EX-99.1 4 d868003dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

THE MADISON SQUARE GARDEN COMPANY

TWO PENNSYLVANIA PLAZA

NEW YORK, NY 10121

[], 2015

Dear Stockholder:

I am pleased to report that the previously announced spin-off by The Madison Square Garden Company, which we refer to as “MSG,” of its MSG Spinco, Inc. subsidiary is expected to become effective on [], 2015. MSG Spinco, Inc., a Delaware corporation, which we refer to as “Spinco,” will become a public company on that date and will own the sports and entertainment businesses currently owned and operated by MSG and own, lease or operate the arenas and other venues currently owned, leased or operated by MSG. Spinco’s Class A Common Stock will be listed on [The NASDAQ Stock Market LLC] under the symbol “[].”

Holders of record of MSG’s Class A Common Stock as of the close of business, New York City time, on [], 2015, which will be the record date, will receive one share of Spinco Class A Common Stock for every [] share(s) of MSG’s Class A Common Stock held. Holders of record of MSG’s Class B Common Stock as of the close of business on the record date will receive one share of Spinco Class B Common Stock for every [] share(s) of MSG Class B Common Stock held. No action is required on your part to receive your Spinco shares. You will not be required either to pay anything for the new shares or to surrender any shares of MSG stock.

No fractional shares of Spinco stock will be issued. If you otherwise would be entitled to a fractional share you will receive a check for the cash value thereof, which generally will be taxable to you. In due course you will be provided with information to enable you to compute your tax bases in both MSG and Spinco stock. MSG expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders of MSG Class A Common Stock and MSG Class B Common Stock, respectively (i.e., the distribution), will qualify as a tax-free distribution for U.S. federal income tax purposes. In addition, MSG has applied for a private letter ruling from the Internal Revenue Service regarding certain limited aspects of the distribution.

The enclosed information statement describes the distribution of shares of Spinco stock and contains important information about Spinco, including financial statements. I suggest that you read it carefully. If you have any questions regarding the distribution, please contact MSG’s transfer agent, Wells Fargo Shareowner Services, at 1-800-468-9716.

Sincerely,

James L. Dolan

Executive Chairman


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission.

 

PRELIMINARY INFORMATION STATEMENT

SUBJECT TO COMPLETION, DATED MARCH 27, 2015

 

 

 

INFORMATION STATEMENT

MSG Spinco, Inc.

Distribution of

Class A Common Stock

Par Value, $0.01 Per Share

Class B Common Stock

Par Value, $0.01 Per Share

This information statement is being furnished in connection with the distribution by The Madison Square Garden Company (“MSG”) to holders of its common stock of all the outstanding shares of MSG Spinco, Inc. (“Spinco”) common stock. Prior to such distribution, we, Spinco, will enter into a series of transactions with MSG pursuant to which we will own the entertainment and sports businesses that were owned and operated by MSG through its MSG Entertainment and MSG Sports business segments and own, lease or operate the arenas and other venues that were owned, leased or operated by MSG, as described in this information statement.

Shares of our Class A Common Stock will be distributed to holders of MSG Class A Common Stock of record as of the close of business, New York City time, on [], 2015, which will be the record date. Each such holder will receive one share of our Class A Common Stock for every [] share(s) of MSG’s Class A Common Stock held on the record date. Shares of our Class B Common Stock will be distributed to holders of MSG’s Class B Common Stock as of the close of business on the record date. Each holder of MSG’s Class B Common Stock will receive one share of our Class B Common Stock for every [] share(s) of MSG’s Class B Common Stock held on the record date. We refer to this distribution of securities as the “Distribution.” The Distribution will be effective at 11:59 p.m. on [], 2015. For MSG stockholders who own common stock in registered form, in most cases the transfer agent will credit their shares of Spinco common stock to book entry accounts established to hold their MSG common stock. Our distribution agent will send these stockholders a statement reflecting their Spinco common stock ownership shortly after [], 2015. For stockholders who own MSG common stock through a broker or other nominee, their shares of Spinco common stock will be credited to their accounts by the broker or other nominee. Stockholders will receive cash in lieu of fractional shares, which generally will be taxable. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”

No stockholder approval of the Distribution is required or sought. We are not asking you for a proxy and you are requested not to send us a proxy. MSG stockholders will not be required to pay for the shares of our common stock to be received by them in the Distribution, or to surrender or to exchange shares of MSG common stock in order to receive our common stock, or to take any other action in connection with the Distribution. There is currently no trading market for our common stock. We will apply to list our Class A Common Stock on [The NASDAQ Stock Market LLC (“NASDAQ”)] under the symbol “[].” We will not list our Class B Common Stock on any stock exchange.

IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE CAPTION “RISK FACTORS” BEGINNING ON PAGE 21.

WE ARE AN EMERGING GROWTH COMPANY AS DEFINED IN THE JUMPSTART OUR BUSINESS STARTUPS ACT OF 2012. REFER TO “RISK FACTORS — GENERAL RISKS — THE REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO US AS AN ‘EMERGING GROWTH COMPANY’ MAY MAKE OUR CLASS A COMMON STOCK LESS ATTRACTIVE TO INVESTORS” AND “BUSINESS — EMERGING GROWTH COMPANY STATUS.”

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 

THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.

 

 

Stockholders of MSG with inquiries related to the Distribution should contact MSG’s transfer agent, Wells Fargo Shareowner Services, at 1-800-468-9716.

The date of this information statement is [], 2015.


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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

OUR COMPANY

     1   

Our Strengths

     1   

Our Strategy

     2   

Key Challenges

     4   

Company Information

     4   

THE DISTRIBUTION

     5   

SELECTED FINANCIAL DATA

     9   

QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION

     10   

THE DISTRIBUTION

     15   

General

     15   

Manner of Effecting the Distribution

     15   

Reasons for the Distribution

     16   

Results of the Distribution

     16   

Material U.S. Federal Income Tax Consequences of the Distribution

     17   

Listing and Trading of Our Common Stock

     19   

Reason for Furnishing this Information Statement

     20   

RISK FACTORS

     21   

Risks Relating to Our Sports Business

     21   

Risks Relating to Our Entertainment Business

     24   

General Risks

     25   

BUSINESS

     37   

General

     37   

Our Strengths

     37   

Our Strategy

     38   

Our Business

     40   

Other Investments

     48   

Garden of Dreams Foundation

     49   

Regulation

     50   

Competition

     50   

Employees

     51   

Properties

     52   

Legal Proceedings

     52   

Financial Information about Segments and Geographic Areas

     52   

Emerging Growth Company Status

     53   

DIVIDEND POLICY

     54   

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     55   

SELECTED FINANCIAL DATA

     61   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     62   

Introduction

     63   

Proposed Distribution and Basis of Presentation

     64   

Business Overview

     65   

MSG Entertainment

     65   

MSG Sports

     68   

Corporate Expenses and Venue Operating Costs

     73   

Investments in Nonconsolidated Affiliates

     73   

Impact of Current Economic Conditions

     74   

Results of Operations

     75   

Liquidity and Capital Resources

     100   

 

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     Page  

Seasonality of Our Business

     103   

Recently Issued Accounting Pronouncements and Critical Accounting Policies

     103   

CORPORATE GOVERNANCE AND MANAGEMENT

     111   

Corporate Governance

     111   

Our Directors

     112   

Our Executive Officers

     117   

EXECUTIVE COMPENSATION

     118   

Introduction

     118   

Compensation Discussion and Analysis

     118   

Executive Compensation Program Objectives and Philosophy

     120   

Compensation Practices and Policies

     120   

Elements of MSG’s Compensation Program

     122   

Employment Agreements

     129   

Key Elements of 2015 Expected Compensation from the Company

     129   

Historical Compensation Information

     129   

Grants of MSG Plan-Based Awards

     131   

Outstanding MSG Equity Awards at June 30, 2014

     131   

MSG Option Exercises and Stock Vested

     132   

MSG Pension Benefits

     132   

MSG Nonqualified Deferred Compensation

     134   

Termination and Severance

     135   

Our Equity Compensation Plan Information

     138   

Our Employee Stock Plan

     138   

Our Stock Plan for Non-Employee Directors

     142   

Our Cash Incentive Plan

     145   

Treatment of Outstanding Options, Rights, Restricted Stock, Restricted Stock Units and Other Awards

     146   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     148   

Introduction

     148   

Relationship Between MSG and Us After the Distribution

     148   

Relationship between Cablevision and Us after the Distribution

     151   

Dolan Family Arrangements

     151   

Certain Relationships and Potential Conflicts of Interest

     152   

Related Party Transaction Approval Policy

     153   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     154   

Beneficial Ownership Of Stock

     154   

SHARES ELIGIBLE FOR FUTURE SALE

     156   

Rule 144

     156   

Employee Stock Awards

     156   

Non-Employee Director Stock Awards

     156   

Registration Rights Agreements

     156   

DESCRIPTION OF CAPITAL STOCK

     158   

Class A Common Stock and Class B Common Stock

     158   

Preferred Stock

     161   

Certain Corporate Opportunities and Conflicts

     162   

Section 203 of the Delaware General Corporation Law

     163   

Limitation on Personal Liability

     163   

INDEMNIFICATION OF DIRECTORS AND OFFICERS

     164   

AVAILABLE INFORMATION

     165   

INDEX TO COMBINED FINANCIAL STATEMENTS

     F-1   

 

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SUMMARY

The following is a summary of certain of the information contained in this information statement. This summary is included for convenience only and should not be considered complete. This summary is qualified in its entirety by more detailed information contained elsewhere in this information statement, which should be read in its entirety.

Unless the context otherwise requires, all references to “we”, “us”, “our”, “Spinco” or the “Company” refer to MSG Spinco, Inc., together with its direct and indirect subsidiaries. Where we describe in this information statement our business activities, we do so as if the transfer of the MSG Entertainment and MSG Sports business segments, including the venues, of MSG to Spinco has already occurred.

OUR COMPANY

Spinco is a sports and entertainment business comprised of dynamic and powerful assets and brands that grew from the legendary Madison Square Garden Arena (also referred to as “The Garden”), widely known as “The World’s Most Famous Arena.” Drawing on its celebrated history, the Company builds iconic brands that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. With a portfolio of celebrated venues, legendary sports teams and exclusive entertainment productions, the Company’s two business segments — MSG Sports and MSG Entertainment — work together to deliver exceptional experiences that endure for generations.

The Company operates in two business segments:

 

    MSG Sports. Our sports business owns and operates the following sports franchises: the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”), the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), the New York Liberty (the “Liberty”) of the Women’s National Basketball Association (the “WNBA”), the Hartford Wolf Pack of the American Hockey League (the “AHL”) and the Westchester Knicks of the NBA Development League (the “NBADL”). In addition, MSG Sports promotes, produces and/or presents a broad array of other live sporting events, including professional boxing, college basketball, professional bull riding and tennis.

 

    MSG Entertainment. Our entertainment business presents or hosts live entertainment events, including concerts, family shows, performing arts and special events, in our diverse collection of venues and arenas. Those venues include The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, The Chicago Theatre and the Wang Theatre. MSG Entertainment also creates, produces and/or presents live productions, including the Radio City Christmas Spectacular and New York Spring Spectacular, both featuring the Radio City Rockettes (the “Rockettes”), that are performed in the Company’s venues.

Our Strengths

 

    Ownership of legendary sports franchises;

 

    Iconic venues in top live entertainment markets;

 

    Diverse collection of marquee entertainment brands and content, including the Radio City Christmas Spectacular, New York Spring Spectacular and the Rockettes;

 

    Powerful presence in the New York City metropolitan area with established core assets and expertise for strategic expansion;

 

    Strong industry relationships that create opportunities for new content and brand extensions;

 

    Deep connection with loyal and passionate fan bases that span a wide demographic mix;

 

 

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    First-class experience in managing venues, bookings, marketing and sales in multiple markets;

 

    Ability to forge strategic partnerships that utilize the Company’s assets, core competencies and scale, while allowing the Company to benefit from growth in those businesses;

 

    Established history of successfully planning and executing comprehensive venue renovations;

 

    Extensive range of proprietary marketing assets, including an industry-leading customer database that allows us to drive engagement with our brands; and

 

    Strong and seasoned management team.

Our Strategy

Spinco pursues opportunities that capitalize on our iconic venues, popular sports franchises and exclusive entertainment content, as well as our venue management, bookings, marketing and sales expertise. We believe the Company’s unique combination of assets, the depth of our relationships within the sports and entertainment industries and strong connection with our diverse and passionate audiences, set the Company apart in the industry and represent a substantial opportunity for growth. Specific initiatives we are focused on include:

 

    Developing championship caliber teams. The core of MSG Sports’ strategy is to develop teams that seek to consistently compete for championships in their respective leagues, and support and drive revenue streams across the Company. We continue to explore new ways to increase engagement and revenue opportunities across the teams’ broad consumer and corporate customer bases.

 

    Monetizing our exclusive sports content. The Company will enter into long-term media rights agreements (the “media rights agreements”) with MSG that will provide a significant recurring and growing revenue stream to the Company, subject to the terms of such agreements. In addition, the media rights agreements and the relationship with MSG will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks.

 

    Growing our entertainment brands. Building on our hallmark Radio City Christmas Spectacular and Rockettes brands, MSG Entertainment is focused on enhancing existing productions and developing new productions. In March 2015, MSG Entertainment officially debuted a brand new large scale theatrical production at Radio City Music Hall — called New York Spring Spectacular — featuring the Rockettes.

 

    Exploiting our network of venues. The Company has built a portfolio of venues with which we can deliver high-quality live content and increased bookings. In addition to our New York venues: The Garden, The Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre, we own the Forum in Inglewood, CA and The Chicago Theatre and have a long-term booking agreement with respect to the Wang Theatre in Boston, Massachusetts. Our venues provide multiple distribution outlets for our live entertainment content. Controlling and booking a network of venues enables us to leverage our unique brands and marketing assets, and provides the opportunity to increase utilization through more multi-night concerts and other events and more recurring high-profile events that help build our base of events.

 

    Utilizing our integrated approach to marketing and sales. MSG Sports and MSG Entertainment possess powerful assets that when used in a complementary manner can create significant value for our business. For example:

 

   

Our sale of marketing partnerships allows us to use and sell our broad array of MSG Sports and MSG Entertainment assets together in order to maximize their collective value, both for the Company and for our marketing partners. This ability to offer compelling, broad-based marketing platforms that we believe are unparalleled in sports and entertainment has enabled us to attract

 

 

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world-class partners, such as our “Marquee” marketing partner, JPMorgan Chase, and our “Signature” marketing partners — Anheuser-Busch, Coca-Cola, Delta Airlines, Kia, Lexus and SAP.

 

    We continue to forge deep direct-to-consumer relationships with customers and fans, with a focus on understanding how consumers interact with every aspect of the Company. A key component of this strategy is our large and growing proprietary customer database which drives revenue and engagement across segments, benefiting the Company through ticket sales, merchandise sales and sponsorship activation. This database provides us a greater opportunity to cross-promote our products and services, introducing customers to our wide range of assets and brands. For example, we have used our database to drive ticket sales to the Radio City Christmas Spectacular and New York Spring Spectacular from fans of our sports teams.

 

    Leveraging our live entertainment and venue management expertise and our “artist first” approach. Our first-class venue management capabilities, along with our effective bookings strategy and proven expertise in sponsorships, marketing, ticketing and promotions, have positioned the Company as an industry leader in live entertainment. Part of what drives our success is our “artist first” approach, which includes creating artist-friendly environments and delivering top-tier service that not only attracts artists and athletes to our venues, but makes them want to come back, ensuring our customers experience the very best in live entertainment. For example, we have a track record of designing world-class venues that exceed artist expectations. This includes our renovations of Radio City Music Hall, the Beacon Theatre, The Garden and, most recently, the Forum, which once again delivers superior sound quality and an intimate feel, and now includes first-rate amenities such as nine star-caliber dressing rooms and dedicated areas for production and touring crews. We will continue to use our unique assets, expertise and approach to bring world-renowned artists, performers, athletes and partners to our venues, while also pursuing a strategy that includes using our resources, relationships and expertise to become a third-party management company for venues not owned or operated by Spinco.

 

    Exploring additional ways to strengthen our core assets. Our commitment to strengthening our core assets is exemplified by the transformation of The Garden into a state-of-the-art facility (the “Transformation”) that enhances the experience for our customers, partners, athletes and entertainers and continues to attract even more marquee events, while driving growth across several categories, including ticket, suite, sponsorship, food, beverage and merchandise sales. The Transformation is designed to ensure The Garden’s continued and lasting prominence as a sports and entertainment venue and has driven significant revenue for the Company. The Transformation is discussed in greater detail under “Business — Our Business — Our Venues — The Garden Transformation.”

 

    Continuing to explore external strategic opportunities. We will continue to seek strategic opportunities to add compelling assets and brands that resonate with our customers and partners, fit with our core competencies and allow new opportunities for growth across the Company. One of the ways we try to capitalize on our unique combination of dynamic assets, established industry relationships and deep customer connections is through strategic partnerships that bring together the expertise and capabilities of each partner, and enable us to team with recognized leaders in their fields and benefit from growth in those businesses. For example, in September 2013, we invested in Azoff MSG Entertainment LLC (“Azoff-MSG”), backed by one of the music and entertainment industry’s most respected and influential executives. The joint venture owns and operates existing music, media and entertainment businesses, while allowing us to pursue various businesses in the entertainment space. In addition, in March 2014, we invested in Tribeca Enterprises LLC (“Tribeca Enterprises”), bringing together two of New York’s cultural and entertainment icons to enhance the reach and impact of both brands, while creating new avenues for growth with one of the most respected teams in the film and entertainment industry. We are also co-producing New York Spring Spectacular with The Weinstein Company, a known leader in the development of content, and have also joined with The Weinstein Company on certain other live theatrical productions.

 

 

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Key Challenges

Following the Distribution, we may face a number of challenges, both pre-existing and as a result of the Distribution, including:

 

    intense competition in the markets and industries in which we operate;

 

    dependence upon the continued popularity of our sports teams and our live productions;

 

    lack of an operating history as a stand-alone public company;

 

    amount of, as well as volatility and less predictability in, our operating results and cash flow because Spinco’s results will not reflect the generally more predictable cash flow of the MSG Media business segment; and

 

    volatility in the market price and trading volume of our common stock.

Company Information

We are a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, NY, 10121. Our telephone number is +1 (212) 465-6000. Spinco is a holding company and conducts substantially all of its operations through its subsidiaries.

Spinco was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG. Prior to the Distribution, the Company will acquire the subsidiary of MSG that owns, directly and indirectly, the subsidiaries, businesses and other assets described in this information statement. Where we describe in this information statement our business activities, we do so as if these transfers have already occurred.

 

 

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THE DISTRIBUTION

Please see “The Distribution” for a more detailed description of the matters described below.

 

Distributing Company

MSG, which is a sports, entertainment and media business. In addition to the MSG Sports and MSG Entertainment business segments that are being transferred to Spinco, MSG also owns and operates regional sports networks under its MSG Media business segment.

 

Distributed Company

Spinco, a wholly-owned indirect subsidiary of MSG, which will own and operate the sports and entertainment businesses currently owned and operated by MSG through its MSG Sports and MSG Entertainment segments and will own, lease or operate the arenas and other venues currently owned, leased or operated by MSG, as described in this information statement. Please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information concerning these businesses.

 

Distribution Ratio

Each holder of MSG Class A Common Stock will receive a distribution of one share of our Class A Common Stock for every [] share(s) of MSG Class A Common Stock held on the record date and each holder of MSG Class B Common Stock will receive a distribution of one share of our Class B Common Stock for every [] share(s) of MSG Class B Common Stock held on the record date.

 

Securities to be Distributed

Based on [] shares of MSG Class A Common Stock and [] shares of MSG Class B Common Stock outstanding on [], 2015, approximately [] shares of our Class A Common Stock and [] shares of our Class B Common Stock will be distributed. The shares of our common stock to be distributed will constitute all of the outstanding shares of our common stock immediately after the Distribution. MSG stockholders will not be required to pay for the shares of our common stock to be received by them in the Distribution, or to surrender or exchange shares of MSG common stock in order to receive our common stock, or to take any other action in connection with the Distribution.

 

Fractional Shares

Fractional shares of our common stock will not be distributed. Fractional shares of our Class A Common Stock will be aggregated and sold in the public market by the distribution agent and stockholders will receive a cash payment in lieu of a fractional share. Similarly, fractional shares of our Class B Common Stock will be aggregated, converted to Class A Common Stock, and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed ratably to the stockholders who would otherwise have received fractional interests. These proceeds generally will be taxable to those stockholders.

 

Distribution Agent, Transfer Agent and Registrar for the Shares

Wells Fargo Shareowner Services will be the distribution agent, transfer agent and registrar for the shares of our common stock.

 

 

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Record Date

The record date is the close of business New York City time, on [], 2015.

 

Distribution Date

11:59 p.m. on [], 2015.

 

Material U.S. Federal Income Tax Consequences of the Distribution

MSG expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders of MSG Class A Common Stock and MSG Class B Common Stock, respectively (i.e., the Distribution), will qualify as a tax-free distribution under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, for U.S. federal income tax purposes, the Distribution will not result in the recognition of gain to MSG with respect to the distribution of our Class A Common Stock or our Class B Common Stock to the MSG stockholders and, except to the extent a stockholder receives cash in lieu of fractional shares of our common stock, no income, gain or loss will be recognized by, and no amount will be included in the income of such holder upon the receipt of shares of our common stock pursuant to the Distribution. The opinion will not be binding on the Internal Revenue Service (“IRS”) or the courts. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” MSG has also applied for a private letter ruling from the IRS regarding certain limited aspects of the Distribution. While certain transactions related to the Distribution that are not expected to be addressed by either the opinion or the private letter ruling could result in the recognition of income or gain by MSG, the impact of any such resulting tax is not expected to be material to MSG. The opinion and the private letter ruling will rely on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.

 

Stock Exchange Listing

There is not currently a public market for our common stock. We will apply for our Class A Common Stock to be listed on [NASDAQ] under the symbol “[].” It is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the date of the Distribution, when-issued trading in respect of our Class A Common Stock will end and regular-way trading will begin. Our Class B Common Stock will not be listed on a securities exchange.

 

Relationship between MSG and Us after the Distribution

Following the Distribution, we will be a public company and MSG will have no continuing stock ownership interest in us. Prior to the Distribution, we and MSG will enter into a distribution agreement (the “Distribution Agreement”) and several ancillary agreements for the purpose of accomplishing the distribution of our common stock to MSG’s common stockholders. These agreements also will govern our relationship with MSG subsequent to the Distribution and provide for the allocation of employee benefit, tax and some other liabilities and obligations attributable to periods prior to the Distribution. These

 

 

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agreements also will include arrangements with respect to transition services (the “Transition Services Agreement”) and a number of on-going commercial relationships. The Distribution Agreement includes an agreement that we and MSG agree to provide each other with appropriate indemnities with respect to liabilities arising out of the businesses being transferred to us by MSG. In connection with the Distribution, we will enter into media rights agreements with MSG that will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks. We are also party to other arrangements with MSG and its subsidiaries. See “Certain Relationships and Related Party Transactions.”

 

  Following the Distribution there will be an overlap between the executive officers of the Company and MSG. One or more of our executive officers will also continue to serve in their respective roles at MSG. In addition, immediately following the Distribution, [] of the members of our Board of Directors (or the “Board”) will also be directors of MSG, and [] of our directors will continue to serve as officers and/or employees of MSG concurrently with their service on our Board. Certain of our directors and/or officers may also serve as directors, officers and/or employees of Cablevision Systems Corporation (“Cablevision”) and/or AMC Networks Inc. (“AMC Networks”).

 

  See “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” and “Description of Capital Stock — Certain Corporate Opportunities and Conflicts” for a discussion of the policies that will be in place for dealing with potential conflicts of interest that may arise from our ongoing relationship with MSG, Cablevision and AMC Networks.

