Madison Square Garden Sports - Earnings Call - Q4 2025

Executive Summary

• Q4 2025 revenue was $204.0M, down 10% year over year on fewer playoff games and lower league distributions; diluted EPS was $(0.07), versus $1.06 in Q4 2024.
• Versus Wall Street consensus, revenue beat by ~$41.0M and EPS beat by $0.27 per share, driven by stronger-than-expected Knicks playoff monetization and in-arena categories, despite RSN fee reductions; Primary EPS consensus was $(0.34)* and revenue consensus was $162.9M* (actuals: $(0.07) and $203.96M).
• Adjusted operating income (AOI) swung to a $(16.8)M loss from $56.5M in Q4 2024, as team personnel transactions, revenue sharing and luxury tax drove higher operating costs.
• Management expects FY26 growth in in-arena revenue and higher national media rights to more than offset a full run-rate ~$24M Y/Y decline in local media rights fees, while team OpEx (comp and luxury tax) remains elevated.

Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

• Knicks’ playoff run generated the highest per-game gate in team history, with meaningful carryover into renewals and corporate demand (“we remain as confident as ever in the value of owning two iconic sports franchises”).
• In-arena revenue categories remained robust; management expects FY26 growth across tickets, suites, sponsorships, and F&B as demand continues.
• Marketing partnerships expanded (e.g., Experience Abu Dhabi as Knicks’ patch partner; Lenovo/Motorola), and suite renovations supported another year of record suite revenues in FY25.

What Went Wrong

• Q4 AOI fell to $(16.8)M from $56.5M in the prior year, primarily on higher team personnel transactions, luxury tax, and revenue sharing expenses.
• Revenue declined 10% Y/Y in Q4, largely due to six fewer playoff games and the absence of a ~$7M NHL territorial fee recognized last year.
• Local media rights fee reductions (Knicks −28%, Rangers −18%) pressured media revenue; full run-rate ~$24M Y/Y decline expected in FY26, with potential further reductions if national TV commitments reduce MSGN exclusivity.

Transcript

Speaker 2

Good morning. Thank you for standing by and welcome to the Madison Square Garden Sports Corp. Fiscal 2025 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead.

Speaker 0

Thank you. Good morning and welcome to MSG Sports Fiscal 2025 Fourth Quarter and Year-End 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 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non-GAAP financial measure. With that, I'll now turn the call over to Jamaal.

Speaker 3

Thank you, Ari, and good morning, everyone. Today, Madison Square Garden Sports Corp. reported fiscal 2025 full-year results with revenues of more than $1 billion and adjusted operating income of $38 million. Driven by sustained consumer and corporate demand for the Knicks and Rangers, we saw increases in key in-game revenue categories, including ticketing, sponsorship, and suites. This year's results also reflect the partial-year impact of our recently amended local media rights agreements with MSG Networks, as well as our investment in our teams. As we look ahead with the company's marquee assets and strong business fundamentals, we believe we are well-positioned to drive long-term value for our shareholders. Now, let's discuss our operations in more detail. The Knicks capped off their season with a run to the Eastern Conference Finals, which generated the highest per-game gate revenues in team history.

Since then, the team has welcomed two-time NBA Coach of the Year, Mike Brown. On the hockey side, the Rangers have also had a productive offseason, including naming two-time Stanley Cup winner Mike Sullivan as Head Coach. We are looking forward to the 2025-2026 season for both teams. Supporting the Knicks and Rangers along the way has been their loyal fans. This past regular season, both combined average ticket yields and average paid attendance were up, which helped drive growth in ticketing revenue. For the upcoming 2025-2026 seasons, the average combined season ticket renewal rate is currently at approximately 90%. I would note that while we made the decision to not raise season ticket prices for the Rangers, as the team did not qualify for the playoffs, we did raise season ticket prices for the Knicks.

In addition, we will continue to optimize pricing and mix of individual and group sales to maximize revenues in the year ahead. Fan enthusiasm also translated into higher food and beverage per-cap spending at the arena for fiscal 2025 as compared to the prior year. In terms of merchandise, while in-arena per-cap spending was up modestly in fiscal 2025, overall merchandise revenues, including online sales, did not reach last year's levels, which had included the positive impact of two New Jersey launches for the Rangers as compared to none in the current year. That said, we introduced several unique offerings this past season that resonated with fans, including exclusive merchandise drops with existing partners such as New York or Nowhere and Siegelman Stable. In fact, with the team's postseason performance, in-arena single-game Knicks merchandise sales hit new highs during the Eastern Conference Finals.

