn the call back over to Ari Danes for closing remarks.

Ari Danes (Head of Investor Relations)

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.