 

Control by Dolan Family

Following the Distribution, we will be controlled by Charles F. Dolan, members of his family and certain related family entities. We have been informed that Charles F. Dolan, these family members and the related entities will enter into a stockholders agreement (the “Stockholders Agreement”) relating, among other things, to the voting of their shares of our Class B Common Stock. As a result, following the Distribution, we will be a “controlled company” under the corporate governance rules of [NASDAQ]. Our Board of Directors has elected not to comply with the [NASDAQ] requirements for a majority independent board of directors and an independent corporate governance and nominating committee because of our status as a controlled company. Charles F. Dolan, members of his family and certain related family entities also control MSG, Cablevision and AMC Networks.

 

  See “Risk Factors — General Risks — We are Controlled by the Dolan Family.” Immediately following the Distribution, [] of the members of our Board of Directors will be members of the Dolan family.

 

 

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Post-Distribution Dividend Policy

We do not expect to pay any cash dividends on our common stock in the foreseeable future. All decisions regarding the payment of dividends will be made by our Board of Directors from time to time in accordance with applicable law.

 

Risk Factors

Stockholders should carefully consider the matters discussed under “Risk Factors.”

 

 

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SELECTED FINANCIAL DATA

The operating and balance sheet data included in the following selected financial data table have been derived from the combined financial statements of Spinco. The financial information presented below for periods prior to the Distribution date does not necessarily reflect what our results of operations and financial position would have been if we had operated as a separate publicly-traded entity during those periods. The selected financial data presented below should be read in conjunction with the combined financial statements included elsewhere in this information statement and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Six Months Ended
December 31,
    Years Ended June 30,  
     2014     2013     2014     2013     2012  
     (in thousands)  

Operating Data:

          

Revenues

   $ 515,730      $ 413,524      $ 913,615      $ 722,943      $ 728,867   

Operating expenses:

          

Direct operating

     336,906        291,825        714,825        533,282        530,307   

Selling, general and administrative

     114,402        94,594        221,109        176,139        171,757   

Depreciation and amortization

     59,563        39,274        91,709        72,551        62,940   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  4,859      (12,169   (114,028   (59,029   (36,137

Other income (expense):

Equity in loss of nonconsolidated affiliates

  (32,755   (738   (1,323   —        —     

Interest income (expense), net

  173      (172   20      (1,609   (867

Miscellaneous

  75      23      95      3,497      7,072   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations before income taxes

  (27,648   (13,056   (115,236   (57,141   (29,932

Income tax expense

  (446   (848   (1,697   (1,133   (6,350
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

$ (28,094 $ (13,904 $ (116,933 $ (58,274 $ (36,282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data:

Total assets

$ 2,165,161    $ 2,090,815    $ 2,137,191    $ 1,732,863    $ 1,580,868   

Total divisional equity

  1,219,062      1,160,709      1,191,203      916,764      828,735   

 

 

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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION

The following is a brief summary of the terms of the Distribution. Please see “The Distribution” for a more detailed description of the matters described below.

 

Q: What is the Distribution?

 

A: The Distribution is the method by which MSG will separate the businesses of our Company from MSG’s other business, creating two separate, publicly-traded companies. In the Distribution, MSG will distribute to its stockholders all of the shares of our Class A Common Stock and Class B Common Stock that it owns. Following the Distribution, we will be a separate company from MSG, and MSG will not retain any ownership interest in us. The number of shares of MSG common stock you own will not change as a result of the Distribution.

 

Q: What is being distributed in the Distribution?

 

A: Approximately [] million shares of our Class A Common Stock and [] million shares of our Class B Common Stock will be distributed in the Distribution, based upon the number of shares of MSG Class A Common Stock and MSG Class B Common Stock outstanding on the record date. The shares of our Class A Common Stock and Class B Common Stock to be distributed by MSG will constitute all of the issued and outstanding shares of our Class A Common Stock and Class B Common Stock immediately after the Distribution. For more information on the shares being distributed in the Distribution, see “Description of Capital Stock — Class A Common Stock and Class B Common Stock.”

 

Q: What will I receive in the Distribution?

 

A: Holders of MSG Class A Common Stock will receive a distribution of one share of our Class A Common Stock for every [] share(s) of MSG Class A Common Stock held by them on the record date, and holders of MSG Class B Common Stock will receive a distribution of one share of our Class B Common Stock for every [] share(s) of MSG Class B Common Stock held by them on the record date. As a result of the Distribution, your proportionate interest in MSG will not change and you will own the same percentage of equity securities and voting power in Spinco as you previously did in MSG. For a more detailed description, see “The Distribution.”

 

Q: What is the record date for the Distribution?

 

A: Record ownership will be determined as the close of business New York City time, on [], 2015, which we refer to as the record date. The person in whose name shares of MSG common stock are registered at the close of business on the record date is the person to whom shares of the Company’s common stock will be issued in the Distribution. As described below, MSG Class A Common Stock will not trade on an ex-dividend basis with respect to our common stock and, as a result, if a record holder of MSG Class A Common Stock sells those shares after the record date and on or prior to the Distribution date, the seller will be obligated to deliver to the purchaser the shares of our common stock that are issued in respect of the transferred MSG Class A Common Stock.

 

Q: When will the Distribution occur?

 

A: We expect that shares of our Class A Common Stock and Class B Common Stock will be distributed by the distribution agent, on behalf of MSG, effective at 11:59 p.m. on [], 2015, which we refer to as the “Distribution date.”

 

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Q: What will the relationship between MSG and us be following the Distribution?

 

A: Following the Distribution, we will be a public company and MSG will have no continuing stock ownership interest in us. In connection with the Distribution, we and MSG will enter into a Distribution Agreement and several other agreements for the purpose of accomplishing the Distribution of our common stock to MSG’s common stockholders. These agreements also will govern our relationship with MSG subsequent to the Distribution and provide for the allocation of employee benefit, tax and some other liabilities and obligations attributable to periods prior to the Distribution. These agreements will also include arrangements with respect to transition services under the Transition Services Agreement and a number of ongoing commercial relationships. The Distribution Agreement will provide that we and MSG agree to provide each other with appropriate indemnities with respect to liabilities arising out of the businesses being transferred to us by MSG. In connection with the Distribution, we will enter into media rights agreements with MSG that will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks. We will also be party to other arrangements with MSG and its subsidiaries. See “Certain Relationships and Related Party Transactions.” Following the Distribution, we and MSG will both be controlled by Charles F. Dolan, members of his family and certain related family entities.

Following the Distribution there will be an overlap between the executive officers of the Company and MSG. One or more of our executive officers will also continue to serve in their respective roles at MSG. In addition, immediately following the Distribution, [] of the members of our Board of Directors will also be directors of MSG, and [] of our directors will continue to serve as officers and/or employees of MSG concurrently with their service on our Board.

See “Certain Relationships and Related Party Transactions — Relationship Between MSG and Us After the Distribution” for a discussion of the policy that will be in place for dealing with potential conflicts of interest that may arise from our ongoing relationship with MSG, Cablevision and AMC Networks.

 

Q: What do I have to do to participate in the Distribution?

 

A: No action is required on your part. Stockholders of MSG on the record date for the Distribution are not required to pay any cash or deliver any other consideration, including any shares of MSG common stock, for the shares of our common stock distributable to them in the Distribution.

 

Q: If I sell, on or before the Distribution date, shares of MSG Class A Common Stock that I held on the record date, am I still entitled to receive shares of Spinco Class A Common Stock distributable with respect to the shares of MSG Class A Common Stock I sold?

 

A: No. No ex-dividend market will be established for our Class A Common Stock until the first trading day following the Distribution date. Therefore, if you own shares of MSG Class A Common Stock on the record date and thereafter sell those shares on or prior to the Distribution date, you will also be selling the shares of our Class A Common Stock that would have been distributed to you in the Distribution with respect to the shares of MSG Class A Common Stock you sell. Conversely, a person who purchases shares of MSG Class A Common Stock after the record date and on or prior to the Distribution date will be entitled to receive from the seller of those shares the shares of our Class A Common Stock issued in the Distribution with respect to the transferred MSG Class A Common Stock.

 

Q: How will fractional shares be treated in the Distribution?

 

A: If you would be entitled to receive a fractional share of our Class A Common Stock in the Distribution, you will instead receive a cash payment. See “The Distribution — Manner of Effecting the Distribution” for an explanation of how the cash payments will be determined.

 

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Q: How will MSG distribute shares of Spinco common stock to me?

 

A: Holders of shares of MSG Class A Common Stock or Class B Common Stock on the record date will receive shares of the same class of our common stock, in book-entry form. See “The Distribution — Manner of Effecting the Distribution” for a more detailed explanation.

 

Q: What is the reason for the Distribution?

 

A: The potential benefits considered by MSG’s board of directors in making the determination to consummate the Distribution included the following:

 

    to increase the aggregate value of the stock of MSG and the Company above the value that the stock of MSG would have had if it had continued to represent an interest in both the businesses of MSG and the Company, so that following the Distribution each company can use its stock to pursue and achieve strategic objectives including evaluating and effectuating acquisitions and increasing the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders; and

 

    to provide each of MSG and the Company with increased flexibility to fully pursue its business plan including capital expenditures, investments and acquisitions that would be more difficult to consider or effectuate in the absence of the Distribution. This flexibility reflects the belief that investors in a company with the mix of assets that each of MSG and the Company will own following the Distribution will be more receptive to strategic initiatives that MSG and the Company may respectively pursue.

MSG’s board of directors also considered several factors that might have a negative effect on MSG as a result of the Distribution. MSG’s common stock may come under initial selling pressure as certain MSG stockholders sell their shares because they are not interested in holding an investment in MSG’s remaining business. Moreover, certain factors such as a lack of comparable public companies may limit investors’ ability to appropriately value MSG’s common stock. In addition, the Distribution would separate from MSG the businesses and assets of the Company, which represent significant value, in a transaction that produces no direct economic consideration for MSG. Because the Company will no longer be part of MSG, the Distribution also will separate the outright ownership of the rights to Knicks and Rangers games from MSG and affect the terms of, or limit the ability of MSG to pursue, cross-company business transactions and initiatives with Spinco. Finally, following the Distribution, MSG and its remaining business will need to absorb certain corporate and administrative costs previously allocated to its MSG Sports and MSG Entertainment segments.

MSG’s board of directors considered certain aspects of the Distribution that may be adverse to the Company. The Company’s common stock may come under initial selling pressure as certain MSG stockholders sell their shares in the Company because they are not interested in holding an investment in the Company’s businesses. Moreover, certain factors such as a lack of comparable public companies may limit investors’ ability to appropriately value the Company’s common stock. Because the Company will no longer be part of MSG, the Distribution also will limit the ability of the Company to pursue cross-company business transactions and initiatives with other businesses of MSG. In addition, after the Distribution, the Company’s results will not reflect the generally more predictable cash flow from the MSG Media business segment, which may result in more volatile and less predictable operating results and cash flow for the Company. Finally, as a result of the Distribution, the Company will bear significant incremental costs associated with being a publicly held company.

 

Q: What are the federal income tax consequences to me of the Distribution?

 

A:

MSG expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders of MSG Class A Common Stock and MSG Class B Common Stock, respectively (i.e., the

 

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  Distribution), will qualify as a tax-free distribution under the Code. Accordingly, for U.S. federal income tax purposes, the Distribution will not result in the recognition of gain to MSG with respect to the distribution of our Class A Common Stock or our Class B Common Stock to the MSG stockholders and, except to the extent that you receive cash in lieu of fractional shares of our common stock, you will not recognize income, gain or loss, and no amount will be included in your income upon the receipt of shares of our common stock pursuant to the Distribution. The opinion will not be binding on the IRS or the courts. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” MSG has also applied for a private letter ruling from the IRS regarding certain limited aspects of the Distribution. The opinion and the private letter ruling will rely on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.

 

Q: Does Spinco intend to pay cash dividends?

 

A: No. We do not expect to pay any cash dividends on our common stock in the foreseeable future. All decisions regarding the payment of dividends will be made by our Board of Directors from time to time in accordance with applicable law.

 

Q: How will Spinco common stock trade?

 

A: There is not currently a public market for our common stock. We will apply to list our Class A Common Stock on [NASDAQ] under the symbol “[].” It is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the Distribution date, when-issued trading in respect of our Class A Common Stock will end and regular-way trading will begin. Our Class B Common Stock will not be listed on a securities exchange.

 

Q: Will the Distribution affect the trading price of my MSG Class A Common Stock?

 

A: Yes. After the distribution of our Class A Common Stock, the trading price of MSG Class A Common Stock may be lower than the trading price of the MSG Class A Common Stock immediately prior to the Distribution. Moreover, until the market has evaluated the operations of MSG without the operations of MSG Sports, MSG Entertainment and our venues and arenas, which collectively comprise Spinco, the trading price of MSG Class A Common Stock may fluctuate significantly. MSG believes that the separation of the Company from MSG offers its stockholders the greatest long-term value. However, the combined trading prices of MSG Class A Common Stock and Spinco Class A Common Stock after the Distribution may be lower than the trading price of MSG Class A Common Stock prior to the Distribution. See “Risk Factors” beginning on page 21.

 

Q: Do I have appraisal rights?

 

A: No. Holders of MSG common stock are not entitled to appraisal rights in connection with the Distribution.

 

Q: Who is the transfer agent for Spinco common stock?

 

A: Wells Fargo Shareowner Services, P.O. Box 64874, St. Paul, Minnesota 55164-0854.

 

Q: Where can I get more information?

 

A: If you have questions relating to the mechanics of the Distribution of shares of Spinco common stock, you should contact the distribution agent:

Wells Fargo Shareowner Services, P.O. Box 64874, St. Paul, Minnesota 55164-0874. Telephone: 1-800-468-9716. Corporate website: http://www.wellsfargo.com/shareownerservices.

 

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Before the Distribution, if you have questions relating to the Distribution, you should contact:

The Madison Square Garden Company

Investor Relations Department

Two Pennsylvania Plaza

New York, NY 10121

Telephone: 1-212-631-5422

After the Distribution, if you have questions relating to Spinco, you should contact:

MSG Spinco, Inc.

Investor Relations Department

Two Pennsylvania Plaza

New York, NY 10121

Telephone: 1-212-465-6000

 

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THE DISTRIBUTION

General

We will distribute all of the outstanding shares of our Class A Common Stock to the holders of MSG Class A Common Stock and all of the outstanding shares of our Class B Common Stock to the holders of MSG Class B Common Stock. We refer to this distribution of securities as the “Distribution.” In the Distribution, each holder of MSG common stock will receive a distribution of one share of our common stock for every [] share(s) of MSG common stock held as of the close of business, New York City time, on [], 2015, which will be the record date.

Manner of Effecting the Distribution

The general terms and conditions relating to the Distribution are set forth in the Distribution Agreement between us and MSG. Under the Distribution Agreement, the Distribution will be effective at 11:59 p.m. on [], 2015. For most MSG stockholders who own MSG common stock in registered form on the record date, our transfer agent will credit their shares of our common stock to book entry accounts established to hold these shares. Our distribution agent will send these stockholders a statement reflecting their ownership of our common stock. Book entry refers to a method of recording stock ownership in our records in which no physical certificates are used. For stockholders who own MSG common stock through a broker or other nominee, their shares of our common stock will be credited to these stockholders’ accounts by the broker or other nominee. As further discussed below, fractional shares will not be distributed. Following the Distribution, stockholders whose shares are held in book entry form may request that their shares of our common stock be transferred to a brokerage or other account at any time, as well as delivery of physical stock certificates for their shares, in each case without charge.

MSG STOCKHOLDERS WILL NOT BE REQUIRED TO PAY FOR SHARES OF OUR COMMON STOCK RECEIVED IN THE DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF MSG COMMON STOCK IN ORDER TO RECEIVE OUR COMMON STOCK, OR TO TAKE ANY OTHER ACTION IN CONNECTION WITH THE DISTRIBUTION. NO VOTE OF MSG STOCKHOLDERS IS REQUIRED OR SOUGHT IN CONNECTION WITH THE DISTRIBUTION, AND MSG STOCKHOLDERS HAVE NO APPRAISAL RIGHTS IN CONNECTION WITH THE DISTRIBUTION.

Fractional shares of our common stock will not be issued to MSG stockholders as part of the Distribution or credited to book entry accounts. In lieu of receiving fractional shares, each holder of MSG common stock who would otherwise be entitled to receive a fractional share of our common stock will receive cash for the fractional interest, which generally will be taxable to such holder. An explanation of the tax consequences of the Distribution can be found below in the subsection captioned “— Material U.S. Federal Income Tax Consequences of the Distribution.” The distribution agent will, as soon as practicable after the Distribution date, aggregate fractional shares of our Class A Common Stock into whole shares and sell them in the open market at the prevailing market prices and distribute the aggregate proceeds, net of brokerage fees, ratably to MSG Class A stockholders otherwise entitled to fractional interests in our Class A Common Stock. Similarly, fractional shares of our Class B Common Stock will be aggregated, converted to Class A Common Stock, and sold in the public market by the distribution agent. The amount of such payments will depend on the prices at which the aggregated fractional shares are sold by the distribution agent in the open market shortly after the Distribution date.

See “Executive Compensation — Treatment of Outstanding Options, Rights, Restricted Stock, Restricted Stock Units and Other Awards,” for a discussion of how outstanding MSG options, restricted shares, restricted stock units and performance awards will be affected by the Distribution.

In order to be entitled to receive shares of our common stock in the Distribution, MSG stockholders must be stockholders of record of MSG common stock at the close of business New York City time, on the record date, [], 2015.

 

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Reasons for the Distribution

MSG’s board of directors has determined that separation of our businesses from MSG’s other business is in the best interests of MSG and its stockholders. The potential benefits considered by MSG’s board of directors in making the determination to consummate the Distribution included the following:

 

    to increase the aggregate value of the stock of MSG and the Company above the value that the stock of MSG would have had if it had continued to represent an interest in both the businesses of MSG and the Company, so that following the Distribution each company can use its stock to pursue and achieve strategic objectives including evaluating and effectuating acquisitions and increasing the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders; and

 

    to provide each of MSG and the Company with increased flexibility to fully pursue its business plan including capital expenditures, investments and acquisitions that would be more difficult to consider or effectuate in the absence of the Distribution. This flexibility reflects the belief that investors in a company with the mix of assets that each of MSG and the Company will own following the Distribution will be more receptive to strategic initiatives that MSG and the Company may respectively pursue.

MSG’s board of directors also considered several factors that might have a negative effect on MSG as a result of the Distribution. MSG’s common stock may come under initial selling pressure as certain MSG stockholders sell their shares because they are not interested in holding an investment in MSG’s remaining business. In addition, the Distribution would separate from MSG the businesses and assets of the Company, which represent significant value, in a transaction that produces no direct economic consideration for MSG. Because the Company will no longer be part of MSG, the Distribution also will separate the outright ownership of the rights to Knicks and Rangers games from MSG and affect the terms of, or limit the ability of MSG to pursue, cross-company business transactions and initiatives with Spinco. Finally, following the Distribution, MSG and its remaining business will need to absorb certain corporate and administrative costs previously allocated to its MSG Sports and MSG Entertainment segments.

MSG’s board of directors considered certain aspects of the Distribution that may be adverse to the Company. The Company’s common stock may come under initial selling pressure as certain MSG stockholders sell their shares in the Company because they are not interested in holding an investment in the Company’s businesses. Moreover, certain factors such as a lack of comparable public companies may limit investors’ ability to appropriately value the Company’s common stock. Because the Company will no longer be part of MSG, the Distribution also will limit the ability of the Company to pursue cross-company business transactions and initiatives with other businesses of MSG. Finally, as a result of the Distribution, the Company will bear significant incremental costs associated with being a publicly held company.

Results of the Distribution

After the Distribution, we will be a public company owning and operating the sports and entertainment businesses currently constituting MSG’s MSG Sports and MSG Entertainment segments and owning, leasing or operating the arenas and other venues currently owned, leased or operated by MSG. Immediately after the Distribution, we expect to have approximately [] holders of record of our Class A Common Stock and [] holders of record of our Class B Common Stock and approximately [] million shares of Class A Common Stock and [] million shares of Class B Common Stock outstanding, based on the number of stockholders of record and outstanding shares of MSG common stock on [], 2015 and after giving effect to the delivery to stockholders of cash in lieu of fractional shares of our common stock. The actual number of shares to be distributed will be determined on the record date. You can find information regarding options, restricted stock units and restricted stock that will be outstanding after the Distribution in the section captioned, “Executive Compensation — Treatment of Outstanding Options, Rights, Restricted Stock, Restricted Stock Units and Other Awards.” We and MSG will both be controlled by Charles F. Dolan, members of his family and certain related family entities.

 

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In connection with the Distribution, we will enter into media rights agreements with MSG that will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks. Prior to the Distribution, we will enter into a number of agreements with MSG (and certain of its subsidiaries) pursuant to which we will provide management and other services to MSG, including with respect to such areas as employee matters, tax and other services. We will also be party to other arrangements with MSG and its subsidiaries pursuant to which MSG will provide certain services to us.

The Distribution will not affect the number of outstanding shares of MSG common stock or any rights of MSG stockholders.

Material U.S. Federal Income Tax Consequences of the Distribution

The following is a summary of the material U.S. federal income tax consequences of the Distribution to us, MSG and MSG stockholders. This summary is based on the Code, the regulations promulgated under the Code by the Department of Treasury, and interpretations of such authorities by the courts and the IRS, all as of the date of this information statement and all of which are subject to change at any time, possibly with retroactive effect. This summary is limited to holders of MSG common stock that are U.S. holders, as defined below, that hold their shares of MSG common stock as capital assets, within the meaning of section 1221 of the Code. Further, this summary does not discuss all tax considerations that may be relevant to holders of MSG common stock in light of their particular circumstances, nor does it address the consequences to holders of MSG common stock subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, partnerships (including arrangements treated as partnerships for U.S. federal income tax purposes), persons who acquired such shares of MSG common stock pursuant to the exercise of employee stock options or otherwise as compensation, financial institutions, insurance companies, dealers or traders in public securities, and persons who hold their shares of MSG common stock as part of a straddle, hedge, conversion, constructive sale, synthetic security, integrated investment or other risk-reduction transaction for U.S. federal income tax purposes. This summary does not address any U.S. federal estate, gift or other non-income tax consequences or any applicable state, local, foreign, or other tax consequences. Each stockholder’s individual circumstances may affect the tax consequences of the Distribution.

For purposes of this summary, a “U.S. holder” is a beneficial owner of MSG common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or a resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state or political subdivision thereof;

 

    an estate, the income of which is subject to United States federal income taxation regardless of its source; or

 

    a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) it has a valid election in place under applicable U.S. Department of Treasury regulations to be treated as a U.S. person.

If a partnership (including any arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of MSG common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding shares of MSG common stock should consult its tax advisor regarding the tax consequences of the Distribution.

MSG expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders

 

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of MSG Class A Common Stock and MSG Class B Common Stock, respectively (i.e., the Distribution), will qualify as a tax-free distribution under the Code. The opinion will not be binding on the IRS or the courts. MSG has also applied for a private letter ruling from the IRS regarding certain limited aspects of the Distribution. While certain transactions related to the Distribution that are not expected to be addressed by either the opinion or the private letter ruling could result in the recognition of income or gain by MSG, the impact of any such resulting tax is not expected to be material to MSG. The opinion and the private letter ruling will rely on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.

On the basis of the opinion and the ruling we expect to receive, and assuming that MSG common stock is a capital asset in the hands of a MSG stockholder on the Distribution date:

 

    Except for any cash received in lieu of a fractional share of our common stock, a MSG stockholder will not recognize any income, gain or loss as a result of the receipt of our common stock in the Distribution.

 

    A MSG stockholder’s holding period for our common stock received in the Distribution will include the period for which that stockholder’s MSG common stock was held.

 

    A MSG stockholder’s tax basis for our common stock received in the Distribution will be determined by allocating to that common stock, on the basis of the relative fair market values of MSG common stock and our common stock at the time of the Distribution, a portion of the stockholder’s basis in its MSG common stock. A MSG stockholder’s basis in its MSG common stock will be decreased by the portion allocated to our common stock. Within a reasonable period of time after the Distribution, MSG will provide its stockholders who receive our common stock pursuant to the Distribution with a worksheet for calculating their tax bases in our common stock and their MSG common stock.

 

    The receipt of cash in lieu of a fractional share of our common stock generally will be treated as a sale of the fractional share of our common stock, and a MSG stockholder will recognize gain or loss equal to the difference between the amount of cash received and the stockholder’s basis in the fractional share of our common stock, as determined above. The gain or loss will be long-term capital gain or loss if the holding period for the fractional share of our common stock, as determined above, is more than one year.