Beyond the arena, the thrill of the Knicks playoff run could be felt across the city where we hosted a number of special programs for our fans. That included numerous watch parties at various locations, including the Garden and Radio City Music Hall, as well as outdoor venues such as Central Park and the Fan Plaza outside the arena. Throughout the playoffs, we also continued our efforts to deliver compelling content on social media, which helped drive over 775,000 net new followers across the Knicks and Rangers throughout the year. The team's combined following was almost 20 million as of the end of fiscal 2025. This year, we are gearing up for the Rangers' 100th anniversary season and have special offerings and initiatives planned throughout the season to celebrate the team's centennial year.

This is one way we will continue to forge stronger connections with our fans in the year ahead. Turning to media rights, as a reminder, the NBA's new national media rights deals with Disney, NBCUniversal, and Amazon begin this upcoming season and will be reflected in our fiscal 2026 results. The NHL also recently announced a new 12-year agreement with Rogers Communications for the league's Canadian national media rights, which will start with the 2026-2027 season. In addition, at the end of June, our local media rights partner, MSG Networks, completed a restructuring of its credit facilities. As part of that restructuring, the Knicks and Rangers amended their respective local media rights agreements, which reflect ongoing changes across the RSN landscape.

Those amendments included 28% and 18% reductions in annual rights fees payable to the Knicks and Rangers, respectively, effective January 1, 2025, along with an elimination of annual rights fee escalators. They also include a shortening of the contract expirations to the end of the 2028-2029 seasons. Turning to marketing partnerships, this past year, we welcomed several new marketing partners. That included Abu Dhabi's Department of Culture and Tourism and its Experience Abu Dhabi brand as the official patch partner of the Knicks, as well as Lenovo and its subsidiary Motorola. In addition, we reached multi-year renewals with Verizon, Pepsi, and Benjamin Moore. As we look to fiscal 2026, we believe we are well-positioned to drive growth in this area of our business. In terms of our premium hospitality business, we saw another year of record suite revenues in fiscal 2025.

We benefited from the expanded event-level club space, as well as a number of event and Lexus-level suites that were renovated ahead of the seasons. On the heels of this successful initiative, several more suites are in the process of being renovated, which we believe will again drive incremental revenue for our business in fiscal 2026. In summary, we are pleased with how our business has performed this past fiscal year. With recently announced franchise transactions at record-level valuations across the professional sports landscape, we remain as confident as ever in the value of owning two iconic sports franchises. With that, I'll now turn the call over to Victoria.

Speaker 1

Thank you, Jamaal, and good morning, everyone. For fiscal 2025, we generated total revenues of $1.04 billion and adjusted operating income of $38.2 million. Our results for the fiscal 2025 fourth quarter reflected strong consumer and corporate demand for our teams as they completed their 2024-2025 regular seasons, followed by an extended playoff appearance from the Knicks. Our results also reflected a combined one fewer Knicks and Rangers regular season home game and six fewer playoff home games in our fourth quarter as compared to the prior year period. As a result, total revenues for the quarter were $204 million as compared to $227.3 million in the prior year period. Event-related revenues of $140.3 million, which mainly consist of ticket, food, beverage, and merchandise revenues, inclusive of the playoffs, decreased 8% year over year.

Suites, sponsorship, and signage revenues, also inclusive of the playoffs, were $31.9 million, a decrease of 8% year over year. In addition, national and local media rights fees of $27.8 million decreased 2%, which included the impact of our amended local media rights agreements with MSG Networks. Adjusted operating income decreased $73.3 million to an adjusted operating loss of $16.8 million, primarily due to higher direct operating expenses and, to a lesser extent, the decrease in revenues. Adjusted operating income for our fiscal 2025 fourth quarter includes $2.1 million of non-cash arena operating lease costs as compared to $2.4 million in the prior year period. The increase in direct operating expenses primarily reflected higher net provisions for certain team personnel transactions, higher team personnel compensation, and corresponding luxury tax, as well as higher revenue sharing expenses net of escrow.