 

    The Distribution will not be a taxable transaction to us or MSG. However, certain transactions related to the Distribution that are not expected to be addressed by either the opinion or the private letter ruling could result in the recognition of income or gain by MSG, but the impact of any such resulting tax is not expected to be material to MSG.

If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, MSG would recognize taxable gain in an amount equal to the excess of the fair market value of the common stock of our Company over MSG’s tax basis therein, (i.e., as if it had sold the common stock of our Company in a taxable sale for its fair market value.) In addition, the receipt by MSG stockholders of common stock of our Company would be a taxable distribution, and each U.S. holder that participated in the Distribution would recognize a taxable distribution as if the U.S. holder had received a distribution equal to the fair market value of our common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of MSG’s earnings and profits, then as a non-taxable return of capital to the extent of each U.S. holder’s tax basis in its MSG common stock, and thereafter as capital gain with respect to any remaining value.

Even if the Distribution otherwise qualifies for tax-free treatment under the Code, the Distribution may be disqualified as tax-free to MSG and would result in a significant U.S. federal income tax liability to MSG (but not to the MSG stockholders) under Section 355(e) of the Code if the Distribution were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock

 

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representing a 50% or greater interest by vote or value, in MSG or us. For this purpose, any acquisitions of MSG’s stock or our stock within the period beginning two years before the Distribution and ending two years after the Distribution are presumed to be part of such a plan, although MSG or we may be able to rebut that presumption. The process for determining whether a prohibited acquisition has occurred under the rules described in this paragraph is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. MSG or we might inadvertently cause or permit a prohibited change in the ownership of MSG or us to occur, thereby triggering tax to MSG, which could have a material adverse effect. If such an acquisition of our stock or MSG’s stock triggers the application of Section 355(e), MSG would recognize taxable gain equal to the excess of the fair market value of the common stock of our Company held by it immediately before the Distribution over MSG’s tax basis therein, but the Distribution would be tax-free to each MSG stockholder. In certain circumstances, under the tax disaffiliation agreement between MSG and us (the “Tax Disaffiliation Agreement”), we would be required to indemnify MSG against that taxable gain if it were triggered by an acquisition of our stock. Please see “Certain Relationships and Related Party Transactions — Relationship Between MSG and Us After the Distribution — Tax Disaffiliation Agreement” for a more detailed discussion of the Tax Disaffiliation Agreement between MSG and us.

Payments of cash in lieu of a fractional share of any common stock of our Company made in connection with the Distribution may, under certain circumstances, be subject to backup withholding, unless a holder provides proof of an applicable exception or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not additional tax and may be refunded or credited against the holder’s U.S. federal income tax liability, provided that the holder furnishes the required information to the IRS.

U.S. Treasury regulations require certain MSG stockholders with significant ownership in MSG that receive shares of our stock in the Distribution to attach to their U.S. federal income tax return for the year in which such stock is received a detailed statement setting forth such data as may be appropriate to show that the Distribution is tax-free under the Code. Within a reasonable period of time after the Distribution, MSG will provide its stockholders who receive our common stock pursuant to the Distribution with the information necessary to comply with such requirement.

The Company has not made a determination as to whether we will be deemed to be a “United States real property holding corporation” (a “USRPHC”), as defined in section 897(c)(2) of the Code. In general, we will be a USRPHC if 50% or more of the fair market value of our assets constitute “United States real property interests” within the meaning of the Code. However, the determination of whether we are a USRPHC turns on the relative fair market value of our United States real property interests and our other assets, and because the USRPHC rules are complex, we can give no assurance as to our USRPHC status after the Distribution. A beneficial owner of MSG common stock that is not a U.S. holder should consult its tax advisor as to the particular tax consequences that would be applicable to such holder if we are treated as a USRPHC after the Distribution.

EACH MSG STOCKHOLDER SHOULD CONSULT ITS TAX ADVISOR ABOUT THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

Listing and Trading of Our Common Stock

There is not currently a public market for our common stock. We will apply for our Class A Common Stock to be listed on [NASDAQ] under the symbol “[].” Assuming that such listing application is approved, it is anticipated that trading will commence on a when-issued basis prior to the Distribution. On the first trading day following the Distribution date, when-issued trading in our Class A Common Stock will end and regular-way trading will begin. “When-issued trading” refers to trading which occurs before a security is actually issued. These transactions are conditional with settlement to occur if and when the security is actually issued and

 

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[NASDAQ] determines transactions are to be settled. “Regular way trading” refers to normal trading transactions, which are settled by delivery of the securities against payment on the third business day after the transaction.

We cannot assure you as to the price at which our Class A Common Stock will trade before, on or after the Distribution date. Until our Class A Common Stock is fully distributed and an orderly market develops in our Class A Common Stock, the price at which such stock trades may fluctuate significantly. In addition, the combined trading prices of our Class A Common Stock and MSG Class A Common Stock held by stockholders after the Distribution may be less than, equal to, or greater than the trading price of the MSG Class A Common Stock prior to the Distribution. Our Class B Common Stock will not be listed on a securities exchange or publicly traded.

The shares of our common stock distributed to MSG stockholders will be freely transferable, except for shares received by people who may have a special relationship or affiliation with us or shares subject to contractual restrictions. People who may be considered our affiliates after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with us. This may include certain of our officers, directors and significant stockholders. Persons who are our affiliates will be permitted to sell their shares only pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from the registration requirements of the Securities Act, or in compliance with Rule 144 under the Securities Act. As described under “Shares Eligible for Future Sale — Registration Rights Agreements,” we expect that certain persons will have registration rights with respect to our stock.

Reason for Furnishing this Information Statement

This information statement is being furnished by MSG solely to provide information to stockholders of MSG who will receive shares of our common stock in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities. We and MSG will not update the information in this information statement except in the normal course of our and MSG’s respective public disclosure obligations and practices.

 

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RISK FACTORS

You should carefully consider the following risk factors and all the other information contained in this information statement in evaluating us and our common stock.

Risks Relating to Our Sports Business

Our Sports Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations.

The success of a sports business, like ours, is dependent upon the performance and/or popularity of its franchises. Our Knicks and Rangers and other sports franchises compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet and online services, mobile applications and other alternative sources. For example, our sports teams compete for attendance, viewership and advertising with a wide range of alternatives available in the New York City metropolitan area. During some or all of the basketball and hockey seasons, our sports teams face competition, in varying respects and degrees, from professional baseball (including the Yankees and the Mets), professional football (including the Giants and the Jets), professional soccer (including the New York Red Bulls and the New York City Football Club) and each other. For fans who prefer the unique experience of NHL hockey, we must compete with two other NHL hockey teams located in the New York City metropolitan area (the Islanders and the Devils) as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with another NBA team located in the New York City metropolitan area (the Nets) as well as, in varying respects and degrees, with other NBA teams and the NBA itself.

As a result of the large number of options available, we face strong competition for the New York area sports fan. We must compete with these other sports teams and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to provide an entertaining environment at our games, prices we charge for tickets and the viewing availability of our teams on multiple media alternatives. Given the nature of sports, there can be no assurance that we will be able to compete effectively, including with companies that may have greater resources than we have, and as a consequence, our business and results of operations may be materially negatively affected.

Our Businesses Are Substantially Dependent on the Continued Popularity and/or Competitive Success of the Knicks and Rangers, Which Cannot Be Assured.

Our financial results have historically been dependent on, and are expected to continue to depend in large part on, the Knicks and Rangers remaining popular with our fan bases and, in varying degrees, on the teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in sustained ticket, premium seating, suite, concession and merchandise sales during the season. In addition, the popularity of our teams can impact television ratings, which could affect the long-term value of the telecast rights for the Knicks and/or Rangers. Furthermore, success in the regular season may qualify a team for participation in post-season playoffs, which provides us with additional revenue by increasing the number of games played by our teams and, more importantly, by generating increased excitement and interest in our teams, which can improve attendance and television ratings in subsequent seasons. There can be no assurance that any sports team, including the Knicks and Rangers, will compete in post-season play in the future.

Our Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations.

Creating and maintaining our sports teams’ popularity and/or on-court and on-ice competitiveness is key to the success of our sports business. Accordingly, efforts to improve our revenues and earnings from operations

 

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from period to period may be secondary to actions that management believes will generate long-term value. As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, coaches and team executives, for which we compete with other professional sports teams. Our efforts in this regard may include, among other things, trading for highly compensated players, signing draft picks, free agents or current players to new contracts, engaging in salary arbitration with existing players and terminating and waiving players. Any of these actions could increase expenses for a particular period, subject to any salary cap restrictions contained in the respective leagues’ collective bargaining agreements (each, a “CBA”). There can be no assurance that any actions taken by management to increase our long-term value will be successful.

A significant factor in our ability to attract and retain talented players is player compensation. NBA and NHL player salaries have generally increased significantly and may continue to increase. Although collective bargaining agreements between the NBA and the National Basketball Players Association (“NBPA”) and the NHL and the National Hockey League Players’ Association (“NHLPA”) generally cap league-wide player salaries at a prescribed percentage of league-wide revenues, we may pay our players different aggregate salaries and a different proportion of our revenues than other NBA or NHL franchises. Future collective bargaining agreements may increase the percentage of league-wide revenues to which NBA or NHL players are entitled or impose other conditions, which may further increase our costs. In addition, we may also be obligated to pay the NBA a luxury tax each year, the calculation of which is determined by a formula based on the aggregate salaries paid to our NBA players. The Knicks were an NBA luxury tax payer with respect to the 2012-13 and 2013-14 seasons, and the Knicks expect to be an NBA luxury tax payer in the 2014-15 season. If the Knicks are ultimately an NBA luxury tax payer for the 2014-15 season as well as for either of the 2015-16 or 2016-17 seasons, our NBA luxury tax obligations may increase substantially. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Sports — Expenses — Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax — NBA Luxury Tax.”

We have incurred, and may in the future incur, significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals are generally paid over their remaining contract terms. These expenses add to the volatility of the results of our MSG Sports segment.

The Actions of the Basketball and Hockey Leagues May Have a Material Negative Effect on Our Business and Results of Operations.

The governing bodies of the NBA (including the WNBA and the NBADL) and the NHL have certain rights under certain circumstances to take actions that they deem to be in the best interests of their respective leagues, which may not necessarily be consistent with maximizing our results of operations and which could affect our teams in ways that are different than the impact on other teams. Certain of these decisions by the NBA or the NHL could have a material negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert. The following discussion highlights certain areas in which decisions of the NBA and the NHL could materially affect our businesses.

The NBA and the NHL may assert control over certain matters, under certain circumstances, that may affect our revenues such as the national and international rights to telecast the games of league members, including the Knicks and Rangers, licensing of the rights to produce and sell merchandise bearing the logos and/or other intellectual property of our teams and the leagues, and the Internet-based activities of our teams. The NBA and NHL have each entered into agreements regarding the national and international telecasts of NBA and NHL games. We receive a share of the income the NBA and the NHL generate from these contracts, which expire from time to time. There can be no assurance that the NBA or the NHL will be able to renew these contracts

 

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following their expiration on terms as favorable to us as those in the current agreements or that we will continue to receive the same level of revenues in the future. We receive significant revenues from MSG for the right to telecast games of the Knicks and Rangers. Changes to league rules, regulations and/or agreements, including national and international telecast rights, could also impact the availability of games covered by our local telecast rights and could negatively affect the rights fees we receive from MSG and our business and results of operations. The leagues have asserted control over certain other important decisions, under certain circumstances, such as the length and format of the playing season, including preseason and playoff schedules, the operating territories of the member teams, admission of new members, franchise relocations, labor relations with the players associations, collective bargaining, free agency, and luxury taxes and revenue sharing. Decisions on these matters, some of which are also subject to the terms of the relevant collective bargaining agreement, may materially negatively affect our business and results of operations. In addition, the NBA imposes a luxury tax and escrow system with respect to player salaries and a revenue sharing plan. For fiscal year 2014, the Knicks recorded $23.1 million in revenue sharing expenses, net of escrow receipts. For a discussion of the NBA luxury tax impacts, see “— Our Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results of Operations” above.

The NBA and the NHL have imposed certain restrictions on the ability of owners to undertake some types of transactions in respect of teams, including a change in ownership, a relocation of a team and certain types of financing transactions. In certain instances, these restrictions could impair our ability to proceed with a transaction that is in the best interest of the Company and its stockholders if we were unable to obtain any required league approvals in a timely manner or at all.

The leagues impose certain rules that define, under certain circumstances, the territories in which we operate, including the markets in which our games can be telecast. Changes to these rules could have a material negative effect on our business and results of operations.

Each league’s governing body has imposed a number of rules, regulations, guidelines, bulletins, directives, policies and agreements upon its teams. Changes to these provisions may apply to our sports teams and their personnel, and the Company as a whole, regardless of whether we agree or disagree with such changes, have voted against such changes or have challenged them through other means, and it is possible that any such changes could materially negatively affect our business and results of operations to the extent they are ultimately determined to bind our teams. The commissioners of each of the NBA and NHL assert significant authority to take certain actions on behalf of their respective leagues under certain circumstances. Decisions by the commissioners of the NBA and the NHL, including on the matters described above, may materially negatively affect our businesses and results of operations. The leagues’ governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself.

Injuries to Players on Our Sports Teams Could Hinder Our Success.

To the degree that our financial results are dependent on our sports teams’ popularity and/or on-court and on-ice success, the likelihood of achieving such popularity or competitive success may, given the nature of sports, be substantially impacted by serious and/or untimely injuries to key players. Nearly all of our Knicks and Rangers players, including those with multi-year contracts, have partially or fully guaranteed contracts, meaning that in some cases (subject to the terms of the applicable player contract and CBA), a player or his estate may be entitled to receive his salary even if the player dies or is unable to play as a result of injury. These salaries represent significant financial commitments for our sports teams. We are generally insured against having to pay salaries in the event of a player’s death and seek to obtain disability insurance policies for substantially all of our material player contracts. In the event of injuries sustained resulting in lost services (as defined in the insurance policies), generally the insurance policies provide for payment to us of a portion of the player’s salary for the remaining term of the contract or until the player can resume play, in each case following a deductible number of missed games. Such insurance may not be available in every circumstance or on terms that are commercially

 

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feasible or such insurance may contain significant dollar limits and/or exclusions from coverage for preexisting medical conditions. We may choose not to obtain (or may not be able to obtain) such insurance in some cases and we may change coverage levels (or be unable to change coverage levels) in the future.

In the absence of disability insurance, we may be obligated to pay all of an injured player’s salary. In addition, player disability insurance policies do not cover any NBA luxury tax that we may be required to pay under the NBA CBA. For purposes of determining NBA luxury tax under the NBA CBA, salary payable to an injured player is included in team salary, unless and until that player’s salary is removed from the team salary for purposes of calculating NBA luxury tax which, pursuant to the terms of the NBA CBA, requires a waiting period of one year and satisfaction of other conditions. Replacement of an injured player may result in an increase in salary and NBA luxury tax expense for us.

Risks Relating to Our Entertainment Business

Our Entertainment Business Faces Intense and Wide-Ranging Competition Which May Have a Material Negative Effect on Our Business and Results of Operations.

Our entertainment business competes, in certain respects and to varying degrees, with other leisure-time activities such as television, radio, motion pictures, sporting events, other live performances, the Internet, and online and mobile services, including sites for online content distribution, video on demand and other alternative sources of entertainment and information, in addition to competing for concerts with other event venues for total entertainment dollars in our marketplace. The success of our entertainment business is largely dependent on the continued success of our Radio City Christmas Spectacular, and, to a lesser extent, the availability of, and our venues’ ability to attract concerts, family shows and other events, competition for which is intense, and the ability of acts to attract strong attendance at our venues. For example, The Garden, The Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre all compete with other entertainment options in the New York City metropolitan area. The Forum, The Chicago Theatre and the Wang Theatre face similar competition from other entertainment options in their respective markets and elsewhere.

Further, in order to maintain the competitive positions of The Garden and our other venues, we must invest on a continuous basis in state-of-the-art technology and facility maintenance while maintaining a competitive pricing structure for events that may be held in our venues, many of which have alternative venue options available to them in New York and other cities. In addition, we invest a substantial amount in our Radio City Christmas Spectacular and in new productions, including New York Spring Spectacular, a new large-scale theatrical production for Radio City Music Hall, to continue to attract audiences. We cannot assure you that such investments will generate revenues that are sufficient to justify our investment or even that exceed our expenses.

The Success of Our Entertainment Business Depends on the Continued Popularity of Our Live Productions, Particularly the Radio City Christmas Spectacular, the Decline of Which Could Have a Material Negative Effect on Our Business and Results of Operations.

The financial results of our entertainment business are dependent on the popularity of our live productions, particularly the Radio City Christmas Spectacular at Radio City Music Hall, which represented 31% of our MSG Entertainment segment’s revenues in fiscal year 2014. Should the popularity of the Radio City Christmas Spectacular decline, our revenues from ticket sales, and concession and merchandise sales would likely also decline, and we might not be able to replace the lost revenue with revenues from other sources.

Our Strategy for Our Entertainment Business Includes the Development of New Live Productions and the Possible Addition of New Venues, Each of Which Could Require Us to Make Considerable Investments for Which There Can Be No Guarantee of Success.

As part of our business strategy, we intend to develop new productions and live entertainment events, which may include expansions or enhancements of our existing productions or relationships or the creation of entirely

 

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new live productions. Expansion or enhancement of productions and/or the development of new productions could require significant upfront investment in sets, staging, creative processes, casting and advertising and dislocation of other alternative sources of entertainment that may have played in our venues absent these productions. For example, we are investing in New York Spring Spectacular, a new large-scale theatrical production for Radio City Music Hall. To the extent that any efforts at expanding or enhancing productions or creating new productions do not result in a viable live show, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may be subject to a write-down of all or a portion of such investments. In addition, any delay in launching such productions or enhancements could result in the incurrence of operating costs which may not be recouped. For example, the Company postponed and significantly revised New York Spring Spectacular from its planned debut in March 2014. Our strategy also involves the possible investment in, or the operation or acquisition of, venues, in our current markets and markets beyond New York, Los Angeles, Chicago and Boston. Any such additions may involve purchasing or acquiring control of, or an investment in, existing venues, renovating acquired venues or constructing new venues and could require significant investment. For example, in January 2014 we re-opened the Forum, the iconic arena in Inglewood, CA, which we acquired in June 2012. In pursuing such an expansion strategy, we will face risks, potentially including risks associated with the construction of new facilities or renovations of existing facilities, such as cost overruns and construction delays, risks associated with financing, such as the potential lack of available financing to commence or complete an acquisition, development or renovation, risks associated with operating in new or existing markets and the risk that we may lose all or a part of our investment in any additional venues.

General Risks

Our Business Has Been Adversely Impacted and May, in the Future, Be Materially Adversely Impacted by an Economic Downturn and Financial Instability.

Our businesses depend upon the ability and willingness of consumers and businesses to purchase tickets (including season tickets) at our facilities, to license suites at The Garden and to spend on concessions and merchandise. In addition, our business is dependent upon advertising and sponsorship revenues. As a result, instability and weakness of the U.S. and global economies and the negative effects on consumers’ and businesses’ discretionary spending may materially negatively affect our business and results of operations.

We Have in Past Periods Incurred Substantial Operating Losses, Negative Adjusted Operating Cash Flow and Negative Cash Flow and There is No Assurance We Will Have Operating Income, Positive Adjusted Operating Cash Flow or Positive Cash Flow in the Future.

We have in past periods incurred significant operating losses and negative cash flow and there is no assurance that we will have operating income or positive cash flow in the future. Our MSG Entertainment segment recognized operating losses during the years ended June 30, 2014 and 2013 and our MSG Sports segment recognized an operating loss during the year ended June 30, 2014. Significant operating losses may limit our ability to raise necessary financing, or to do so on favorable terms, as such losses could be taken into account by potential investors, lenders and the organizations that issue investment ratings on our indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Sports — Factors Affecting Operating Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Entertainment — Factors Affecting Operating Results.”

Our Operating Results and Cash Flow Can Vary Substantially from Period to Period.

Our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Therefore, period-to-period comparisons of our operating results may not necessarily be meaningful and the operating results of one period are not indicative of our financial performance during a full fiscal year. This variability may adversely affect our business, results of operations and financial condition.

 

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Severe Weather May Impact Events at Our Venues, Which May Have a Material Negative Effect on Our Business and Results of Operations.

Weather conditions in the New York metropolitan area and other locations in which we own or operate venues may affect patron attendance as well as sales of tickets, concessions and merchandise, among other things. Weather conditions may also require us to cancel or postpone events. Any of these events may have a material negative effect on our business and results of operations.

Our Business Could be Adversely Affected by Terrorist Activity or the Threat of Terrorist Activity and Other Developments that Discourage Congregation at Prominent Places of Public Assembly.

The success of our businesses is dependent upon the willingness and ability of patrons to attend events at our venues. The venues we operate, like all prominent places of public assembly, could be the target of terrorist activities or other actions that discourage attendance. Any such activity at one of our venues could result in a material negative effect on our business and results of operations. In addition, terrorist activity or other actions that discourage attendance at other locations, or even the threat of such activity, could result in reduced attendance at our venues. Similarly, a major epidemic or pandemic, or the threat of such an event, could adversely affect attendance at our events.

We May Pursue Acquisitions and Other Strategic Transactions to Complement or Expand our Business that May Not be Successful; We Have Significant Investments in Businesses We Do Not Control.

From time to time, we explore opportunities to purchase or invest in other businesses, venues or assets that could complement, enhance or expand our current business or that might otherwise offer us growth opportunities. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the diversion of management’s attention and resources from our existing business to develop and integrate the acquired or combined business, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful. We have significant investments in businesses that we account for under the equity method of accounting. We do not control the day-to-day operations of these businesses. Additionally, these businesses are subject to laws, rules and other circumstances, and have risks in their operations, which may be similar to, or different from, those to which we are subject. To the extent that these investments are not successful, we may be subject to a write-down of all or a portion of such investments. Any of the foregoing risks could result in a material negative effect on our business and results of operations or adversely impact the value of our investments.

We Do Not Own All of Our Venues and Our Failure to Renew Our Leases or Booking Agreement on Economically Attractive Terms May Have a Material Negative Effect on Our Business and Results of Operations; Our Lease on Radio City Music Hall Requires Us to Maintain a Certain Net Worth or Meet Certain Other Requirements.

The lease on Radio City Music Hall expires in 2023. We have the option to renew the lease for an additional ten years by providing two years’ notice prior to the initial expiration date. Similarly, we lease the Beacon Theatre pursuant to a lease that expires in 2026. We have entered into a booking agreement with respect to the Wang Theatre in Boston. Our booking agreement expires in 2019 and we have the option to renew the agreement at that time for an additional ten years by providing two years’ notice prior to the initial expiration date. If we are unable to renew these leases or the booking agreement on economically attractive terms, our business could be materially negatively affected. In addition, the Spinco entity that guarantees the Radio City Music Hall lease is required to maintain a certain net worth or, if such net worth is not maintained, the entity must either post a letter of credit or provide cash collateral.

We Are Subject to Extensive Governmental Regulation and Our Failure to Comply with These Regulations May Have a Material Negative Effect on Our Business and Results of Operations.

Our operations are subject to federal, state and local laws and regulations.

 

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We hold liquor licenses at each of our venues and are subject to licensing requirements with respect to the sale of alcoholic beverages in the jurisdictions in which we serve those beverages. Failure to receive or retain, or the suspension of, liquor licenses or permits could interrupt or terminate our ability to serve alcoholic beverages at the applicable venue and could have a material negative effect on our business and our results of operations. Additional regulation relating to liquor licenses may limit our activities in the future or significantly increase the cost of compliance, or both. In the jurisdictions in which our venues are located, we are subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor patron is a violation of the law and may provide for strict liability for such violations. Our liability insurance coverage may not be adequate or available to cover any potential liability.

We and our venues are subject to environmental laws and regulations relating to the use, disposal, storage, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the operations of our venues. Additionally, certain laws and regulations could hold us strictly, jointly and severally responsible for the remediation of hazardous substance contamination at our facilities or at third-party waste disposal sites, and could hold us responsible for any personal or property damage related to any contamination. Any requirements to dispose of, or remediate, such hazardous or non-hazardous materials and any associated costs and impact on operations of such efforts may be heightened as a result of the purchase, construction or renovation of a venue.

Our venues are subject to zoning and building regulations including permits relating to the operation of The Garden. In addition, The Garden requires a zoning special permit. The original permit was granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years. In connection with the renewal, certain government officials and special interest groups sought to use the renewal process to pressure us to improve Penn Station or to relocate The Garden. There can be no assurance regarding the future renewal of the permit or the terms thereof.

Our businesses are, and may in the future be, subject to a variety of other laws and regulations, including licensing, permitting, and historic designation and similar requirements; working conditions, labor, immigration and employment laws; health, safety and sanitation requirements; compliance with the Americans With Disabilities Act; and privacy laws.

Our failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could have a material negative effect on our business and results of operations.

Our Properties are Subject to, and Benefit from, Certain Easements, the Availability of Which May Not Continue on Terms Favorable to Us or at All.

Our properties are subject to, and benefit from, certain easements. For example, the “breezeway” into the Madison Square Garden Complex (which includes both The Garden and The Theater at Madison Square Garden) from Seventh Avenue in New York City is a significant easement that we share with other property owners. Our ability to continue to utilize this and other easements, including for advertising purposes, requires us to comply with a number of conditions. Moreover, certain adjoining property owners have easements over our property, which we are required to maintain so long as those property owners meet certain conditions. It is possible that we will be unable to continue to access or maintain any easements on terms favorable to us, or at all, which could have a material negative effect on our business and results of operations.

We May Be Exposed to Business, Reputational and Litigation Risk if There is Loss, Disclosure or Misappropriation of or Access to Our Customers’ or Employees’ Personal Information or Other Breaches of Our Information Security.

Through our operations, we collect and store certain personal information and payment card information that our customers provide to make purchases, register on our web sites, or otherwise communicate and interact

 

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with us. These activities require the use of online services and centralized data storage, including through third party service providers. Our ability to safeguard our customers’ personal information and other confidential information, including Company and employee data, is important to our business. We take these matters seriously and have taken significant steps to protect consumer, employee and confidential information. Nevertheless, our information technology and other systems that maintain and transmit consumer information may be compromised by a malicious penetration of our network security, or that of a third party service provider. As a result, our customers’ or employees’ personal information may be lost, disclosed, accessed or taken without their consent, and the security of our other confidential information may be compromised.

Any penetration of our network security or other misappropriation or misuse of personal consumer or employee information could subject us to business interruption and litigation and our reputation could be damaged, which could have an material negative effect on our business and results of operations.

A Change to or Withdrawal of New York City Real Estate Tax Exemption May Have a Material Negative Effect on Our Business and Results of Operations.

Many arenas, ballparks and stadiums nationally and in New York City have received significant public support, such as tax exempt financing, other tax benefits, direct subsidies and other contributions, including for public infrastructure critical to the facilities such as parking lots and transit improvements. Our Madison Square Garden Complex benefits from a more limited real estate tax exemption pursuant to an agreement with the City of New York, subject to certain conditions, and legislation enacted by the State of New York in 1982. For fiscal year 2015 this tax exemption will result in an annual after-tax benefit to net income of approximately $23.4 million. From time to time there have been calls to repeal or amend the tax exemption. Repeal or amendment would require legislative action by New York State. There can be no assurance that the tax exemption will not be amended in a manner adverse to us or repealed in its entirety, either of which could have a material negative effect on our business and results of operations.

We May Require Financing to Fund Our Ongoing Operations and Capital Expenditures, the Availability of Which is Highly Uncertain.

The capital and credit markets can experience volatility and disruption. Such markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers.

Our business has been characterized by significant expenditures for properties, businesses, renovations and productions. In the future we may engage in transactions that depend on our ability to obtain financing. We may also seek financing to fund our ongoing operations.

Depending upon conditions in the financial markets and/or the Company’s financial performance, we may not be able to raise capital on favorable terms, or at all. In addition, as described above, the leagues in which our sports teams compete may have, under certain circumstances, approval rights over certain financing transactions, and in connection with those rights, could affect our ability to obtain such financing. If we are unable to pursue our current and future spending programs, we may be forced to cancel or scale back those programs. Failure to successfully pursue our capital expenditure and other spending plans could negatively affect our ability to compete effectively and have a material negative effect on our business and results of operations.

Our Business is Subject to Seasonal Fluctuations.

Our revenues have been seasonal and we expect they will continue to be seasonal. For example, 35% of our MSG Entertainment segment’s revenues and 12% of our combined revenues in fiscal year 2014 were derived from our Radio City Christmas Spectacular franchise. Revenues of the MSG Entertainment segment are highest in the second quarter of our fiscal year when these performances primarily occur. As a result, MSG Entertainment

 

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earned a disproportionate amount of its revenue and operating income in the second quarter of each fiscal year. Similarly, because of the nature of the NBA and NHL playing seasons, revenues from our sports teams are concentrated in the second and third quarters of each fiscal year.

Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.

Our business is dependent upon the efforts of unionized workers. Any labor disputes, such as strikes or lockouts, with the unions with which we have collective bargaining agreements could have a material negative effect on our business and results of operations (including our ability to produce or present concerts, theatrical productions, sporting events and other events).

NBA players are covered by a CBA between the NBPA and the NBA. NHL players are covered by a CBA between the NHLPA and the NHL. Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future. Labor difficulties may include players’ strikes or management lockouts. For example, the NBA has experienced labor difficulties, including a lockout during the 1998-99 season, which resulted in the regular season being shortened from 82 to 50 games, and a lockout during the 2011-12 season, which resulted in the regular season being shortened from 82 games to 66 games. The current NBA CBA expires after the 2020-21 season (although the NBA and NBPA each have the right to terminate the CBA effective following the 2016-17 season). The NHL has also experienced labor difficulties, including a lockout during the 1994-95 NHL season, which resulted in the regular season being shortened from 84 to 48 games, a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season and a lockout during the 2012-13 NHL season, which resulted in the regular season being shortened from 82 to 48 games. The current NHL CBA expires on September 15, 2022 (although the NHL and NHLPA each have the right to terminate the CBA effective following the 2019-20 season).

The Unavailability of Systems Upon Which We Rely May Have a Material Negative Effect on Our Business and Results of Operations.

We rely upon various internal and third-party software or systems in the operation of our business, including, with respect to ticket sales, credit card processing, point of sale transactions, database, inventory, human resource management and financial systems. From time to time, certain of these arrangements may not be covered by long-term agreements. The failure or unavailability of these internal or third-party services or systems, depending upon its severity and duration, could have a material negative effect on our business and results of operations.

We May Become Subject to Infringement or Other Claims Relating to Our Content or Technology.

From time to time, third parties may assert against us alleged intellectual property (e.g., copyright, trademark and patent) or other claims relating to our productions, technologies or other content or material, some of which may be important to our business. In addition, our productions could potentially subject us to claims of defamation or similar types of allegations. Any such claims, regardless of their merit, could cause us to incur significant costs. In addition, if we are unable to continue use of certain intellectual property rights, our business and results of operations could be materially negatively impacted.

There Is the Risk of Personal Injuries and Accidents in Connection with Our Venues, Which Could Subject Us to Personal Injury or Other Claims; We are Subject to the Risk of Adverse Outcomes In Other Types of Litigation.

There are inherent risks associated with producing and hosting events and operating, maintaining or renovating our venues. As a result, personal injuries, accidents and other incidents have occurred and may occur from time to time, which could subject us to claims and liabilities. Incidents in connection with events at any of our venues could also reduce attendance at our events, and cause a decrease in our revenue and operating income.

 

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While we seek to obtain contractual indemnities for events at our venues and we maintain insurance policies that provide coverage for incidents in the ordinary course of business, there can be no assurance that such indemnities or insurance will be adequate at all times and in all circumstances.

From time to time, we become subject to other kinds of litigation. The outcome of litigation is inherently unpredictable. As a result, we could incur liability from litigation which could be material and for which we may have inadequate or no insurance coverage or be subject to other forms of relief which might adversely affect the Company.

Because There Has Not been Any Public Market for Our Common Stock, the Market Price and Trading Volume of Our Common Stock May be Volatile and You May Not be Able to Resell Your Shares at or Above the Initial Market Price of Our Stock Following the Distribution.

Prior to the Distribution, there will have been no regular way trading market for our common stock. We cannot predict the extent to which investors’ interest will lead to a liquid trading market or whether the market price of our common stock will be volatile. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risk factors listed in this information statement or for reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or negative developments for our customers, competitors or suppliers, as well as general economic and industry conditions.

The Combined Post-Distribution Value of MSG and Spinco Shares May Not Equal or Exceed the Pre-Distribution Value of MSG Shares.

After the Distribution, MSG Class A Common Stock will continue to be listed and traded on NASDAQ. We will apply to list Spinco Class A Common Stock on [NASDAQ] under the symbol “[].” We cannot assure you that the combined trading prices of MSG Class A Common Stock and Spinco Class A Common Stock after the Distribution, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the trading price of MSG Class A Common Stock prior to the Distribution. Until the market has fully evaluated the business of MSG without the business of Spinco, the price at which MSG Class A Common Stock trade may fluctuate significantly. Similarly, until the market has fully evaluated the business of Spinco, the price at which shares of Spinco Class A Common Stock trade may fluctuate significantly.

The Distribution Could Result in Significant Tax Liability.

MSG expects to obtain an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders of MSG Class A Common Stock and MSG Class B Common Stock, respectively (i.e., the Distribution), will qualify as a tax-free distribution under the Code. Accordingly, for U.S. federal income tax purposes, the Distribution will not result in the recognition of gain to MSG with respect to the distribution of our Class A Common Stock or our Class B Common Stock to the MSG stockholders and, except to the extent a stockholder receives cash in lieu of fractional shares of our common stock, no income, gain or loss will be recognized by, and no amount will be included in the income of such holder upon the receipt of shares of our common stock pursuant to the Distribution. The opinion will not be binding on the IRS or the courts. See “The Distribution —Material U.S. Federal Income Tax Consequences of the Distribution.” MSG has also applied for a private letter ruling from the IRS regarding certain limited aspects of the Distribution. While certain transactions related to the Distribution that are not expected to be addressed by either the opinion or the private letter ruling could result in the recognition of income or gain by MSG, the impact of any such resulting tax is not expected to be material to MSG. The opinion and the private letter ruling will rely on factual representations and reasonable assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.

If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, MSG would recognize taxable gain in an amount equal to the excess of the fair market value of the

 

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common stock of our Company over MSG’s tax basis therein (i.e., as if it had sold the common stock of our Company in a taxable sale for its fair market value). In addition, the receipt by MSG stockholders of common stock of our Company would be a taxable distribution, and each U.S. holder that participated in the Distribution would recognize a taxable distribution as if the U.S. holder had received a distribution equal to the fair market value of our common stock that was distributed to it, which generally would be treated first as a taxable dividend to the extent of MSG’s earnings and profits, then as a non-taxable return of capital to the extent of each U.S. holder’s tax basis in its MSG common stock, and thereafter as capital gain with respect to any remaining value. It is expected that the amount of any such taxes to MSG stockholders and MSG would be substantial. See “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.”

We May Have a Significant Indemnity Obligation to MSG if the Distribution Is Treated as a Taxable Transaction.

We will enter into a Tax Disaffiliation Agreement with MSG, which will set out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we will be required to indemnify MSG for losses and taxes of MSG resulting from the breach of certain covenants and for certain taxable gain recognized by MSG, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify MSG under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial liabilities, which could materially adversely affect our financial position.

The Tax Rules Applicable to the Distribution May Restrict Us from Engaging in Certain Corporate Transactions or From Raising Equity Capital Beyond Certain Thresholds for a Period of Time After the Distribution.

To preserve the tax-free treatment of the Distribution to MSG and its stockholders, under the Tax Disaffiliation Agreement with MSG, for the two-year period following the Distribution, we will be subject to restrictions with respect to:

 

    entering into any transaction pursuant to which 50% or more of our shares or assets would be acquired, whether by merger or otherwise, unless certain tests are met;

 

    issuing equity securities, if any such issuances would, in the aggregate, constitute 50% or more of the voting power or value of our capital stock;

 

    certain repurchases of our common shares;

 

    ceasing to actively conduct our business;

 

    amendments to our organizational documents (i) affecting the relative voting rights of our stock or (ii) converting one class of our stock to another;

 

    liquidating or partially liquidating; and

 

    taking any other action that prevents the Distribution and certain related transactions from being tax-free.

These restrictions may limit our ability during such period to pursue strategic transactions of a certain magnitude that involve the issuance or acquisition of our stock or engage in new businesses or other transactions that might increase the value of our business. These restrictions may also limit our ability to raise significant amounts of cash through the issuance of stock, especially if our stock price were to suffer substantial declines, or through the sale of certain of our assets. For more information, see the sections entitled “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution” and “Certain Relationships and Related Party Transactions — Relationship Between MSG and Us After the Distribution — Tax Disaffiliation Agreement.”

 

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We Do Not Have an Operating History as a Public Company.

In the past, our operations have been a part of MSG and MSG provided us with various financial, operational and managerial resources for conducting our businesses. Following the Distribution, we will maintain our own credit and banking relationships and perform our own financial and operational functions. We cannot assure you that we will be able to successfully put in place the financial, operational and managerial resources necessary to operate as a public company or that we will be able to be profitable doing so.

Our Historical Financial Results as Business Segments of MSG and Our Unaudited Pro Forma Combined Financial Statements May Not be Representative of Our Results as a Separate, Stand-Alone Company.

The historical financial information we have included in this information statement has been derived from the consolidated financial statements and accounting records of MSG and does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been a separate, stand-alone company during the periods presented. Although MSG did account for our sports and entertainment businesses as separate business segments, we were not operated as a separate, stand-alone company for the historical periods presented. The historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by MSG, including general corporate expenses and employee benefits and incentives. These allocations were based on what we and MSG considered to be reasonable reflections of the historical utilization levels of these services required in support of our business. The historical information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. Our pro forma financial information set forth under “Unaudited Pro Forma Combined Financial Information” reflects changes to our funding and operations as a result of the separation. However, there can be no assurances that this unaudited pro forma combined financial information will appropriately reflect our costs as a publicly-traded company.

We May Incur Material Costs and Expenses as a Result of Our Separation from MSG.

We may incur costs and expenses greater than those we currently incur as a result of our separation from MSG. These increased costs and expenses may arise from various factors, including financial reporting and costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”)). In addition, we expect to either maintain similar or have increased corporate and administrative costs and expenses to those we incurred while part of MSG, even though following the Distribution Spinco will be a smaller, stand-alone company. We cannot assure you that these costs will not be material to our business.

If, Following the Distribution, We are Unable to Satisfy the Requirements of Section 404 of the Sarbanes-Oxley Act, or Our Internal Control Over Financial Reporting is Not Effective, the Reliability of Our Financial Statements May be Questioned and Our Stock Price May Suffer.

Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its consolidated subsidiaries’ internal control over financial reporting. To comply with this statute, we will eventually be required to document and test our internal control procedures, our management will be required to assess and issue a report concerning our internal control over financial reporting, and our independent auditors will be required to issue an opinion on the Company’s internal controls over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal control over financial reporting or our auditors identify material weaknesses in our internal controls, investor confidence in our financial results may weaken, and our stock price may suffer.

 

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The Reduced Disclosure Requirements Applicable to Us as an “Emerging Growth Company” May Make Our Class A Common Stock Less Attractive to Investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may avail ourselves of certain exemptions from various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to, an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and, like smaller reporting companies, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirement of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may remain an emerging growth company for up to five full fiscal years following the Distribution. We would cease to be an emerging growth company, and, therefore, become ineligible to rely on the above exemptions, (a) if we have more than $1 billion in annual revenue in a fiscal year, (b) if we issue more than $1 billion of non-convertible debt over a three-year period or (c) on the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which would generally occur after: (i) we have filed at least one annual report; (ii) we have been a Securities and Exchange Commission ( “SEC”) reporting company for at least 12 months; and (iii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result of the exemptions available to us as an emerging growth company, there may be a less active trading market for our common stock and our value may be more volatile than that of an otherwise comparable company that does not avail itself of the same or similar exemptions.

We are Controlled by the Dolan Family.

We have two classes of common stock:

 

    Class A Common Stock, which is entitled to one vote per share and is entitled collectively to elect 25% of our Board of Directors; and

 

    Class B Common Stock, which is generally entitled to ten votes per share and is entitled collectively to elect the remaining 75% of our Board of Directors.

As of the Distribution date, the Dolan family, including trusts for the benefit of members of the Dolan family, will collectively own all of our Class B Common Stock, []% of our outstanding Class A Common Stock and approximately []% of the total voting power of all our outstanding common stock. Of this amount, Charles F. Dolan, a director and the father of James L. Dolan, the Executive Chairman, and his spouse control approximately 59% of our outstanding Class B Common Stock, []% of our outstanding Class A Common Stock and approximately []% of the total voting power of all our outstanding common stock. The members of the Dolan family holding Class B Common Stock will execute prior to the Distribution a voting agreement that has the effect of causing the voting power of the holders of our Class B Common Stock to be cast as a block with respect to all matters to be voted on by holders of Class B Common Stock. The Dolan family is able to prevent a change in control of our Company and no person interested in acquiring us will be able to do so without obtaining the consent of the Dolan family. Charles F. Dolan, members of his family and certain related family entities, by virtue of their stock ownership, have the power to elect all of our directors subject to election by holders of Class B Common Stock and are able collectively to control stockholder decisions on matters on which holders of all classes of our common stock vote together as a single class. These matters could include the amendment of some provisions of our certificate of incorporation and the approval of fundamental corporate transactions.

 

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In addition, the affirmative vote or consent of the holders of at least 66- 23% of the outstanding shares of the Class B Common Stock, voting separately as a class, is required to approve:

 

    the authorization or issuance of any additional shares of Class B Common Stock, and

 

    any amendment, alteration or repeal of any of the provisions of our certificate of incorporation that adversely affects the powers, preferences or rights of the Class B Common Stock.

As a result, Charles F. Dolan, members of his family and certain related family entities also collectively have the power to prevent such issuance or amendment.

The members of the Dolan family group have entered into an agreement with the Company in which they agree that, during the 12-month period beginning on the Distribution date, the Dolan family group must obtain the prior approval of a majority of the Company’s Independent Directors prior to acquiring common stock of the Company through a tender offer that results in members of the Dolan family group owning more than 50% of the total number of outstanding shares of common stock of the Company. For purposes of this agreement, the term “Independent Directors” means the directors of the Company who have been determined by our Board of Directors to be independent directors for purposes of [NASDAQ] corporate governance standards.

Following the Distribution, the Company and MSG will still be controlled by Charles F. Dolan, members of his family and certain related family entities. Charles F. Dolan, members of his family and certain related family entities also control Cablevision and AMC Networks.

We Have Elected to Be a “Controlled Company” for [NASDAQ] Purposes Which Allows Us Not to Comply with Certain of the Corporate Governance Rules of [NASDAQ].

We have been informed that, prior to the Distribution, Charles F. Dolan, members of his family and certain related family entities will enter into a Stockholders Agreement relating, among other things, to the voting of their shares of our Class B Common Stock. As a result, following the Distribution, we will be a “controlled company” under the corporate governance rules of [NASDAQ]. As a controlled company, we will have the right to elect not to comply with the corporate governance rules of [NASDAQ] requiring: (i) a majority of independent directors on our Board, (ii) an independent corporate governance and nominating committee and (iii) an independent compensation committee. Our Board of Directors has elected for the Company to be treated as a “controlled company” under [NASDAQ] corporate governance rules and not to comply with the [NASDAQ] requirement for a majority independent board of directors and for an independent corporate governance and nominating committee because of our status as a controlled company. Nevertheless, we expect our Board of Directors to elect to comply with the [NASDAQ] requirement for an independent compensation committee.

Future Stock Sales, Including as a Result of the Exercise of Registration Rights by Certain of Our Stockholders, Could Adversely Affect the Trading Price of Our Class A Common Stock.

All of the shares of Class A Common Stock will be freely tradable without restriction or further registration under the Securities Act unless the shares are owned by our “affiliates” as that term is defined in the rules under the Securities Act. Shares held by “affiliates” may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 which is summarized under “Shares Eligible for Future Sale.” Further, we plan to file a registration statement to cover the shares issued under our equity-based benefit plans.

As described under “Shares Eligible for Future Sale — Registration Rights Agreements,” certain parties have registration rights covering a portion of our shares. We expect to enter into registration rights agreements with Charles F. Dolan, certain Dolan family interests, the Dolan Children’s Foundation and the Dolan Family Foundation that provide them with “demand” and “piggyback” registration rights with respect to approximately [] shares of Class A Common Stock, including shares issuable upon conversion of shares of Class B Common

 

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Stock. Sales of a substantial number of shares of Class A Common Stock could adversely affect the market price of the Class A Common Stock and could impair our future ability to raise capital through an offering of our equity securities.

Transfers and Ownership of Our Common Stock Are Subject to Restrictions Under Rules of the NBA and the NHL and Our Certificate of Incorporation Provides Us with Remedies Against Holders Who Do Not Comply with Those Restrictions.

The Company is the owner of professional sports franchises in the NBA and the NHL. As a result, transfers and ownership of our common stock are subject to certain restrictions under the constituent documents of the NBA and the NHL as well as the Company’s consent agreements with the NBA and the NHL in connection with their approval of the Distribution. These restrictions are described under “Description of Capital Stock – Class A Common Stock and Class B Common Stock – Transfer Restrictions.” In order to protect the Company and its NBA and NHL franchises from sanctions that might be imposed by the NBA or the NHL as a result of violations of these restrictions, our amended and restated certificate of incorporation provides that, if a transfer of shares of our common stock to a person or the ownership of shares of our common stock by a person requires approval or other action by a league and such approval or other action was not obtained or taken as required, the Company shall have the right by written notice to the holder to require the holder to dispose of the shares of common stock which triggered the need for such approval. If a holder fails to comply with such a notice, in addition to any other remedies that may be available, the Company may redeem the shares at 85% of the fair market value of those shares.

We Will Share One or More Key Executives and Directors with MSG, Cablevision and/or AMC, Which Means Those Executives Will Not Devote Their Full Time and Attention to Our Affairs and the Overlap May Give Rise to Conflicts.

Following the Distribution, one or more of our executive officers will also continue to serve in their respective roles at MSG. As a result, following the Distribution, not all of our executive officers will be devoting their full time and attention to the Company’s affairs. In addition, immediately following the Distribution, [] members of our Board of Directors will also be directors of MSG. Furthermore, following the Distribution, certain of our directors and/or officers may also serve as directors, officers and/or employees of Cablevision and/or AMC Networks concurrently with their service as directors and/or officers of the Company. The overlapping officers and directors may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, there will be the potential for a conflict of interest when we or MSG, Cablevision, and/or AMC Networks and their respective subsidiaries and successors (each of the foregoing an “Other Entity”) look at certain acquisitions and other corporate opportunities that may be suitable for more than one of the companies. Also, conflicts may arise if there are issues or disputes under the commercial arrangements that will exist between an Other Entity on the one hand and us on the other hand. In addition, after the Distribution, certain of our directors and officers will continue to own stock and options to purchase stock of an Other Entity, as well as cash performance awards with any payout based on those companies’ performance, including []. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our Company and an Other Entity. See “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” for a discussion of certain procedures we will institute to help ameliorate such potential conflicts that may arise.

Our Overlapping Directors and Executive Officers with MSG, Cablevision and/or AMC Networks May Result in the Diversion of Corporate Opportunities to MSG, Cablevision and/or AMC Networks and Other Conflicts and Provisions in Our Amended and Restated Certificate of Incorporation May Provide Us No Remedy in That Circumstance.