These increases were partially offset by lower playoff-related expenses, as well as other cost decreases. As we look ahead, we believe our business is poised to deliver revenue growth across all in-arena categories in fiscal 2026. In addition, our results will reflect the impact of the NBA's new national media rights deals, a full year of our amended local media rights agreements, as well as our continued investment in our teams. Turning to our balance sheet, at the end of the quarter, our cash balance was approximately $145 million and our debt balance was $291 million. This was comprised of $267 million under the Knicks' senior-secured revolving credit facility and $24 million advanced from the NHL. In summary, we are pleased with the strong demand we continue to see for our teams and remain confident in our ability to drive long-term value for our shareholders.

I will now turn the call back over to Ari.

Speaker 2

Operator, can we now open the line for questions?

Certainly. We will now begin the question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press *1 again. Your first question today comes from the line of Brandon Ross from LightShed Partners. Your line is open.

Good morning. Thanks for taking the questions. Two for me. First, with the rework of the MSG Networks media rights, just wanted to see if that'll mean anything for capital returns going forward. Secondly, you alluded in the prepared, but last week the Bears sold a minority stake, I think, at an $8+ billion valuation. Your closest comp, the Lakers, sold for $10 billion. Wondering if that now makes sense for Madison Square Garden Sports Corp. to look to sell some small minority stakes in the Knicks or the Rangers. Thank you.

Speaker 1

Hi, Brandon. Thanks for the questions. I think I'll start. I'll take the capital returns and then maybe pass it over to Jamaal on the second part of your question. First, let me start by saying that we believe our liquidity position is strong. We ended the fiscal year with approximately $145 million in cash on hand. I would note that we have a number of scheduled payments in the first quarter, including payroll and luxury tax. That'll all be reflected in our cash balance at September 30. In addition to our cash on hand, we have the Knicks and Rangers revolving credit facilities in place with $250 million in borrowing capacity currently available on the Rangers revolver. We believe we have substantial financial flexibility. In terms of capital allocation, our long-term priorities remain the same.

The first is to maintain appropriate liquidity to fund our operations and invest in our core business. Second, we want to make sure we have a strong balance sheet. Third, we plan to be opportunistic about other uses of our cash. Right now we do have greater clarity with our near-term capital allocation decisions with the amendments to our local media rights agreements being completed. We wouldn't rule out a return of a capital program in the future.

Speaker 3

Hey, Brandon.

Right.

Can I respond to your question? As I mentioned earlier, we remain as confident as ever in the value of our teams. The short answer is we don't have anything to report. You mentioned the two recent transactions, but it's not just those two. There have been several other recent transactions, both rumored, early-stage, recently finalized, that demonstrate that these are scarce, valuable assets. In the case of Madison Square Garden Sports Corp., we don't think that value is appropriately reflected in our current stock price. We just don't. We would never rule out the possibility of a minority stake sale. As I said, we also have nothing to report at this time.

Thank you.

Speaker 2

Your next question comes from a line of Peter Supino from Wolfe Research. Your line is open.

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

Speaker 3

Good morning, Peter, and thanks for that question. Media rights are certainly a complex ecosystem. While we aren't going to comment on hypotheticals, we continue to monitor the changes. Those changes are impacting both national and local rights. With respect to national rights, the NBA's new national media deals are scheduled to begin this upcoming season. On the hockey side, the NHL's Canadian media deals run through the 2025-2026 season. They also recently announced the new 12-year agreement starting thereafter. Their U.S. national media deals run through the 2027-2028 season. There are the local rights, which include regional sports networks. The RSN industry just continues to evolve. That said, we continue to believe that local media coverage is a valuable part of our ecosystem in that RSNs drive enhanced fan engagement through content that is tailored for local markets.

In our case, we are a rights holder for two marquee sports franchises. From that standpoint, we will continue to monitor the changes, but from that position as a rights holder for two marquee sports franchises.

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

Speaker 1

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

All right, thank you.