The Company’s amended and restated certificate of incorporation will acknowledge that directors and officers of the Company (the “Overlap Persons”) may also be serving as directors, officers, employees,

 

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consultants or agents of an Other Entity, and that the Company may engage in material business transactions with such Other Entities. The Company will renounce its rights to certain business opportunities and the Company’s amended and restated certificate of incorporation will provide that no director or officer of the Company who is also serving as a director, officer, employee, consultant or agent of one or more of the Other Entities will be liable to the Company or its stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in our amended and restated certificate of incorporation) to one or more of the Other Entities instead of the Company, or does not refer or communicate information regarding such corporate opportunities to the Company. These provisions in our amended and restated certificate of incorporation will also expressly validate certain contracts, agreements, arrangements and transactions (and amendments, modifications or terminations thereof) between the Company and the Other Entities and, to the fullest extent permitted by law, provide that the actions of the overlapping directors or officers in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders. See “Description of Capital Stock — Certain Corporate Opportunities and Conflicts.”

 

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BUSINESS

We are a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, NY, 10121. Our telephone number is +1 (212) 465-6000. Spinco is a holding company and conducts substantially all of its operations through its subsidiaries.

Spinco was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG. Prior to the Distribution, the Company will acquire the subsidiary of MSG that owned, directly and indirectly, the subsidiaries, businesses and other assets described in this information statement. Where we describe in this information statement our business activities, we do so as if these transfers have already occurred.

General

Spinco is a live sports and entertainment business comprised of dynamic and powerful assets and brands that grew from The Garden, widely known as “The World’s Most Famous Arena.” Drawing on its celebrated history, the Company builds iconic brands that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. With a portfolio of celebrated venues, legendary sports teams, and exclusive entertainment productions, the Company’s two business segments — MSG Sports and MSG Entertainment — work together to deliver exceptional experiences that endure for generations.

MSG Sports owns and operates the following professional sports franchises: the Knicks of the NBA, the Rangers of the NHL, the Liberty of the WNBA, the Hartford Wolf Pack of the AHL and the Westchester Knicks of the NBADL. In addition, MSG Sports promotes, produces and/or presents a broad array of other live sporting events, including professional boxing, college basketball, professional bull riding and tennis.

MSG Entertainment presents or hosts live entertainment events, including concerts, family shows, performing arts and special events, in our diverse collection of venues. Those venues include The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, The Chicago Theatre and the Wang Theatre. In addition, MSG Entertainment creates, produces and/or presents live productions, including the Radio City Christmas Spectacular and New York Spring Spectacular, both featuring the Rockettes.

Our Strengths

 

    Ownership of legendary sports franchises;

 

    Iconic venues in top live entertainment markets;

 

    Diverse collection of marquee entertainment brands and content, including the Radio City Christmas Spectacular, New York Spring Spectacular and the Rockettes;

 

    Powerful presence in the New York City metropolitan area with established core assets and expertise for strategic expansion;

 

    Strong industry relationships that create opportunities for new content and brand extensions;

 

    Deep connection with loyal and passionate fan bases that span a wide demographic mix;

 

    First-class experience in managing venues, bookings, marketing and sales in multiple markets;

 

    Ability to forge strategic partnerships that utilize the Company’s assets, core competencies and scale, while allowing the Company to benefit from growth in those businesses;

 

    Established history of successfully planning and executing comprehensive venue renovations;

 

    Extensive range of proprietary marketing assets, including an industry-leading customer database that allows us to drive engagement with our brands; and

 

    Strong and seasoned management team.

 

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Our Strategy

Spinco pursues opportunities that capitalize on our iconic venues, popular sports franchises and exclusive entertainment content, as well as our venue management, bookings, marketing and sales expertise. We believe the Company’s unique combination of assets, the depth of our relationships within the sports and entertainment industries and strong connection with our diverse and passionate audiences, set the Company apart in the industry and represent a substantial opportunity for growth. Specific initiatives we are focused on include:

 

    Developing championship caliber teams. The core of MSG Sports’ strategy is to develop teams that seek to consistently compete for championships in their respective leagues, and support and drive revenue streams across the Company. We continue to explore new ways to increase engagement and revenue opportunities across the teams’ broad consumer and corporate customer bases.

 

    Monetizing our exclusive sports content. The Company will enter into media rights agreements with MSG that will provide a significant recurring and growing revenue stream to the Company, subject to the terms of such agreements. In addition, the media rights agreements and the relationship with MSG will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks.

 

    Growing our entertainment brands. Building on our hallmark Radio City Christmas Spectacular and Rockettes brands, MSG Entertainment is focused on enhancing existing productions and developing new productions. In March 2015, MSG Entertainment opened a brand new large scale theatrical production at Radio City Music Hall — called New York Spring Spectacular — featuring the Rockettes.

 

    Exploiting our network of venues. The Company has built a portfolio of venues with which we can deliver high-quality live content and increased bookings. In addition to our New York venues: The Garden, The Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre, we own the Forum in Inglewood, CA, The Chicago Theatre and have a long-term booking agreement with respect to the Wang Theatre in Boston, Massachusetts. Our venues provide multiple distribution outlets for our live entertainment content. Controlling and booking a network of venues enables us to leverage our unique brands and marketing assets, and provides the opportunity to increase utilization through more multi-night concerts and other events and more recurring high-profile events that help build our base of events.

 

    Utilizing our integrated approach to marketing and sales. MSG Sports and MSG Entertainment possess powerful assets that when used in a complementary manner can create significant value for our business. For example:

 

    Our sale of marketing partnerships allows us to use and sell our broad array of MSG Sports and MSG Entertainment assets together in order to maximize their collective value, both for the Company and for our marketing partners. This ability to offer compelling, broad-based marketing platforms that we believe are unparalleled in sports and entertainment has enabled us to attract world-class partners, such as our “Marquee” marketing partner, JPMorgan Chase, and our “Signature” marketing partners — Anheuser-Busch, Coca-Cola, Delta Airlines, Kia, Lexus and SAP.

 

    We continue to forge deep direct-to-consumer relationships with customers and fans, with a focus on understanding how consumers interact with every aspect of the Company. A key component of this strategy is our large and growing proprietary customer database which drives revenue and engagement across segments, benefiting the Company through ticket sales, merchandise sales and sponsorship activation. This database provides us a greater opportunity to cross-promote our products and services, introducing customers to our wide range of assets and brands. For example, we have used our database to drive ticket sales to the Radio City Christmas Spectacular and New York Spring Spectacular from fans of our sports teams.

 

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    Leveraging our live entertainment and venue management expertise and our “artist first” approach. Our first-class venue management capabilities, along with our effective bookings strategy and proven expertise in sponsorships, marketing, ticketing and promotions, have positioned the Company as an industry leader in live entertainment. Part of what drives our success is our “artist first” approach, which includes creating artist-friendly environments and delivering top-tier service that not only attracts artists and athletes to our venues, but makes them want to come back, ensuring our customers experience the very best in live entertainment. For example, we have a track record of designing world-class venues that exceed artist expectations. This includes our renovations of Radio City Music Hall, the Beacon Theatre, The Garden and, most recently, the Forum, which once again delivers superior sound quality and an intimate feel, and now includes first-rate amenities such as nine star-caliber dressing rooms and dedicated areas for production and touring crews. We will continue to use our unique assets, expertise and approach to bring world-renowned artists, performers, athletes and partners to our venues, while also pursuing a strategy that includes using our resources, relationships and expertise to become a third-party management company for venues not owned or operated by Spinco.

 

    Exploring additional ways to strengthen our core assets. Our commitment to strengthening our core assets is exemplified by the transformation of The Garden into a state-of-the-art facility that enhances the experience for our customers, partners, athletes and entertainers and continues to attract even more marquee events, while driving growth across several categories, including ticket, suite, sponsorship, food, beverage and merchandise sales. The Transformation is designed to ensure The Garden’s continued and lasting prominence as a sports and entertainment venue and has driven significant revenue for the Company. The Transformation is discussed in greater detail under “— Our Business — Our Venues — The Garden Transformation.”

 

    Continuing to explore external strategic opportunities. We will continue to seek strategic opportunities to add compelling assets and brands that resonate with our customers and partners, fit with our core competencies and allow new opportunities for growth across the Company. One of the ways we try to capitalize on our unique combination of dynamic assets, established industry relationships and deep customer connections is through strategic partnerships that bring together the expertise and capabilities of each partner, and enable us to team with recognized leaders in their fields and benefit from growth in those businesses. For example, in September 2013, we invested in Azoff-MSG, backed by one of the music and entertainment industry’s most respected and influential executives. The joint venture owns and operates existing music, media and entertainment businesses, while allowing us to pursue various businesses in the entertainment space. In addition, in March 2014, we invested in Tribeca Enterprises, bringing together two of New York’s cultural and entertainment icons to enhance the reach and impact of both brands, while creating new avenues for growth with one of the most respected teams in the film and entertainment industry. We are also co-producing New York Spring Spectacular with The Weinstein Company, a known leader in the development of content, and have also joined with The Weinstein Company on certain other live theatrical productions.

 

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Our Business

MSG Sports

Our MSG Sports segment owns and operates sports franchises, as well as promotes, produces and/or presents a broad array of other live sporting events.

Our Sports Franchises

The Knicks and Rangers are two of the most recognized franchises in professional sports, with storied histories and passionate, multi-generational fan bases. These teams are major occupants of The Garden, traditionally playing a combined total of 82 regular season home games, often to at or near capacity attendance. In addition, the New York Liberty currently play 17 regular season home games at The Garden each year. The number of home games increases if our teams qualify for the playoffs.

New York Knicks

As an original franchise of the NBA, the Knicks have a rich history that includes eight trips to the NBA Finals and two NBA Championships, as well as some of the greatest athletes to ever play the game. The Knicks enjoy the fierce allegiance of generations of passionate and knowledgeable fans and are focused on fielding a championship caliber team over the long-term. In 2014, Phil Jackson, whose extraordinary history of success includes 13 NBA championships, was named president of the Knicks. The Knicks ranked in the top three in the NBA for ticket sales receipts for the 2013-14 regular season. The Knicks season tickets are sold out for the 2014-2015 regular season, which marks the fifth consecutive year that Knicks season tickets have sold out.

New York Rangers

The Rangers hockey club is one of the “original six” franchises of the NHL. Winners of four Stanley Cup Championships, the Rangers have won 11 conference titles over their history. For the 2013-14 season, the Rangers qualified for the playoffs for the eighth time in the last nine years and, after an inspirational run, ended the playoffs as Eastern Conference Champions, having advanced to the Stanley Cup Finals for the first time in twenty years. The Rangers are known to have one of the most passionate, loyal and enthusiastic fan bases in all of sports and ranked in the top three in the NHL for ticket sales receipts for the 2013-14 regular season.

New York Liberty

The Liberty was established in October 1996, when New York was selected as one of eight charter members of the WNBA. The Liberty have won three conference championships and appeared in the playoffs 12 times. The Liberty are supported by an enthusiastic and loyal fan base.

Westchester Knicks

In March 2014, the Company acquired the right to own and operate an NBADL team, which has been named the Westchester Knicks. The 2014-15 season marked the debut of the new team, which plays its home games at the Westchester County Center in White Plains, New York. The Westchester Knicks serve as the exclusive affiliate of the Knicks.

Hartford Wolf Pack

The Hartford Wolf Pack, a minor-league hockey team, is a player development team for the Rangers and is also competitive in its own right in the AHL. The Rangers send draft picks and other players to the Hartford Wolf Pack for skill development and injury rehabilitation, and can call up players for the Rangers roster to enhance the team’s competitiveness. The Hartford Wolf Pack have reached the playoffs 14 times out of 17 seasons.

 

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The Role of the Leagues in Our Operations

As franchises in professional sports leagues, our teams are members of their respective leagues and, as such, may be subject to certain limitations, under certain circumstances, on the control and management of their affairs. The respective league constitutions, under which each league is operated, together with the CBAs each league has signed with its players’ association, contain numerous provisions that, as a practical matter in certain circumstances, could impact the manner in which we operate our businesses. In addition, under the respective league constitutions, the commissioner of each league, either acting alone or with the consent of a majority (or, in some cases, a supermajority) of the other teams in the league, may be empowered in certain circumstances to take certain actions felt to be in the best interests of the league, whether or not such actions would benefit our teams and whether or not we consent or object to those actions.

While the precise rights and obligations of member teams vary from league to league, the leagues have varying degrees of control exercisable under certain circumstances over the length and format of the playing season, including preseason and playoff schedules; the operating territories of the member teams; national and international media and other licensing rights; admission of new members and changes in ownership; franchise relocations; indebtedness affecting the franchises; and labor relations with the players’ associations, including collective bargaining, free agency, and rules applicable to player transactions, luxury taxes and revenue sharing. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Sports — Expenses.” From time to time, we may disagree with or challenge actions the leagues take or the power and authority they assert, although the leagues’ governing documents and our agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself.

Other Sports Properties

MSG Sports also promotes, produces and/or presents a broad array of live sporting events outside of its sports teams’ games, including professional boxing, college basketball, professional bull riding, tennis, and college wrestling. Our sports business includes events that have been among the most popular in our history, as well as perennial highlights on our annual calendar, and also features some of The Garden’s longest-running associations.

Professional boxing, beginning with John L. Sullivan in 1882, has had a long association with The Garden. This includes hosting Muhammad Ali’s and Joe Frazier’s 1971 “Fight of the Century,” considered among the greatest sporting events in modern history, as well as bouts featuring dozens of other boxing greats. These have included Jack Dempsey, Roberto Duran, George Foreman, Emile Griffith, Willie Pep, Oscar De La Hoya, Sugar Ray Leonard, Lennox Lewis, Joe Louis, Rocky Marciano, Sugar Ray Robinson, Felix Trinidad, Roy Jones, Jr., Mike Tyson, Evander Holyfield and Miguel Cotto. In April 2015, we look forward to hosting World Heavyweight Champion Wladimir Klitschko, who returns to The Garden to defend his titles against undefeated top ranked American contender Bryant Jennings.

College basketball has been a mainstay at The Garden for decades, with the sport’s longest running holiday showcase, the Holiday Festival, first tipping off over 50 years ago. In addition to St. John’s University calling The Garden its home away from home, the popular Big East Tournament celebrated its 33rd anniversary at The Garden in 2015. Popular college basketball events also include visits from Duke University’s Blue Devils, the annual Jimmy V Classic and the post-season NIT Finals. In March 2014, the East Regional Finals of The NCAA Division I Men’s Basketball Championship was held at The Garden for the first time in more than 50 years, and is scheduled to return in 2017. In February 2015, The Garden welcomed the 64th NBA All-Star Game, marking the fifth time the arena has hosted the illustrious professional basketball event. Additionally, The Garden hosts the annual BNP Paribas Showdown tennis event, which, since debuting in 2009, has featured tennis luminaries such as Pete Sampras, Roger Federer, Rafael Nadal, Novak Djokovic, Serena and Venus Williams and Maria Sharapova.

 

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MSG Entertainment

Our MSG Entertainment segment is one of the country’s leaders in live entertainment. MSG Entertainment presents or hosts live entertainment events, including concerts, family shows, performing arts events and special events, in our diverse collection of venues and arenas. It also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes the Radio City Christmas Spectacular, which is the top grossing live holiday family show in North America, and New York Spring Spectacular, which opened in March 2015, both of which feature the Rockettes. The venues we own or operate include The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum and The Chicago Theatre. In addition, we have a long-term exclusive booking agreement with respect to the Wang Theatre. The scope of our collection of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal. MSG Entertainment focuses on delivering unforgettable memories through spectacular productions, live events and unrivaled experiences in exceptional settings, creating demand for an association with our brands by artists and premier companies, and for our productions by the public. With a foundation of world-class expertise in live entertainment, including the historic traditions of The World’s Most Famous Arena and Radio City Music Hall, as well as our other venues, MSG Entertainment has a proven ability to utilize the strength of its industry relationships, marketing assets, customer database and live event expertise to create performance, promotion and distribution opportunities for artists, events and productions, and to increase utilization of our venues.

Our Bookings and Other Entertainment Business Activities

MSG Entertainment is an established industry leader responsible for booking a wide variety of live entertainment events in our venues, which perennially include some of the biggest names in music and entertainment. Over the last several years, our venues have been a key destination for artists such as the Eagles, Madonna, Phish, Elton John, Eric Clapton, The Allman Brothers Band, Bruce Springsteen, Maroon 5, Taylor Swift, Justin Timberlake, Ed Sheeran, Katy Perry, Stevie Wonder, Sting and Paul Simon, Coldplay, One Direction, Jerry Seinfeld and Dave Chappelle. In December 2013, MSG Entertainment announced a unique new partnership between The Garden and Billy Joel that made the legendary performer a staple of “The World’s Most Famous Arena,” playing monthly performances since January 2014. This partnership has been a great success with 24 announced performances that commenced in January 2014. As part of this extraordinary run, Billy Joel will play his 65th show at The Garden in July 2015, setting a new record for the most performances by any artist at The Garden.

Our venues have also hosted family shows such as Sesame Street Live, Yo Gabba Gabba Live and Disney Junior Live; special events such as the Tony Awards, “America’s Got Talent,” and the MTV Video Music Awards; appearances by His Holiness the Dalai Lama and the Prime Minister of India, Narendra Modi; graduations, television upfronts and product launches; and theatrical productions such as A Christmas Story, How The Grinch Stole Christmas! and Cirque du Soleil’s Zarkana.

Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows in which case we have economic risk relating to the event. MSG Entertainment currently does not promote or co-promote events outside of our venues.

Our Productions

One of MSG Entertainment’s core properties, the Radio City Christmas Spectacular, has been performed at Radio City Music Hall for 82 years and during the 2014 holiday season sold more than one million tickets. Featuring the world-famous Rockettes, the critically acclaimed Radio City Christmas Spectacular features show-stopping performances, festive holiday scenes and state-of-the-art special effects. As part of our strategic commitment to invest in our core assets, the Company continues to seek opportunities to enhance the Radio City Christmas Spectacular, which, in 2014, led to the return of “Rag Dolls,” one of the show’s classic numbers and a fan favorite.

 

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We acquired the rights to the Radio City Christmas Spectacular in 1997, and those rights are separate from, and do not depend on the continuation of, our lease of Radio City Music Hall. We also hold rights to the Rockettes in the same manner.

In March 2015, we further extended the Rockettes brand with the opening of a new theatrical production built specifically for Radio City Music Hall — called New York Spring Spectacular — that takes audiences on a heartwarming and wondrous journey through New York City. Currently scheduled for a limited seven-week engagement, New York Spring Spectacular weaves together one-of-a-kind puppetry, state-of-the-art technology and dynamic dance numbers performed by the legendary Rockettes.

The brand-new live theatrical production is led by an award-winning creative team that includes Tony and Drama Desk Award winner Warren Carlyle as director and choreographer; Tony Award-winning director and Artistic Director of the American Repertory Theater Diane Paulus and American playwright and Drama Desk Award winner Randy Weiner as the show’s co-creative directors and brilliant young playwright Joshua Harmon. The Company and Weinstein Live Entertainment are co-producing New York Spring Spectacular, which features an opening number choreographed by Emmy Award-winning choreographer Mia Michaels, along with an all-star cast that includes co-stars Tony Award-winning actress Laura Benanti and Emmy Award-winning choreographer Derek Hough, along with Whoopi Goldberg, Bella Thorne, Tina Fey and Amy Poehler, who serve as voices for the show’s sophisticated large-scale puppets.

We continue to strengthen and broaden our Rockettes brand, targeting the most prominent and effective vehicles that elevate their visibility and underscore their reputation as beloved American cultural icons. The Rockettes have appeared or performed at high profile events, including Presidential Inaugurations, the annual Macy’s Thanksgiving Day Parade, the New Year’s Eve Times Square Ball Drop, the Super Bowl XLV numeral unveil, the Major League Baseball Home Run Derby, television shows (“America’s Got Talent,” “Project Runway,” “The Today Show” and “The Colbert Report”), and fashion events (Michael Kors Fashion’s Night Out and Capezio Anniversary Gala), among many others. The Rockettes have established national partnerships with Zumba Fitness and Norwegian Cruise Lines, which included the Rockettes being named “Godmothers” for the new 4,000 passenger ship, Norwegian Breakaway. We continue to pursue carefully considered brand extension opportunities including television and public appearances, strategic partnerships, dance education and new merchandising lines.

Our Interactive Initiatives

The Company has a collection of web sites and mobile and digital platforms, which are housed throughout Spinco’s business segments. These interactive initiatives include more than 20 web sites, social networking sites and mobile applications for our properties, including sites and applications dedicated to our sports teams. Web sites include thegarden.com, radiocity.com, beacontheatre.com, fabulousforum.com, chicagotheatre.com, radiocitychristmas.com, newyorkspringspectacular.com and rockettes.com, as well as sites dedicated to our sports teams (nyknicks.com, newyorkrangers.com, knicksnow.com, blueshirtsunited.com and newyorkliberty.com). Like our MSG Sports business, the online operations relating to our sports teams may, in certain circumstances, be subject to certain agreements, rules, policies, regulations and directives of the leagues in which the respective team operates. See “— Our Business — Regulation.” This interactive business generates revenue for the Company’s segments via the sale of advertising and sponsorships on these digital properties. Additionally, it offers strategic marketing assets that create opportunities to market directly to our fans and cross-promote across our businesses.

Our Venues

The Company operates a mix of iconic venues that continue to build on their historic prominence as destinations for unforgettable experiences and events. Individually, these venues are each premier showplaces, with a passionate and loyal following of fans, performers and events. Taken together, we believe they represent an outstanding collection of venues.

 

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We own or operate under long-term leases a total of six venues in New York City, Chicago and Inglewood, CA and have a long-term booking agreement with respect to the Wang Theatre in Boston. Our New York City venues are the Madison Square Garden Complex (which includes both The Garden and The Theater at Madison Square Garden), Radio City Music Hall and the Beacon Theatre. We also own the Forum in Inglewood, CA and the landmark Chicago Theatre.

The Garden

The Garden has been a celebrated center of New York life since it first opened its doors in 1879. Over its 135-year history, there have been four Garden buildings, each known for showcasing the best of the era’s live sports and entertainment offerings. We believe that The Garden has come to epitomize the power and passion of live sports and entertainment to people around the world, with an appearance at The Garden often representing a pinnacle of an athlete’s or performer’s career. Known as “The World’s Most Famous Arena,” The Garden has been the site of some of the most memorable events in sports and entertainment, and, along with The Theater at Madison Square Garden, has hosted hundreds of events and millions of visitors this past year. In 2009, Billboard Magazine ranked The Garden the number one venue of the decade in its respective class based upon gross ticket sales. Billboard Magazine also ranked The Garden the second highest-grossing entertainment venue of its size in the world based on the magazine’s 2014 full year rankings. Music industry subscribers of the trade magazine Pollstar have voted The Garden “Arena of the Year” 18 out of the last 22 years.

The Garden is home to the Knicks, Rangers and Liberty and is associated with countless “big events,” inspired performances and one-of-a-kind moments. The Garden’s highlights include “The Fight of the Century” between Muhammad Ali and Joe Frazier in 1971 (considered among the greatest sporting events in history); the 1970 Knicks’ NBA Championship; the Rangers’ 1994 Stanley Cup Championship; three Democratic National Conventions and one Republican National Convention; a landmark visit from Pope John Paul II; Marilyn Monroe’s famous birthday serenade to President John F. Kennedy; Frank Sinatra’s “Main Event” concert in 1974; the only U.S. concerts from the reunited Cream; and the 25th Anniversary Rock and Roll Hall of Fame concerts. The Garden has also hosted four prominent benefit concerts, which galvanized the public to respond to national and global crises, including the first of its kind, “The Concert for Bangladesh” in 1972, as well as “The Concert for New York City,” following the events of 9/11; “From the Big Apple to the Big Easy,” held after Hurricane Katrina in 2005; and “12-12-12, The Concert for Sandy Relief” in 2012.

January 2014 marked the start of monthly performances by the legendary Billy Joel at The Garden, with all but one of the 24 announced shows through December 2015 sold out. As part of this incredible two-year run, Billy Joel will play his 65th show at The Garden in July — setting a new record for the most performances by any artist at The Garden. Since Billy Joel’s first show at The Garden in 1978, the internationally acclaimed, six-time Grammy-winning New Yorker has played an important role in the venue’s iconic history with many unforgettable performances, including at both the “The Concert for New York City” and “12-12-12, The Concert for Sandy Relief” benefit concerts.

The current Madison Square Garden Complex, located between 31st and 33rd Streets and Seventh and Eighth Avenues on Manhattan’s West Side, opened on February 11, 1968 with a salute to the U.S.O. hosted by Bob Hope and Bing Crosby. From a structural standpoint, the construction of the current Garden was considered an engineering wonder for its time, including its famous circular shape and unique, cable-supported ceiling, which contributes to its intimate feel. It was the first large structure built over an active railroad track. The builder, R.E. McKee, had a national reputation and was later recognized as a “Master Builder” by the construction industry. Architect Charles Luckman had one of the largest firms in the country and designed such buildings as the Prudential Tower in Boston, NASA’s flight center in Houston and the Forum in Inglewood, CA.

We own the Madison Square Garden Complex, the platform on which it is built and development rights (including air rights) above our property. Madison Square Garden sits atop Pennsylvania Station, a major commuter hub in Manhattan, which is owned by the National Railroad Passenger Corporation (Amtrak). While

 

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the development rights we own would permit us to expand in the future, any such use of development rights would require various approvals from the City of New York. With the successful completion of the Transformation in October 2013, The Garden, once again, seats up to approximately 21,000 spectators for sporting and entertainment events. The Garden, along with The Theater at Madison Square Garden, contains approximately 1,100,000 square feet of floor space over 11 levels.

The Garden Transformation

October 25, 2013 marked the debut of a fully transformed The Garden. The completion of The Garden’s three-year, top-to-bottom Transformation is driving growth across several categories, including tickets, suites, sponsorships, food, beverage and merchandise sales and will continue to have multiple benefits, including:

 

    Providing a state-of-the-art venue that can continue to attract concerts, as well as other large, high-profile sports, entertainment and other special events which benefit our customers, as well as the New York City economy;

 

    Improving the experience of customers from the first row to the last;

 

    Increasing our attractiveness to free agents in basketball and hockey;

 

    Supporting our efforts to maximize our season ticket sales for our teams;

 

    Increasing the breadth of VIP offerings and venue-based opportunities available to marketing partners; and

 

    Augmenting revenue streams.

The Transformation is an example of our strategic commitment to invest in our core assets and continue our legacy of bringing premier events to New York City. In March 2014, we welcomed back the East Regional Finals of the NCAA Division I Men’s Basketball Championship for the first time in over 50 years, and we look forward to hosting this prestigious event again in 2017. In February 2015, we also brought the NBA All-Star Game to New York City for the first time since 1998.

Focused on the total fan experience, the Transformation was designed to benefit everyone in attendance, whether they are first time visitors, season ticket subscribers, athletes, artists, suite holders or marketing partners. Our customers now have access to a full list of amenities including: improved sightlines; additional entertainment and dining options; new concourses; upgraded hospitality areas; new technology; and a completely transformed interior, where the intimacy of the arena bowl and The Garden’s world famous ceiling have been maintained. The Transformation of The Garden is intended to ensure that attending an event at The Garden is unlike anywhere else and is specifically highlighted by:

 

    The new Chase Square Seventh Avenue entrance, which is nearly double the size of the previous entrance and features interactive kiosks, retail space, climate-controlled space, and broadcast area;

 

    Public concourses that are double or triple in width, some with spectacular city views;

 

    A new wide selection of food and beverage options, including exclusive food offerings from our MSG Signature Collection, featuring some of New York’s top chefs;

 

    Improved upper bowl sightlines that put patrons over 17 degrees closer to the action;

 

    New bridges that provide one-of-a-kind views of the arena floor and offer a unique perspective for fans, also referred to as the Chase Bridges;

 

    State-of-the-art lighting, sound and LED video systems in high definition, and new fiber-optic cabling throughout the building;

 

    Improved locker rooms, dressing rooms, green rooms and production offices;

 

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    Additional restrooms with 50 percent more capacity;

 

    Unique exhibits throughout the building that celebrate The Garden’s storied history, including our Garden 366 visual retrospective and the Defining Moments exhibit on the Madison and Garden Concourse levels; and

 

    Corporate offerings that include:

 

    21 Event Level suites that offer a lounge/entertaining atmosphere;

 

    58 Madison Level suites that are 40 percent larger than our previous suite offerings and located as close as 23 rows up from the arena floor;

 

    18 transformed Signature Level suites; and

 

    Three new club spaces: the 1879 Club presented by J.P. Morgan, the Delta SKY360 Club on the Event Level and the Madison Club presented by Foxwoods on the 7th floor of The Garden.

The Theater at Madison Square Garden

The Theater at Madison Square Garden, which has approximately 5,600 seats, opened as part of the fourth Madison Square Garden Complex in 1968, with seven nights of performances by Judy Garland. Since then, some of the biggest and most exciting names in live entertainment have played the theater, including The Who, Bob Dylan, Diana Ross, Elton John, James Taylor, Macklemore & Ryan Lewis, Ellie Goulding, Ricky Gervais, Neil Young, Radiohead, Jerry Seinfeld and Van Morrison. The Theater at Madison Square Garden has also hosted boxing events and the NBA Draft; award shows such as The Daytime Emmys and the Essence Awards; and other special events including “Wheel of Fortune” and audition shows for “America’s Got Talent.” We also host a variety of theatrical productions, family shows and other special events in The Theater, including A Christmas Story, Dr. Seuss’ How The Grinch Stole Christmas!, Sesame Street Live and Disney Junior Live On Tour!. The Theater at Madison Square Garden is the sixth highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2014 full year rankings.

Radio City Music Hall

Radio City Music Hall has a rich history as a national theatrical and cultural mecca since it was first built by theatrical impresario S.L. “Roxy” Rothafel in 1932. Known as “The Showplace of the Nation,” it was the first building in the Rockefeller Center complex and, at the time, the largest indoor theater in the world. Radio City Music Hall hosts concerts, family shows and special events, but is perhaps best known as home to the country’s number one live holiday family show, the Radio City Christmas Spectacular, starring the world-famous Rockettes, and which was joined by a brand new production with the opening of New York Spring Spectacular in March 2015 (see “— MSG Entertainment — Our Productions”). In 2009, Billboard Magazine ranked Radio City Music Hall the number one venue of the decade in its respective class based upon gross ticket sales. In 2013, Billboard Magazine presented Radio City Music Hall with the Top Venue (under 10,000 seats) award at its annual Billboard Touring Awards. Radio City Music Hall is the highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2014 full year rankings.

In 1978, Radio City Music Hall was designated a New York City landmark by the NYC Landmarks Preservation Commission and a national landmark on the National Register of Historic Places. We acquired the lease in 1997, and in 1999, in another example of our commitment to invest in our core assets to help drive our long-term business, we invested in a complete restoration that returned the legendary theater to its original grandeur. Our acclaimed restoration included burnishing the ceilings of Radio City Music Hall with 720,000 sheets of gold and aluminum leaf, replacing the existing stage curtain with a new 112-foot wide golden silk curtain, and replacing its approximately 6,000 seats. All furniture, wall fabric, carpeting, lighting fixtures and appointments were cleaned, repaired or remade, and the three-story tall mural “The Fountain of Youth,” by Ezra Winter, which looms above the grand staircase, was cleaned of decades of grime, varnish and polyurethane. State-of-the-art sound systems, lighting and HDTV capabilities were also installed.

 

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We lease Radio City Music Hall, located at Sixth Avenue and 50th Street in Manhattan, pursuant to a long-term lease agreement. The lease on Radio City Music Hall expires in 2023. We have the option to renew the lease for an additional ten years by providing two years’ notice prior to the initial expiration date.

Beacon Theatre

In November 2006, we entered into a long-term lease agreement to operate the legendary Beacon Theatre, a venue with approximately 2,800 seats, which sits on the corner of Broadway and 74th Street in Manhattan. The Beacon Theatre was conceived of by S. L. “Roxy” Rothafel and is considered the “older sister” to Radio City Music Hall. Designed by Chicago architect Walter Ahlschlager, the Beacon Theatre opened in 1929 as a forum for vaudeville acts, musical productions, drama, opera, and movies. The Beacon Theatre was designated a New York City landmark by the NYC Landmarks Preservation Commission in 1979 and a national landmark on the National Register of Historic Places in 1982. Over its history, the Beacon Theatre has been a venerable rock and roll room for some of the greatest names in music including Steely Dan, Coldplay, Crosby Stills & Nash, Jackson Browne, Elton John, Tom Petty and the Heartbreakers, Eddie Vedder and Bob Dylan, as well as The Allman Brothers Band, which played their 238th show at the Beacon Theatre in October 2014, marking their final concert as a band. The venue has also hosted film premieres and comedy events, including a five-night run by Eddie Izzard in 2014, along with numerous luminaries such as His Holiness the Dalai Lama in 2009 and 2013, and President Bill Clinton in 2006, when the Rolling Stones played a private concert in honor of his 60th birthday.

In order to ensure that we could deliver a first-class experience to customers and performers, in August of 2008 we closed the Beacon Theatre for a seven-month restoration project to return the theater to its original 1929 grandeur. The restoration of the Beacon Theatre focused on all historic, interior public spaces of the building, backstage and back-of-house areas, and was based on extensive historic research, as well as detailed, on-site examination of original, decorative painting techniques that had been covered by decades-old layers of paint. The Beacon Theatre has won several architectural awards recognizing its outstanding restoration. The widely acclaimed, comprehensive restoration was similar to our restoration of Radio City Music Hall, and reflects our commitment to New York City. The Beacon Theatre was the third highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2014 full year rankings.

Our lease on the Beacon Theatre expires in 2026.

The Forum

In June 2012, we added a West Coast home with the purchase of the Forum in Inglewood, CA, which serves the Greater Los Angeles area, providing us with an iconic arena in each of the country’s two largest entertainment markets. Following an extensive reinvention of the historic venue, on January 15, 2014, the Forum re-opened with the first of six concerts by the legendary Eagles and is once again a thriving destination for both artists and music fans.

With the successful completion of an extensive reinvention, the Forum is now the only arena-sized venue in the country dedicated to music and entertainment, and offers something exceptional for everyone — artists, promoters, music fans, VIP customers and marketing partners. Architecturally, the interior of the bowl has been completely modernized and features superior acoustics, along with flexible seating that ranges from 7,000 seats to 17,800 seats — allowing the venue to accommodate a wide variety of premier events. Fans seated on the floor have access to one of the largest general admission floors in the country, with approximately 8,000 square feet of new event level hospitality offerings, including food and beverage, merchandise and restrooms. The new Forum also offers exclusive spaces for VIP customers, including the historic Forum Club, which has been completely re-imagined with thematic music-inspired detailing.

For artists, the Forum delivers a first-class experience that includes nine, star-caliber dressing rooms with upgraded amenities. Among the key features that were resurrected in an effort to replicate the original design is

 

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the exterior color of the venue, which has returned to the 1960’s “California sunset red,” and is now officially known as “Forum Red.” Other outdoor features include the addition of a distinct and iconic Forum marquee that reflects the architecture of the venue and a 40,000 square foot terrace that surrounds the perimeter of the building and offers upgraded food and beverage amenities, elevating the guest experience. Since re-opening in 2014, the Forum has received several architectural awards recognizing its outstanding restoration.

The original Forum was designed by renowned architect, Charles Luckman, who also designed The Garden that opened in 1968. The historic West Coast venue, which opened in 1967, has played host to some of the greatest musical performers of all time, including The Rolling Stones, The Jackson 5, Bob Dylan, Led Zeppelin, Madonna, Van Halen, Foo Fighters, Coldplay, Prince and many others. In addition, the Forum was home to the Los Angeles Lakers and Los Angeles Kings until 1999.

According to Pollstar data for 2014, the reinvented Forum has already become number one in its class in terms of concert market share in Los Angeles. Since re-opening, the venue has already hosted an impressive lineup of entertainers, including: the Eagles, Justin Timberlake, Paul Simon and Sting, Stevie Wonder, Aerosmith, Queen with Adam Lambert, Steely Dan, Fleetwood Mac, Tom Petty and the Heartbreakers, Arcade Fire and Kings of Leon as well as His Holiness the Dalai Lama. In May 2014, the Forum also hosted its first boxing match since 2004, featuring Juan Manuel Marquez and Mike Alvarado, and in August 2014, welcomed the 2014 MTV Video Music Awards.

The Chicago Theatre

In October 2007, to extend our presence outside of New York and provide us with an anchor for content and distribution in a key market in the Midwest, we purchased the legendary Chicago Theatre, a venue with approximately 3,600 seats. The Chicago Theatre, which features its famous six-story-high “C-H-I-C-A-G-O” marquee, was built in 1921 and designed in the French Baroque style by architects Cornelius W. Rapp and George L. Rapp. It is the oldest surviving example of this architectural style in Chicago today, and was designated a Chicago landmark building in 1983 by the Mayor of Chicago and the Chicago City Council.

Today, The Chicago Theatre has become a highly attractive destination for concerts, comedy shows and other live events, hosting a wide range of entertainers, including Bob Dylan, Mumford & Sons, David Byrne, Neil Young, Steve Winwood, Jerry Seinfeld, The National, Kanye West, Conan O’Brien, Aziz Ansari, Barry Manilow and Steely Dan. The venue has also hosted theatrical tours, including A Christmas Story. The Chicago Theatre was ranked the eighth highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2014 full year rankings.

Wang Theatre

Since August 2008, we have had a booking agreement with respect to the historic Wang Theatre in Boston. Under the booking agreement, we have been utilizing our diverse relationships and experience in event production and entertainment marketing to maximize the quantity and diversity of performances staged at the Wang Theatre. These performances have included theatrical productions and family shows such as the Tony award-winning Annie the Musical, Irving Berlin’s White Christmas the Musical, A Christmas Story, and Dr. Seuss’ How The Grinch Stole Christmas! as well as concerts, including multi-night runs by Steely Dan, Sting, Jerry Seinfeld, and Furthur and performances from Jason Mraz, Leonard Cohen, Wilco, Tegan and Sara, John Legend and The Shins. The Wang Theatre seats approximately 3,600.

Our booking agreement expires in 2019. We have the option to renew the agreement at that time for an additional ten years by providing two years’ notice prior to the initial expiration date.

Other Investments

We continue to explore additional opportunities that strengthen our existing position within the sports and entertainment landscape and/or allow us to exploit our assets and core competencies for growth.

 

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In September 2013, the Company acquired a 50 percent interest in Azoff-MSG. The Azoff-MSG entity owns and operates businesses in the entertainment industry and is currently focused on music management, performance rights, comedy and productions, and strategic marketing. This strategic partnership brings together the expertise and capabilities of each partner with the goal of jointly entering into attractive new businesses that generate revenue and cash flow. Since the joint venture began, Azoff-MSG has made investments for 50 percent interests in Levity Entertainment Group, Digital Brand Architects, Pop2Life, and Burns Entertainment. The core music management business continues to expand, and the development of the global music rights business is making significant progress. Azoff-MSG will remain focused on capitalizing on investment opportunities within its existing businesses as well as on others in its pipeline, with the goal of accelerating its revenue growth and profit trajectory.

In August 2013, the Company, in a new partnership with the owners of Brooklyn Bowl, invested in building a new venue in Las Vegas which was modeled after the Brooklyn Bowl destination in New York. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments in Nonconsolidated Affiliates” for further discussion.

In March 2014, the Company announced that it purchased a 50 percent interest in Tribeca Enterprises, the company that owns and operates the acclaimed Tribeca Film Festival, bringing together two of New York’s most important cultural and entertainment icons to enhance the reach and impact of both brands. The annual Film Festival supports and promotes both emerging and established directors and has attracted an international audience of more than 4.5 million attendees since it was founded in 2002. Tribeca Enterprises’ businesses also include Tribeca Digital Studios, a branded entertainment content business; Tribeca Cinemas, a unique event space; and Tribeca Film, an independent film distribution label. This joint venture augments our portfolio of premier New York City live entertainment brands, while also providing us with a high-profile entry into the festival business, with a team that has created one of the most successful festivals in the world. We will also explore joint sponsorship opportunities, which we believe provide a compelling opportunity to drive incremental growth at both companies. Meanwhile, Tribeca Enterprises now has access to our marketing and promotional expertise and platforms, along with our knowledge of ticketing and booking, which we expect will increase both awareness and attendance for the Tribeca Film Festival, along with other Tribeca Enterprises events.

On July 1, 2014, the Company completed its previously announced sale of Fuse to SiTV Media, Inc., which has since been renamed Fuse Media, Inc., the parent company of NUVOtv. NUVOtv is an English language entertainment network created for modern Latinos. As part of the transaction, the Company received a 15% equity interest in SiTV Media, LLC, which has since been renamed Fuse Media, LLC (“Fuse Media”). The Company’s 15% equity interest in Fuse Media was subject to potential reduction if Fuse Media did not meet certain performance goals, however, those goals were satisfied during the six months ended December 31, 2014.

Garden of Dreams Foundation

Spinco has a close association with The Garden of Dreams Foundation (the “Foundation”), a non-profit charity that is dedicated to making dreams come true for children facing obstacles. The Foundation works with 25 partner organizations throughout the tri-state area, including hospitals, wish organizations and community-based organizations, to reach children who are facing challenges such as homelessness, extreme poverty, illness and foster care. Since it began in 2006, the Foundation has used the magic of Spinco’s businesses — the Rangers, Knicks, Liberty and MSG Entertainment — to brighten the lives of more than 250,000 children and their families. The Foundation takes pride in its commitment to truly change lives, hosting more than 500 events and programs each year. They include: events with the Knicks, Rangers and Liberty; special celebrations and event attendance at The Garden, Radio City Music Hall and the Beacon Theatre; visits by Madison Square Garden celebrities; The Garden of Dreams Talent Show, where children perform on the Great Stage at Radio City Music Hall; The Garden of Dreams Prom, which brings together teens who may not otherwise have the opportunity to attend their own prom; toy and coat drives; and the “Make A Dream Come True Program,” where children enjoy unforgettable experiences with celebrities and at events. In addition, through its Garden of Dreams Giving

 

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program, the Foundation helps its partner organizations meet the critical needs of the children they serve, including through direct support of scholarships and tangible, targeted community projects. The Foundation has served its partners by refurbishing pediatric wards at area hospitals, activity rooms at community facilities and foster care visiting areas at family services centers, and by rejuvenating neighborhood playgrounds and basketball courts — with plans for many more vital civic enhancements in the years to come.

Regulation

Our sports and entertainment businesses are subject to legislation governing the sale and resale of tickets and consumer protection statutes generally.

In addition, many of the events produced or promoted by our sports and entertainment businesses are presented in our venues which are, like all public spaces, subject to building and health codes and fire regulations imposed by the state and local governments in the jurisdictions in which our venues are located. These venues are also subject to zoning and outdoor advertising regulations, and, with respect to Radio City Music Hall and The Beacon Theatre, landmark regulations which restrict us from making certain modifications to our facilities as of right or from operating certain types of businesses. These venues also require a number of licenses in order for us to operate, including occupancy permits, exhibition licenses, food and beverage permits, liquor licenses and other authorizations. In addition, our venues are subject to the federal Americans with Disabilities Act, which requires us to maintain certain accessibility features at each of our facilities. See “Risk Factors — General Risks — We Are Subject to Extensive Governmental Regulation and Our Failure to Comply with These Regulations May Have a Material Negative Effect on Our Business and Results of Operations.”

The professional sports leagues in which we operate, primarily the NBA and NHL, claim the right under certain circumstances to regulate important aspects of our sports business and our team-related interactive businesses. See “— Our Business — MSG Sports — The Role of the Leagues in Our Operations.”

Our sports and entertainment businesses are also subject to certain regulations applicable to our Internet web sites and mobile applications. We maintain various web sites and mobile applications that provide information and content regarding our businesses, offer merchandise and tickets for sale and make available sweepstakes and/or contests. The operation of these web sites and applications may be subject to a range of federal, state and local laws such as privacy, accessibility for persons with disabilities and consumer protection regulations. The online and mobile operations relating to our sports teams may, in certain circumstances, be subject to certain agreements, rules, policies, regulations and directives of the leagues in which the respective team operates. See “— Our Business — MSG Sports — The Role of the Leagues in Our Operations.” In addition, any of our web sites intended primarily for children under 12 years of age must comply with certain limits on commercial matter.

Competition

Competition in Our Sports Business

Our sports business operates in a market in which numerous sports and entertainment opportunities are available. In addition to the NBA, NHL, WNBA and NBADL teams that we own and operate, the New York City metropolitan area is home to two Major League Baseball teams (the Yankees and the Mets), two National Football League teams (the Giants and the Jets), two additional NHL teams (the Islanders and the Devils), a second NBA team (the Nets) and two Major League Soccer franchises (the New York Red Bulls and the New York City Football Club). In addition, there are a number of other amateur and professional teams that compete in other sports, including at the collegiate and minor league levels. New York is also home to the U.S. Open tennis event each summer, as well as many other non-sports related entertainment options.

As a result of the large number of options available, we face strong competition for the New York area sports fan. We must compete with these other sporting events in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to

 

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provide an entertaining environment at our games and the prices we charge for our tickets. In addition, for fans who prefer the unique experience of NHL hockey, we must compete with the Islanders and Devils as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA basketball, we must compete with the Nets as well as, in varying respects and degrees, with other NBA teams and the NBA itself. In addition, we also compete to varying degrees with other productions and live entertainment events for advertising and sponsorship dollars.

See “Risk Factors — Risks Relating to Our Sports Business — Our Sports Business Faces Intense and Wide-Ranging Competition, Which May Have a Material Negative Effect on Our Business and Results of Operations.”

Competition in Our Entertainment Business

Our entertainment business competes, in certain respects and to varying degrees, with other live performances, sporting events, movies, home entertainment (including the Internet and online services, television, home video and gaming devices) and the large number of other entertainment and public attraction options available to members of the public. Our businesses typically represent alternative uses for the public’s entertainment dollar. The primary geographic area in which we operate, New York City, is among the most competitive entertainment markets in the world, with the world’s largest live theater industry and extensive performing arts venues, twelve major professional sports teams, numerous museums, galleries and other attractions, and numerous movie theaters available to the public. Our venues outside of New York City similarly compete with other entertainment options in their respective markets and elsewhere. We compete with these other entertainment options on the basis of the quality of our productions and the public’s interest in our content, as well as on the price of our tickets and the quality and location of our venues.

We compete for bookings with a large number of other venues both in the cities in which our venues are located and in alternative locations capable of booking the same productions and events. Generally, we compete for bookings on the basis of the size, quality, expense and nature of the venue required for the booking.

In addition to competition for ticket sales and bookings, we also compete to varying degrees with other productions and sporting events for advertising and sponsorship dollars.

See “Risk Factors — Risks Relating to Our Entertainment Business — Our Entertainment Business Faces Intense and Wide-Ranging Competition Which May Have a Material Negative Effect on Our Business and Results of Operations.”

Employees

As of [], 2015 we had approximately [] full-time union and non-union employees and [] part-time union and non-union employees. Approximately []% of our employees were represented by unions as of [], 2015. Labor relations in general and in the sports and entertainment industry in particular can be volatile, though our current relationships with our unions taken as a whole are positive. We have from time to time faced labor action or had to make contingency plans because of threatened or potential labor actions.

The NHL players and the NBA players are covered by CBAs between the NHLPA and the NHL and between the NBPA and the NBA, respectively. Both the NHL and the NBA have experienced labor difficulties in the past and may have labor issues in the future. On June 30, 2011 the prior CBA between the NBA and NBPA expired and there was a work stoppage for approximately five months until a new CBA was entered into in December 2011. On September 15, 2012 the prior CBA between the NHL and NHLPA expired and there was a work stoppage for approximately four months until a new CBA was entered into in January 2013. See “Risk Factors — General Risks — Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”

 

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Properties

We own the Madison Square Garden Complex, which includes The Garden (with a maximum capacity of approximately 21,000 seats) and The Theater at Madison Square Garden (approximately 5,600 seats) in New York City, comprising approximately 1,100,000 square feet; a training center in Greenburgh, NY with approximately 105,000 square feet of space; The Chicago Theatre (approximately 3,600 seats) in Chicago comprising approximately 72,600 square feet; and the Forum (approximately 17,800 seats) in Inglewood, CA comprising approximately 307,000 square feet.

Significant properties that are leased in New York City include approximately 266,000 square feet housing Spinco’s administrative and executive offices, approximately 577,000 square feet comprising Radio City Music Hall (approximately 6,000 seats) and approximately 57,000 square feet comprising the Beacon Theatre (approximately 2,800 seats). We also lease storage space in various other locations and parking locations in Inglewood, CA for the Forum. For more information on our venues, see “— Our Business — Our Venues.”