Speaker 2

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

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

Speaker 1

Sure. Hi, David. Yeah, so taking a step back, as you know, all NBA teams share equally in national media rights fees. At the league level, players receive about 50% of the league-wide revenues, including from the national media rights fees. Starting with the upcoming season, the NBA will see a step up in the average annual value for its national media rights, as well as increased escalators thereafter. In turn, we will see an increase in our national media rights revenue. Fiscal 2026 will also reflect the full run rate impact of lower local media rights fees, or about a $24 million decrease in our contractual fees year over year. However, even taking into account lower local media rights, we still expect an increase in our overall media rights revenue in fiscal 2026.

I would note that our local rights agreements include thresholds around the number of live game telecasts to be exclusively provided to MSG Networks, such as a minimum number of total regular season games. If certain of those thresholds aren't met as a result of the new NBA national deals, our local rights agreements would provide for a further reduction in our local media rights fees.

I will happily talk about the playoffs. My gosh, what a thrill ride that was for this entire city. Wow. What a run like that does is it results in several benefits to our business. From a ticketing standpoint, a playoff run usually increases demand across all of our offerings, whether it's season ticket renewals, sales to new members, or individual and group ticket sales. As I mentioned earlier, our average combined renewal rate for season ticket packages is already approximately 90%. That reflects Knicks' season ticket price increases given the team's strong performance. From a fan engagement standpoint, it also drives new fans. I mentioned the 775,000 net new social media followers that we added in fiscal 2025. Of those new followers, almost half were added during that playoff run.

That increased demand also extends to the corporate side of our business, which allows us to sell more premium hospitality and more marketing partnerships. We are already seeing the momentum from the playoffs carry forward as we approach next season. I'll let Victoria talk about the financial impact in a little bit more detail.

Sure, yeah, let me provide a little bit more color here. The playoffs result in significant incremental business for our company, depending on the length of the playoff run, as you can see in our results today. In general, playoff tickets are priced at a premium to regular season games and increase each round. As noted earlier, the Knicks' Eastern Conference Finals run generated the highest per-game gate in team history. Food and beverage and merchandise per-cap spending typically runs above regular season averages. This past quarter, we hosted nine playoff games at the Garden as compared to 15 last year. As a result, our playoff-related revenues for the fourth quarter were $115.2 million as compared to $128 million in the prior year period. This translates to about $12.8 million in average per-game revenues.

In addition, there were approximately $5.8 million in average per-game direct operating expenses, as well as we incur some additional marketing and administrative costs in connection with the overall playoff participation. As Jamaal mentioned, we expect to see the positive impact of the playoffs this past season across our entire business in fiscal 2026.

Great, thank you very much.

Speaker 2

Your final question today comes from a line of Joseph Stauff from Susquehanna Financial Group. Your line is open.

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

Speaker 1

Hi, Joe. Regarding operating expenses, while we're not providing specific guidance, we expect our results for fiscal 2026 to reflect those higher team operating expenses. That's going to include higher team personnel compensation and luxury tax with the Knicks' current roster above the threshold. As you may know, the NBA salary cap increased from $140.6 million to $154.6 million for the 2025-2026 season, and the NHL salary cap increased from $88 million to $95.5 million. In addition, the NBA luxury tax threshold for the 2025-2026 season increased to $187.9 million, which is up from $170.8 million this past season, which is measured by the roster at the end of the season. I'd also remind you that in fiscal 2025, our results included expenses for certain team personnel transactions. We would also expect that to impact our year-over-year comparison in fiscal 2026.

Speaker 3

Morning, Joe, and thanks for the question. We're seeing good momentum in marketing partnerships, and that's following a year of growth in fiscal 2025. Just to look back once more on fiscal 2025, I mentioned the multi-year extensions with Verizon and Benjamin Moore, and the new multi-year deal with Lenovo and its subsidiary Motorola, and the partnership with Abu Dhabi's Department of Culture and Tourism, and Experience Abu Dhabi becoming a global marketing partner and the official patch partner of the Knicks. As we sit here today, coming off that extended Knicks playoff run, which as we discussed earlier, will allow us to sell more marketing partnerships and to capitalize on a number of opportunities, including renewals and premium available inventory.

When you take all that, and as we look ahead to fiscal 2026, while as Victoria mentioned, we are not providing specific guidance, we believe we are well-positioned to drive another year of growth in fiscal 2026.

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

Speaker 1

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

Got it. Thanks a lot.

Speaker 2

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

Speaker 0

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

Speaker 2

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