Our Madison Square Garden Complex is subject to and benefits from various easements, including the “breezeway” into Madison Square Garden from Seventh Avenue in New York City (which we share with other property owners). Our ability to continue to utilize this and other easements requires us to comply with certain conditions. Moreover, certain adjoining property owners have easements over our property, which we are required to maintain so long as those property owners meet certain conditions.

Legal Proceedings

In March 2012, the Company was named as a defendant in two purported class action antitrust lawsuits brought in the United States District Court for the Southern District of New York against the NHL and certain NHL member clubs, regional sports networks and cable and satellite distributors. The complaints, which are substantially identical, primarily assert that certain of the NHL’s current rules and agreements entered into by defendants, which are alleged by the plaintiffs to provide certain territorial and other exclusivities with respect to the television and online distribution of live hockey games, violate Sections 1 and 2 of the Sherman Antitrust Act. The complaint seeks injunctive relief against the defendants’ continued violation of the antitrust laws, treble damages, attorneys’ fees and pre- and post-judgment interest. On July 27, 2012, the Company and the other defendants filed a motion to dismiss the complaints (which have been consolidated for procedural purposes). On December 5, 2012, the court issued an opinion and order largely denying the motion to dismiss. On April 8, 2014, following the conclusion of fact discovery, all defendants filed motions for summary judgment seeking dismissal of the complaints in their entirety. On August 8, 2014, the Court denied the motions for summary judgment. The defendants, including the Company, are vigorously defending the claims.

The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty, management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.

Financial Information about Segments and Geographic Areas

Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area. Financial information by business segments for each of the years ended June 30, 2014, 2013, and 2012, and the six months ended December 31, 2014 and 2013 is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Combined Financial Statements as of June 30, 2014 and 2013 and For the Three Years Ended June 30, 2014, 2013 and 2012 — Notes to Combined Financial Statements — Note 18” and “Combined Financial Statements as of December 31, 2014 (Unaudited) and June 30, 2014 and For the Six Months Ended December 31, 2014 and 2013 — Notes to Combined Financial Statements (Unaudited) — Note 13.”

 

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Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions generally include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Although we are still evaluating the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an emerging growth company, except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act.

We will, in general, remain as an emerging growth company for up to five full fiscal years following the Distribution. We would cease to be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if we:

 

    have more than $1 billion in annual revenue in a fiscal year;

 

    issue more than $1 billion of non-convertible debt during the preceding three-year period; or

 

    become a “large accelerated filer” as defined in Exchange Act Rule 12b-2, which would occur after: (i) we have filed at least one annual report pursuant to the Exchange Act; (ii) we have been an SEC-reporting company for at least 12 months; and (iii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

 

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DIVIDEND POLICY

We do not expect to pay any cash dividends on our common stock in the foreseeable future. All decisions regarding the payment of dividends will be made by our Board of Directors from time to time in accordance with applicable law.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of December 31, 2014 and the unaudited pro forma condensed combined statement of operations for the six months ended December 31, 2014 and the unaudited pro forma combined statement of operations for the year ended June 30, 2014 are based on the historical combined financial statements of the Company. The unaudited pro forma combined financial statements presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined annual and interim financial statements and corresponding notes thereto included elsewhere in this information statement. The unaudited pro forma combined financial statements reflect certain known impacts as a result of the Distribution to separate the Company from MSG. The unaudited pro forma combined financial statements have been prepared giving effect to the Distribution as if this transaction had occurred as of July 1, 2013 for the unaudited pro forma combined statement of operations for the year ended June 30, 2014 and for the unaudited pro forma condensed combined statement of operations for the six months ended December 31, 2014, and as of December 31, 2014 for the unaudited pro forma condensed combined balance sheet.

In connection with the Distribution, the Company acquired all of the membership interests in [], which owns the businesses, venues and other assets of the Company, which includes its sports and entertainment businesses, as well as its venues. These transfers to us by MSG are treated as a contribution to our capital at MSG’s historical cost.

The unaudited pro forma combined financial information set forth below have been derived from the combined annual and interim financial statements of the Company including the unaudited condensed combined balance sheet as of December 31, 2014 and the unaudited condensed combined statement of operations for the six months ended December 31, 2014 and for the year ended June 30, 2014 included elsewhere within this information statement and reflect certain assumptions that we believe are reasonable given the information currently available.

The costs to operate our business as an independent public entity are expected to exceed the historical allocations, including corporate and administrative charges from MSG of approximately $[] million and $[] million for the six months ended December 31, 2014 and for the year ended June 30, 2014, respectively reflected in the accompanying annual and interim combined financial statements presented elsewhere within this information statement and principally relate to areas that include, but are not limited to:

 

    additional personnel including finance, accounting, compliance, tax, treasury, internal audit and legal;

 

    additional professional fees associated with audits, tax, legal and other services;

 

    increased insurance premiums;

 

    costs relating to board of directors’ fees;

 

    stock market listing fees, investor relations costs and fees for preparing and distributing periodic filings with the SEC; and

 

    other administrative costs and fees, including anticipated incremental executive compensation costs related to existing and new executive management and excluding future share-based compensation expense (see pro forma adjustment [] below).

The preliminary estimates for these net incremental expenses in the fiscal year ending June 30, 2016 range between approximately $[] million and $[] million on an annual basis going forward. The pro forma impact of such incremental costs has not been reflected herein as many of the costs expected to comprise this increase are not factually supportable at this time. Actual expenses could vary from this range estimate and such variations could be material.

 

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Costs related to the separation of approximately $[] million have been incurred by MSG for the six months ended December 31, 2014. These costs include accounting, legal and consulting fees. MSG has assumed all of these costs to date and anticipates that it will be responsible for all similar costs prior to the separation of Spinco from MSG. Therefore, in the historical and unaudited pro forma combined statements of operations for the six months ended December 31, 2014, no transaction costs incurred by MSG were allocated to Spinco or otherwise reflected in our financial results.

Prior to the distribution, we will enter into media rights agreements with MSG. Any revenue changes resulting from the media rights agreements will be reflected in the unaudited pro forma combined financial information. The media rights agreements will provide our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams, on MSG’s award-winning regional sports networks. The media rights agreements will have terms of [] years.

These unaudited pro forma combined financial statements reflect all other adjustments that, in the opinion of management, are necessary to present fairly the pro forma combined results of operations and combined financial position of the Company as of and for the periods indicated. The unaudited pro forma combined financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the Company operated historically as a company independent of MSG or if the Distribution had occurred on the dates indicated. The unaudited pro forma combined financial information also should not be considered representative of our future combined financial condition or combined results of operations.

 

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SPORTS AND ENTERTAINMENT BUSINESSES

OF THE MADISON SQUARE GARDEN COMPANY

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

December 31, 2014

(in thousands)

[To Come]

 

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SPORTS AND ENTERTAINMENT BUSINESSES

OF THE MADISON SQUARE GARDEN COMPANY

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Six Months Ended December 31, 2014

(in thousands)

[To Come]

 

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SPORTS AND ENTERTAINMENT BUSINESSES

OF THE MADISON SQUARE GARDEN COMPANY

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended June 30, 2014

(in thousands)

[To Come]

 

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SPORTS AND ENTERTAINMENT BUSINESSES

OF THE MADISON SQUARE GARDEN COMPANY

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

[To Come]

 

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SELECTED FINANCIAL DATA

The operating and balance sheet data included in the following selected financial data table have been derived from the combined financial statements of Spinco. The financial information presented below for periods prior to the Distribution date does not necessarily reflect what our results of operations and financial position would have been if we had operated as a separate publicly-traded entity during those periods. The selected financial data presented below should be read in conjunction with the combined financial statements included elsewhere in this information statement and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Six Months Ended
December 31,
    Years Ended June 30,  
     2014     2013     2014     2013     2012  
     (in thousands)  

Operating Data:

          

Revenues

   $ 515,730      $ 413,524      $ 913,615      $ 722,943      $ 728,867   

Operating expenses:

          

Direct operating

     336,906        291,825        714,825        533,282        530,307   

Selling, general and administrative

     114,402        94,594        221,109        176,139        171,757   

Depreciation and amortization

     59,563        39,274        91,709        72,551        62,940   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

  4,859      (12,169   (114,028   (59,029   (36,137

Other income (expense):

Equity in loss of nonconsolidated affiliates

  (32,755   (738   (1,323   —        —     

Interest income (expense), net

  173      (172   20      (1,609   (867

Miscellaneous

  75      23      95      3,497      7,072   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations before income taxes

  (27,648   (13,056   (115,236   (57,141   (29,932

Income tax expense

  (446   (848   (1,697   (1,133   (6,350
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

$ (28,094 $ (13,904 $ (116,933 $ (58,274 $ (36,282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data:

Total assets

$ 2,165,161    $ 2,090,815    $ 2,137,191    $ 1,732,863    $ 1,580,868   

Total divisional equity

  1,219,062      1,160,709      1,191,203      916,764      828,735   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, there are statements concerning our future operating and future financial performance, including the opening of New York Spring Spectacular, the Company’s new large-scale theatrical production, the benefit of The Garden, The Theater at Madison Square Garden and the Forum being available for events for a full fiscal year, expected growth in suite rental revenue and sponsorship and signage revenues and increases in rights fee revenues from our new rights agreements with MSG. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:

 

    the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level and popularity of the Radio City Christmas Spectacular, New York Spring Spectacular and other entertainment events which are presented in our venues;

 

    costs associated with player injuries, and waivers or contract terminations of players and other team personnel;

 

    changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax obligations;

 

    the level of our capital expenditures and other investments;

 

    general economic conditions, especially in the New York City metropolitan area where we conduct the majority of our operations;

 

    the demand for sponsorship arrangements and for advertising;

 

    competition, for example, from other teams, other venues and other sports and entertainment options;

 

    changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements (including the leagues’ respective collective bargaining agreements with their players’ associations, salary caps, revenue sharing, NBA luxury tax thresholds and telecast rights) or other regulations under which we operate;

 

    any NBA or NHL work stoppage;

 

    seasonal fluctuations and other variation in our operating results and cash flow from period to period;

 

    the level of our expenses, including our corporate expenses as a stand-alone publicly traded company;

 

    the successful development of new live productions or enhancements to existing productions and the investments associated with such development or enhancements;

 

    the acquisition or disposition of assets and/or the impact of, and our ability to, successfully pursue acquisitions or other strategic transactions;

 

    the operating and financial performance of our strategic acquisitions and investments, including those we do not control;

 

    the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured;

 

    the impact of governmental regulations or laws, including the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;

 

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    financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;

 

    our ownership of professional sports franchises in the NBA and NHL and certain transfer restrictions on our common stock;

 

    our status as an emerging growth company; and

 

    the additional factors described under “Risk Factors” in this information statement.

We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.

All dollar amounts included in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in thousands, except as otherwise noted.

Introduction

Our MD&A is provided as a supplement to the audited combined annual financial statements and unaudited interim condensed combined financial statements and footnotes thereto included elsewhere in this information statement to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The information included in this MD&A should be read in conjunction with the annual and interim combined financial statements included in this information statement as well as the financial data set forth under “Selected Financial Data” and the pro forma combined financial information set forth under “Unaudited Pro Forma Combined Financial Information.” Our MD&A is organized as follows:

Proposed Distribution and Basis of Presentation. This section provides a general description of the proposed spinoff that would separate The Madison Square Garden Company into two distinct publicly-traded companies.

Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.

Combined Results of Operations. This section provides an analysis of our results of operations for the six months ended December 31, 2014 and 2013, and the years ended June 30, 2014, 2013 and 2012. Our discussion is presented on both a combined and segment basis. Our segments are MSG Entertainment and MSG Sports.

Liquidity and Capital Resources. This section provides a discussion of our financial condition as of December 31, 2014, as well as an analysis of our cash flows for the six months ended December 31, 2014 and 2013 and the years ended June 30, 2014, 2013 and 2012. The discussion of our financial condition and liquidity includes summaries of (i) our primary sources of liquidity and (ii) our contractual obligations and off balance sheet arrangements that existed at June 30, 2014.

Seasonality of Our Business. This section discusses the seasonal performance of our MSG Sports and MSG Entertainment segments. Because of the seasonality of these segments, our results for the six months ended December 31, 2014 are not necessarily indicative of full-year performance.

Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our annual combined financial statements included elsewhere in this information statement.

 

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Proposed Distribution and Basis of Presentation

At meetings on October 27, 2014 and December 18, 2014, the MSG board of directors authorized and directed the Company’s management to explore spin-off transactions, including a spin-off of the MSG sports and entertainment businesses from the MSG media business.

The spin-off is expected to be completed through a tax-free pro rata distribution by MSG of our Class A Common Stock and Class B Common Stock to the holders of MSG Class A Common Stock and MSG Class B Common Stock, respectively. During March 2015, the newly formed registrant, Spinco, was incorporated in the State of Delaware.

As part of the Distribution, it is anticipated that Spinco’s opening balance sheet will be funded with a cash investment of $[] from MSG.

Completion of the proposed Distribution is subject to certain conditions, including final approval by the MSG board of directors, certain approvals by the NBA and NHL, receipt of a tax opinion and rulings and the filing and effectiveness of a registration statement, of which this information statement forms a part, with the SEC. There can be no assurance that the spin-off transaction will be completed.

The stand-alone combined financial statements of Spinco (the “combined financial statements”) were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of MSG. These financial statements reflect the combined historical results of operations, financial position and cash flows of the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and SEC Staff Accounting Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. References to U.S. GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification, also referred to as the “Codification” or “ASC.”

Historically, separate financial statements have not been prepared for Spinco, and it has not operated as a stand-alone business from MSG. The combined financial statements include certain assets and liabilities that have historically been held by MSG or by other MSG subsidiaries but are specifically identifiable or otherwise attributable to Spinco. All significant intercompany transactions between MSG and Spinco have been included as components of MSG investment in the combined financial statements, as they are to be considered effectively settled upon effectiveness of the Distribution. The combined financial statements are presented as if the Spinco businesses had been combined for all periods presented. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as immediately prior to the distribution of all the assets and liabilities presented are wholly-owned by MSG and are being transferred to Spinco at carry-over basis.

The combined statements of operations include allocations for certain support functions that are provided on a centralized basis and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and facilities, among others. As part of the Distribution, certain support functions are being transferred to Spinco and, therefore, charges were reflected in order to properly burden all business units comprising MSG’s historical operations. These expenses have been allocated to MSG on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures of Spinco or MSG. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

 

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Business Overview

The Company is a live sports and entertainment business comprised of dynamic and powerful assets and brands. The Company is comprised of two business segments: MSG Entertainment and MSG Sports, which are strategically aligned to work together to drive our overall business, which is built on a foundation of iconic venues and compelling content, including live sports and entertainment events that we create, produce and present. The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases or booking arrangements. The Company owns The Garden and The Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston. A description of our segments follows:

MSG Entertainment

Our MSG Entertainment segment, which represented approximately 33% of our combined revenues for the year ended June 30, 2014, is one of the country’s leaders in live entertainment. MSG Entertainment presents or hosts live entertainment events, including concerts, family shows, performing arts and special events in our diverse collection of venues. Those venues include The Garden, The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, the Forum, The Chicago Theatre and the Wang Theatre. The scope of our collection of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal. Over the last several years, our venues have hosted artists such as Billy Joel, the Eagles, Madonna, Phish, Elton John, Eric Clapton, The Allman Brothers Band, Bruce Springsteen, Maroon 5, Taylor Swift, Justin Timberlake, Ed Sheeran, Katie Perry, Stevie Wonder, Sting and Paul Simon, Coldplay, One Direction, Jerry Seinfeld and Dave Chappelle; family shows such as Sesame Street Live, Yo Gabba Gabba Live and Disney Junior Live!; special events such as the Tony Awards, America’s Got Talent and appearances by His Holiness the Dalai Lama, along with graduations, television upfronts and product launches; and theatrical productions such as A Christmas Story, How The Grinch Stole Christmas! and Cirque du Soleil’s Zarkana. Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows in which case we have economic risk relating to the event. MSG Entertainment currently does not promote or co-promote events outside of our venues.

MSG Entertainment also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes the Radio City Christmas Spectacular, which is the top grossing live holiday family show in North America, and New York Spring Spectacular, which opened in March 2015, both of which feature the Rockettes. The Radio City Christmas Spectacular has been performed at Radio City Music Hall for 82 years and more than one million tickets were sold for performances during the 2014 holiday season. In addition, during the 2013 holiday season the Company presented the theater version of the show in Atlanta, West Palm Beach, Tampa and, for the 12th year, at the Grand Ole Opry House in Nashville. The Company regularly evaluates the theatrical productions of the Radio City Christmas Spectacular presented outside of New York and has made the decision to end these productions as the Company continues to explore new approaches to best showcase the Radio City Christmas Spectacular and Rockettes brands.

Revenue Sources

Our primary sources of revenue in our MSG Entertainment segment are ticket sales to our live audiences for events that we produce or promote/co-promote and license fees for our venues paid by third-party promoters in connection with events that we do not produce or promote/co-promote. We also generate revenue from other sources, including facility and ticketing fees, concessions, sponsorships and signage, a portion of suite license fees at The Garden, merchandising and tours of our venues. The levels of revenue and expense we record in our MSG Entertainment segment for a given event depends to a significant extent on whether we are promoting or co-promoting the event or are licensing our venue to a third party.

 

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Ticket Sales and Suite Licenses

For our productions and for entertainment events in our venues that we promote, we recognize revenues from the sale of tickets to our audiences. We sell tickets to the public through our box office, via our web sites and ticketing agencies and through group sales. The amount of revenue we earn from ticket sales depends on the number of shows and the mix of events that we promote, the seating capacity of the venue used, the extent to which we can sell to our seating capacity and our ticket prices.

The Garden has 21 Event Level suites, 58 Madison Level suites, and 18 Signature Level suites. Suite licenses at The Garden are generally sold to corporate customers pursuant to multi-year licenses. Under standard suite licenses, the licensees pay an annual license fee, which varies depending on the location of the suite. The license fee includes, for each seat in the suite, tickets for events at The Garden for which tickets are sold to the general public, subject to certain exceptions. In addition, suite holders pay for food and beverage service in their suites at The Garden. Revenues from the sale of suite licenses are shared between our MSG Entertainment and MSG Sports segments.

Venue License Fees

For entertainment events held at our venues that we do not produce, promote or co-promote, we typically earn venue license fees from the third-party promoter of the event. The amount of license fees we charge varies by venue, as well as by the size of the production and the number of days of the event, among other factors. Our fees include both the cost of renting space in our venues and costs for providing production services, such as front-of-house and back-of-house staffs, including stagehands, box office staff, ushers, security, staging, lighting and sound, and building services.

Whether we are promoting an event or licensing our venues to a third-party promoter has a significant impact on the level of revenues and the costs that we record in our MSG Entertainment segment.

Facility and Ticketing Fees

For all public and ticketed entertainment events held in our venues, we also earn additional revenues on substantially all tickets sold, whether we promote or co-promote the event or license the venue to a third party. These revenues are earned in the form of certain fees and assessments, including the facility fee we charge on tickets we sell, and vary by venue.

Concessions

We sell food and beverages during substantially all entertainment events held at our venues. In addition to concession-style sales of food and beverages, which represent the majority of our concession revenues, we also provide catering for our suites at The Garden for a fee.

Merchandise

We earn revenues from the sale of merchandise relating to our proprietary productions and other live entertainment events that take place at our venues. The majority of our merchandise revenues are generated through on-site sales during performances of our productions and other live events. We also generate revenues from the sales of our Radio City Christmas Spectacular merchandise, such as ornaments and apparel, through traditional retail channels. Typically, revenues from our merchandise sales at our non-proprietary events relate to sales of merchandise provided by the artist, the producer or promoter of the event and are generally subject to a revenue sharing arrangement.

 

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Venue Signage and Sponsorship

We earn revenues through the sale of signage space and sponsorship rights in connection with our venues, productions and other live entertainment events. Signage revenues generally involve the sale of advertising space at The Garden during entertainment events and otherwise in our venues.

Sponsorship rights may require us to use the name, logos and other trademarks of a sponsor in our advertising and in promotions for our venues, productions and other live entertainment events. Sponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our productions, events and venues in connection with their own advertising and in promotions in our venues or in the community.

Expenses

Our MSG Entertainment segment’s principal expenses are payments made to performers and promoters, staging costs and day-of-event costs associated with events, and advertising costs. We charge a portion of our actual expenses associated with the ownership, lease, maintenance and operation of our venues, along with a portion of our corporate expenses to our MSG Entertainment segment. However, the operating results of our MSG Entertainment segment benefit from the fact that no rent is charged to the segment for use of the Company’s owned venues. We do not allocate to our segments any depreciation expense on property and equipment related to The Garden, The Theater at Madison Square Garden or the Forum.

Performer Payments

Our productions are performed by talented actors, dancers, singers, musicians and entertainers. In order to attract and retain this talent, we are required to pay our performers an amount that is commensurate both with their abilities and with demand for their services from other entertainment companies. Our productions, including the Radio City Christmas Spectacular, typically feature ensemble casts (such as the Rockettes), where there is no single “headline” performer. As a result, most of our performers are paid based on a standard “scale,” pursuant to collective bargaining agreements we negotiate with the performers’ unions. For New York Spring Spectacular, certain performers have individually negotiated contracts.

Staging Costs

Staging costs for our proprietary events as well as others that we promote include the costs of sets, lighting, display technologies, special effects, sound and all of the other technical aspects involved in presenting a live entertainment event. These costs vary substantially depending on the nature of the particular show, but tend to be highest for large-scale theatrical productions, such as the Radio City Christmas Spectacular. For concerts we promote, the performer usually provides a fully-produced show. As with performer salaries, the staging costs associated with a given production are an important factor in the determination of ticket prices.

Day-of-Event Costs

For days on which MSG Entertainment stages its productions, promotes an event or provides one of our venues to a third-party promoter under a license fee arrangement, the event is charged the variable costs associated with such event, including box office personnel, stagehands, ticket takers, ushers, security, and other similar expenses. In situations where we provide our venues to a third-party promoter under a license fee arrangement, day-of-event costs are typically included in the license fees charged to the promoter.

Marketing and Advertising Costs

We incur significant costs promoting our productions and other events through outdoor and newspaper advertisements, television and radio advertising and social, digital and search advertising. In light of the intense competition for entertainment events, such expenditures are a necessity to drive interest in our productions and encourage members of the public to purchase tickets to our shows.

 

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Touring Expenses

For the Radio City Christmas Spectacular production presented outside of New York, we paid the logistical costs associated with travel and equipment, as well as fees and expenses, including the costs of venue staff, for the use of third-party venues. The Company regularly evaluates the theatrical productions of the Radio City Christmas Spectacular presented outside of New York and has made the decision to end these productions as the Company continues to explore new approaches to best showcase the Radio City Christmas Spectacular and the Rockettes brands.

Factors Affecting Operating Results

The operating results of our MSG Entertainment segment are largely dependent on our ability to attract concerts, family shows and other events to our venues, as well as the continuing popularity of the Radio City Christmas Spectacular at Radio City Music Hall. Our MSG Entertainment segment recognized operating losses during the years ended June 30, 2014 and 2013. These results reflect the impact of The Garden and The Theater at Madison Square Garden being shut down because of the Transformation for the off-season following the Knicks and Rangers playoffs during these fiscal years thus limiting MSG Entertainment’s ability to present or host events at these venues.

Our MSG Entertainment segment’s future performance is dependent in part on general economic conditions, and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, as well as lower levels of sponsorship and venue signage. These conditions may also affect the number of concerts, family shows and other events that take place in the future. An economic downturn could adversely affect our business and results of operations.

The Company has invested in New York Spring Spectacular, a large-scale theatrical production for Radio City Music Hall, which opened in March 2015, and continues to explore additional opportunities to expand our presence in the entertainment industry. Any new investment may not initially contribute to operating income, but is intended to become operationally profitable over time. Our results will also be affected by investments in, and the success of, new productions.

MSG Sports

Our MSG Sports segment, which represented approximately 67% of our combined revenues for the year ended June 30, 2014, owns and operates sports franchises, including the Knicks, a founding member of the NBA, and the Rangers, one of the “original six” franchises of the NHL. MSG Sports also owns and operates the Liberty of the WNBA, one of the league’s founding franchises, and the Hartford Wolf Pack of the AHL, which is the primary player development team for the Rangers and is also competitive in its own right in the AHL. In March 2014, the Company acquired the rights to own and operate an NBADL team, named the Westchester Knicks, which began operations during the 2014-15 season and plays its home games at the Westchester County Center in White Plains, New York. The Knicks, Rangers and Liberty play home games at The Garden. The Liberty have historically played 17 regular season home games at The Garden. However, due to the Transformation, they played their 2013, 2012 and 2011 seasons at the Prudential Center in Newark, New Jersey before returning to The Garden for their 2014 season. Our sports business also features other sports properties, including the presentation of a wide variety of live sporting events including professional boxing, college basketball, professional bull riding, tennis and college wrestling.

Revenue Sources

We earn revenue in our MSG Sports segment from several primary sources: ticket sales and a portion of suite license fees at The Garden, our share of distributions from NHL and NBA league-wide national and international television contracts and other league-wide revenue sources, venue signage and other sponsorships,

 

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concessions and merchandising. Our MSG Sports segment also earns substantial fees from MSG Media for the local right to telecast the games of our professional sports teams. We also earn venue license fees, primarily from the rental of The Garden to third-party promoters holding their sports events at our arena. The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our professional sports teams and general economic conditions.

Ticket Sales, Suite Licenses, Venue Licenses, Facility and Ticketing Fees

Ticket sales have historically constituted the largest single source of revenue for our MSG Sports segment. We sell tickets to our sports teams’ home games through season tickets, which are typically held by long-term season subscribers, through group sales, and through single-game tickets, which are purchased by fans either individually or in multi-game packages. The prices of our tickets vary, depending on the sports team and the location of the seats. We generally review and set the price of our tickets before the start of each team’s season. We also earn revenue from the sale of tickets to live sporting events that we promote other than our teams’ games.

Revenues from the sale of suite licenses are shared between the MSG Entertainment and MSG Sports segments. See “— MSG Entertainment — Revenue Sources” for further discussion.

In addition to our teams’ home games, we also present or host other live sporting events at our venues. When the Company acts as the promoter of such events, the Company typically earns revenues from ticket sales and incurs expenses associated with the event. When these events are promoted by third-party promoters, the Company typically earns venue license fees and/or revenues from ticket sales from the promoter for use of our venues. When licensing our venues, the amount recorded as revenue also includes the event’s variable costs such as the costs of front-of-house and back-of-house staffs, including union laborers, box office staff, ushers, security and building services, which we pass along to the promoter. The mix of live sporting events, including whether we are the promoter of an event or license our venues to a third-party promoter, could have a significant impact on the level of revenues and event related costs that we record in our MSG Sports segment.

Our MSG Sports segment also earns revenues in the form of certain fees and assessments added to ticket prices for events held at our venues, regardless of whether we act as promoter for such events. This currently includes a facility fee the Company charges on tickets it sells to all events at our venues, except for team season tickets and certain other limited exceptions.

Telecast Rights

We earn revenue from the sale of telecast rights for our sports teams’ home and away games and also through the receipt of our share of fees paid for league-wide telecast rights, which are awarded under contracts negotiated and administered by each league.

After the Distribution, telecast rights for the Knicks and Rangers will continue to be held by MSG. Prior to the Distribution, these rights were subject to an inter-segment arrangement between MSG Sports and MSG’s regional sports networks. In connection with the Distribution, the Company and MSG will enter into media rights agreements covering the telecast rights for the Knicks and Rangers. See “Certain Relationships and Related Party Transactions — Relationship Between MSG and Us After the Distribution — media rights agreements” for a description of the media rights agreements. The financial success of our MSG Sports segment is significantly dependent on the rights fees we receive from MSG in connection with the telecast of our Knicks and Rangers games. Our combined financial statements reflect the historical intercompany rights fee charges.

National and international telecast arrangements differ by league. Fees paid by telecasters under these arrangements are pooled by each league and then generally shared equally among all teams.

 

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Venue Signage and Sponsorships

We earn revenues through the sale of signage space and sponsorship rights at The Garden in connection with our sports teams and certain other sporting events. Our strategy is to develop marketing partnerships with world-class brands by creating customized platforms that achieve our partners’ business objectives. Signage sales generally involve the sale of advertising space within The Garden during our teams’ home games and include the sale of signage on the ice and on the boards of the hockey rink during Rangers games, courtside during Knicks and Liberty games, and/or on the various scoreboards and display panels at The Garden. We offer both television camera-visible and non-camera-visible signage space.

Sponsorship rights generally require us to use the name, logos and other trademarks of a sponsor in our advertising and in promotions for our sports teams and during our sports events. Sponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our sports teams and venues in connection with their own advertising and in promotions on-court, on-ice or in the community.

Concessions

We sell food and beverages during all sporting events held at our venues. In addition to concession-style sales of food and beverages, which represent the majority of our concession revenues, we also provide higher-end dining at our full service restaurant and clubs and catering for suites at The Garden.

Merchandise

We earn revenues from the sale of our sports teams’ merchandise both through the in-venue (and in some cases, online) sale of items bearing the logos or other marks of our sports teams and through our share of league distributions of royalty and other revenues from the leagues’ licensing of team and league trademarks, which revenues are generally shared equally among the teams in the leagues. By agreement among the teams, each of the leagues in which we operate acts as agent for the teams to license their logos and other marks, as well as the marks of the leagues, subject to certain rights retained by the teams to license these marks within their arenas and the geographic areas in which they operate.

Expenses

The most significant expenses in our MSG Sports segment are player and other team personnel salaries and charges for transactions relating to players for career-ending and season-ending injuries, trades, and waivers and contract termination costs of players and other team personnel. We also incur costs for travel, player insurance, league operating assessments (including a 6% NBA assessment on regular season ticket sales), NHL and NBA revenue sharing and NBA luxury tax. We charge a portion of our actual expenses associated with the ownership, lease, maintenance and operation of our venues, along with a portion of our corporate expenses, to our MSG Sports segment. However, the operating results of our MSG Sports segment benefit from the fact that no rent is charged to the segment for use of the Company’s owned venues. We do not allocate to our segments any depreciation expense on property and equipment related to The Garden, The Theater at Madison Square Garden or the Forum.

Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax

The amount we pay an individual player is determined by negotiation between the player (typically represented by an agent) and us, and is generally influenced by the player’s individual playing statistics, by the amounts paid to players with comparable playing statistics by other sports teams and by restrictions in the CBAs, including the salary caps. The leagues’ CBAs typically contain restrictions on when players may move between league clubs following expiration of their contracts and what rights their current and former clubs have.

 

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NBA CBA. The NBA CBA was last negotiated in 2011 and expires after the 2020-21 season (although the NBA and the NBPA each have the right to terminate the CBA following the 2016-17 season). The NBA CBA contains a “soft” salary cap (i.e., a cap on each team’s aggregate player salaries but with certain exceptions that enable teams to pay players more, sometimes substantially more, than the cap).

NBA Luxury Tax. Amounts in this paragraph are in thousands, except for luxury tax rates. The NBA CBA provides for a luxury tax that is applicable to all teams with aggregate player salaries exceeding a threshold that is set prior to each season based upon projected league-wide revenues (as defined under the CBA). A team’s luxury tax for the 2011-12 and 2012-13 seasons generally equaled the amount by which the team’s aggregate player salaries exceeded such threshold. Beginning with the 2013-14 season, the tax rates for teams with aggregate player salaries above such threshold start at $1.50 for each $1.00 of team salary above the threshold up to $5,000 and scale up to $3.25 for each $1.00 of team salary that is from $15,000 to $20,000 over the threshold, and an additional tax rate increment of $0.50 applies for each additional $5,000 (or part thereof) of team salary in excess of $20,000 over the threshold. In addition, for teams that are taxpayers in at least four of any five seasons beginning in 2011-12, the above tax rates are increased by $1.00 for each increment (the “Repeater Tax”). Beginning with the 2012-13 season, 50% of the aggregate luxury tax payments are to be used as a funding source for the revenue sharing plan and the remaining 50% of such payments will be distributed in equal shares to non-taxpaying teams. The Knicks were an NBA luxury tax payer with respect to the 2012-13 and 2013-14 seasons, and the Knicks expect to be an NBA luxury tax payer in the 2014-15 season. If the Knicks are ultimately an NBA luxury tax payer for the 2014-15 season as well as for either of the 2015-16 or 2016-17 seasons, our NBA luxury tax obligations may increase substantially as a result of the Repeater Tax. Tax obligations for years beyond the 2014-15 season will be subject to contractual player payroll obligations and corresponding NBA luxury tax thresholds. The Company recognizes the estimated amount associated with luxury tax expense or the amount it expects to receive as a non-tax paying team, if applicable, on a straight-line basis over the NBA regular season as a component of direct operating expenses. Our provision for the year ended June 30, 2014, including luxury tax provisions related to team personnel transactions, was approximately $38,100.

NBA Escrow System/Revenue Sharing. The NBA CBA also provides that players collectively receive a designated percentage of league-wide revenues (net of certain direct expenses) as compensation (approximately 50%), and the teams retain the remainder. The percentage of league-wide revenues paid as compensation and retained by the teams does not apply evenly across all teams and, accordingly, the Company may pay its players a higher or lower percentage of the Knicks’ revenues than other NBA teams. Throughout each season, NBA teams withhold 10% of each player’s salary and contribute the withheld amounts to an escrow account. If the league’s aggregate player compensation exceeds the designated percentage of league-wide revenues, some or all of such escrowed amounts are distributed equally to all NBA teams. In the event that the league’s aggregate player compensation is below the designated percentage of league-wide revenues, the teams will remit the shortfall to the NBPA for distribution to the players.

The NBA also has instituted a revenue sharing plan that generally requires the distribution of a pool of funds to teams with below-average net revenues (as defined in the plan), subject to reduction or elimination based on individual team market size and profitability. The plan is funded by a combination of disproportionate contributions from teams with above-average net revenues, subject to certain profit-based limits (each as defined in the plan); 50% of aggregate league-wide luxury tax proceeds (see above); and, collective league sources, if necessary. Additional amounts may also be distributed on a discretionary basis, funded by assessments on playoff ticket revenues and through collective league sources.

We record our revenue sharing expense net of the amount we expect to receive from the escrow. Our net provision for these items for the year ended June 30, 2014 was approximately $23,100. The actual amounts for the 2013-14 season may vary significantly from the recorded provision based on actual operating results for the league and all NBA teams for the season and other factors.

NHL CBA. The NHL CBA expires September 15, 2022 (although the NHL and NHLPA each have the right to terminate the CBA effective following the 2019-20 season). The NHL CBA provides for a “hard” salary cap

 

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(i.e., teams may not exceed a stated maximum that has been negotiated for the 2012-13 and 2013-14 seasons and is adjusted each season thereafter based upon league-wide revenues).

NHL Escrow System/Revenue Sharing. The NHL CBA provides that each season the players receive as player compensation 50% of that season’s league-wide revenues, excluding the impact of agreed-upon aggregate transition payments of $300,000 to be paid on a deferred basis over three years beginning in 2014. Because the aggregate amount to be paid to the players is based upon league-wide revenues and not on a team-by-team basis, the Company may pay its players a higher or lower percentage of the Rangers’ revenues than other NHL teams pay of their own revenues. In order to implement the salary cap system, NHL teams withhold a portion of each player’s salary and contribute the withheld amounts to an escrow account. If the league’s aggregate player compensation for a season exceeds the designated percentage (50%) of that season’s league-wide revenues, the excess is retained by the league. Any such excess funds are distributed to all teams in equal shares.

The NHL CBA also provides for a revenue sharing plan. The plan generally requires the distribution of a pool of funds approximating 6.055% of league-wide revenues to certain qualifying lower-revenue teams and is funded as follows: (a) 50% from contributions by the top ten revenue earning teams (based on preseason and regular season revenues) in accordance with a formula; (b) then from payments by teams participating in the playoffs, with each team contributing 35% of its gate receipts for each home playoff game; and (c) the remainder from centrally-generated NHL sources. We record our revenue sharing expense net of the amount we expect to receive from the escrow. Our net provision for these items for the year ended June 30, 2014 was approximately $14,200 (including approximately $12,100 related to the playoffs). The actual amounts for the 2013-14 season may vary significantly from the recorded provision based on actual operating results for the league and all NHL teams for the season and other factors.

Other Team Operating Expenses

Our sports teams also pay expenses associated with day-to-day operations, including for travel, equipment maintenance and player insurance. Direct variable day-of-event costs incurred at The Garden, such as the costs of front-of-house and back-of-house staffs, including union laborers, box office staff, ushers, security, and event production are charged to our MSG Sports segment.

Operating costs of the Company’s training facility in Greenburgh, New York and the operating and maintenance costs of the aircraft that the Company owns are also charged to our MSG Sports segment. The operation of the Hartford Wolf Pack is also a net Rangers player development expense for our MSG Sports segment.

As members of the NBA and NHL, the Knicks and Rangers, respectively are also subject to league assessments. The governing bodies of each league determine the amount of each season’s league assessments that are required from each member team. The NBA imposes on each team a 6% assessment on regular season ticket revenue and an assessment of 45% or 52.5% (plus an additional 5% to fund the discretionary revenue sharing payment described above) on playoff ticket revenue, depending on the number of home games played.

Our MSG Sports segment also incurs costs associated with VIP amenities, which have come online as a result of the Transformation, provided to certain ticket holders.

Other Expenses

MSG Sports also incurs selling, general and administrative expenses.

Factors Affecting Operating Results

The operating results of our MSG Sports segment are largely dependent on the continued popularity and/or on-ice or on-court competitiveness of our Rangers and Knicks teams, which have a direct effect on ticket sales

 

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for the teams’ home games, and are each team’s largest single source of revenue as well as our ability to attract high caliber sporting events. As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, for which we compete with other professional sports teams. A significant factor in our ability to attract and retain talented players is player compensation. Our MSG Sports segment results reflect the impact of high costs for player salaries (including NBA luxury tax) and salaries of non-player team personnel. In addition, we have incurred significant charges for costs associated with transactions relating to players on our sports teams for season-ending and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. Waiver and termination costs reflect our efforts to improve the competitiveness of our teams. These transactions can result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals are generally paid over their remaining contract terms. For example, the expense for these items was $54,225 and $18,715 for fiscal years 2014 and 2013, respectively. These expenses add to the volatility of the results of our MSG Sports segment. We expect to continue to pursue opportunities to improve the overall quality of our teams and our efforts may result in continued significant expenses and charges. Such expenses and charges may result in future operating losses for our MSG Sports segment although it is not possible to predict their timing or amount. Our MSG Sports segment’s performance has been, and may in the future be, impacted by work stoppages. See “Risk Factors — General Risks — Organized Labor Matters May Have a Material Negative Effect on Our Business and Results of Operations.”

In addition to our MSG Sports segment’s future performance being dependent upon the continued popularity and/or on-ice or on-court competitiveness of our Rangers and Knicks teams, it is also dependent on general economic conditions, in particular those in the New York City metropolitan area, and the effect of these conditions on our customers. An economic downturn could adversely affect our business and results of operations as it may lead to lower demand for suite licenses and tickets to the games of our sports teams, which would also negatively affect merchandise and concession sales, as well as lower levels of sponsorship and venue signage revenues. These conditions may also affect the number of other live sporting events that this segment is able to present.

Corporate Expenses and Venue Operating Costs

The Company allocates certain corporate costs and its venue operating expenses to both reportable segments. Allocated venue operating expenses include the non-event related costs of operating the Company’s venues, and include such costs as rent for the Company’s leased venues, real estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation expense on property and equipment related to The Garden, The Theater at Madison Square Garden or the Forum is not allocated to the reportable segments.

Investments in Nonconsolidated Affiliates

The Company’s equity method investments include investments in Azoff-MSG, Brooklyn Bowl Las Vegas, LLC (“BBLV”) and Tribeca Enterprises.

In September 2013, the Company acquired a fifty percent interest in Azoff-MSG. The Azoff-MSG entity owns interests in and operates businesses in the entertainment industry and is currently focused on music management, performance rights, comedy and productions, and strategic marketing. As of June 30, 2014, the Company’s investment in Azoff-MSG was $125,677, inclusive of transaction costs related to the acquisition. In addition, as of June 30, 2014, Azoff-MSG had outstanding loans, including accrued interest, of $50,300 under an unsecured credit facility with the Company. In September 2014, the revolving credit facility that the Company provides to Azoff-MSG was increased from $50,000 to $100,000.

In August 2013, the Company acquired an interest in BBLV. In March 2014, BBLV opened a new venue in Las Vegas which brings together live music, bowling and a restaurant, and was modeled after the successful

 

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Brooklyn Bowl destination in New York. As of June 30, 2014 the Company’s preferred equity investment in BBLV, together with transaction costs related to the acquisition, was $25,725. In addition, as of June 30, 2014, outstanding loans of $1,334 had been advanced by the Company to BBLV.

As a result of BBLV’s liquidity position, the Company evaluated whether or not an impairment of its investment had occurred as of December 31, 2014. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $23,600 to write-off the remaining equity portion of its investment in BBLV.

In March 2014, the Company acquired a fifty percent interest in Tribeca Enterprises, the company that owns and operates the Tribeca Film Festival and certain other businesses. Tribeca Enterprises’ businesses also include Tribeca Digital Studios, a branded entertainment content business; Tribeca Cinemas, a unique event space; and Tribeca Film, an independent film distribution label. As of June 30, 2014, the Company’s investment in Tribeca Enterprises was $22,582, inclusive of transaction costs related to the acquisition. The Company has agreed to provide up to $6,000 of revolving credit loans to Tribeca Enterprises.

On July 1, 2014, the Company completed its previously announced sale of Fuse to SiTV Media, Inc., which ahs since been renamed Fuse Media, Inc., the parent company of NUVOtv. NUVOtv is an English language entertainment network created for modern Latinos. As part of the transaction, the Company received a 15% equity interest in Fuse Media. The Company’s 15% equity interest in Fuse Media was subject to potential reduction if Fuse Media did not meet certain performance goals, however, those goals were satisfied during the six months ended December 31, 2014.

Impact of Current Economic Conditions

The future performance of our business segments and our Company as a whole is dependent, to a large extent, on general economic conditions, including the degree to which audiences and fans are willing to attend events hosted at our venues, our relative strength of position in the marketplace with both suppliers and customers, the impact of direct competition, our ability to manage our businesses effectively, and capital market circumstances that may influence our pursuit of strategic initiatives.

Challenges to general economic performance may lead to lower attendance at the games of our sports teams and at our live productions, lower demand for suite licenses, fewer sponsorship transactions and fewer event bookings at our venues. An economic downturn could adversely affect our business and results of operations.

 

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Results of Operations

Comparison of the Six Months Ended December 31, 2014 versus the Six Months Ended December 31, 2013

Combined Results of Operations

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.

 

     Six Months Ended December 31,      (Increase)
Decrease
in Net

Loss
 
     2014      2013     
     Amount     % of
Revenues
   Amount     % of
Revenues
    

Revenues

   $ 515,730        100%       $ 413,524        100%       $ 102,206   

Direct operating expenses

     336,906        65%         291,825        71%         (45,081

Selling, general and administrative expenses

     114,402        22%         94,594        23%         (19,808

Depreciation and amortization

     59,563        12%         39,274        9%         (20,289
  

 

 

      

 

 

      

 

 

 

Operating income (loss)

  4,859      1%      (12,169   (3)%      17,028   

Other income (expense):

Equity in loss of nonconsolidated affiliates

  (32,755   (6)%      (738   NM      (32,017

Interest income (expense), net

  173      NM      (172   NM      345   

Miscellaneous income

  75      NM      23      NM      52   
  

 

 

      

 

 

      

 

 

 

Loss from operations before income taxes

  (27,648   (5)%      (13,056   (3)%      (14,592

Income tax expense

  (446   NM      (848   NM      402   
  

 

 

      

 

 

      

 

 

 

Net loss

$ (28,094   (5)%    $ (13,904   (3)%    $ (14,190
  

 

 

      

 

 

      

 

 

 

 

NM – Percentage is not meaningful

See “— Business Segment Results” for a more detailed discussion relating to the operating results of our segments. The business segment results do not reflect inter-segment eliminations.

Revenues

Revenues for the six months ended December 31, 2014 increased $102,206 or 25%, to $515,730 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment revenues

$ 67,635   

Increase in MSG Sports segment revenues

  34,463   

Increase in other revenues

  108   
  

 

 

 
$ 102,206   
  

 

 

 

Direct operating expenses primarily include:

 

    compensation expense for the Company’s professional sports teams’ players and certain other team personnel;

 

    cost of team personnel transactions for career- and season-ending player injuries, net of anticipated insurance recoveries, trades, and waivers/contract termination costs of players and other team personnel;

 

    NBA luxury tax, NBA and NHL revenue sharing and league assessments for the MSG Sports segment;

 

    cost of professional team rights acquired under license agreements to telecast various sporting events on our networks;

 

    other programming and production costs of our networks;

 

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    event costs related to the presentation and production of our live entertainment and sporting events;

 

    venue lease, maintenance and other operating expenses; and

 

    the cost of concessions and merchandise sold.

Direct operating expenses for the six months ended December 31, 2014 increased $45,081, or 15%, to $336,906 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 41,256   

Increase in MSG Sports segment expenses

  3,825   
  

 

 

 
$ 45,081   
  

 

 

 

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended December 31, 2014 increased $19,808, or 21%, to $114,402 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 380   

Increase in MSG Sports segment expenses

  11,785   

Increase in other expenses

  7,643   
  

 

 

 
$ 19,808   
  

 

 

 

The increase in other expenses was primarily due to executive management transition costs recorded during the six months ended December 31, 2014 and higher professional fees.

Depreciation and amortization

Depreciation and amortization for the six months ended December 31, 2014 increased $20,289, or 52%, to $59,563 as compared to the prior year period primarily driven by accelerated depreciation in the current year period related to a change in the planned use of the Company’s professional sports teams’ aircraft associated with a transition by the teams to a new travel program and higher depreciation expense on property and equipment placed into service associated with the Transformation and the renovation of the Forum.

Equity in loss of nonconsolidated affiliates

Equity in loss of nonconsolidated affiliates for the six months ended December 31, 2014 increased $32,017 to $32,755 primarily as a result of the Company recording a pre-tax non-cash impairment charge of $23,600 to write-off the carrying value of its equity investment in BBLV during the current year period and its share of the net loss of BBLV.

Income taxes

Income tax expense for the six months ended December 31, 2014 was $446 and income tax expense for the six months ended December 31, 2013 was $848. An income tax benefit is not recognized on net operating losses attributable to these periods because a valuation allowance is recorded on the Company’s net deferred tax asset as it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Instead, the income tax expense is the result of an increase in the deferred tax liability on indefinite lived intangibles.

Adjusted Operating Cash Flow (“AOCF”)

The Company evaluates segment performance based on several factors, of which the key financial measure is each segment’s operating income (loss) before (i) depreciation, amortization and impairments of property and

 

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equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses, which is referred to as adjusted operating cash flow. The Company has presented the components that reconcile AOCF to operating income (loss), an accepted GAAP measure. The following is a reconciliation of operating income (loss) to AOCF:

 

     Six Months Ended
December 31,
     Increase
in AOCF
 
     2014      2013     

Operating income (loss)

   $ 4,859       $ (12,169    $ 17,028   

Share-based compensation

     7,087         5,446         1,641   

Depreciation and amortization

     59,563         39,274         20,289   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 71,509    $ 32,551    $ 38,958   
  

 

 

    

 

 

    

 

 

 

AOCF for the six months ended December 31, 2014 increased $38,958, or 120%, to $71,509 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in AOCF of the MSG Entertainment segment

$ 25,876   

Increase in AOCF of the MSG Sports segment

  18,442   

Other net decreases

  (5,360
  

 

 

 
$ 38,958   
  

 

 

 

Other net decreases were primarily due to higher professional fees and executive management transition costs recorded during the current year period.

Business Segment Results

MSG Entertainment

The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Entertainment segment.

 

     Six Months Ended December 31,     Increase
(Decrease) in
Operating
Income
 
     2014     2013    
     Amount      % of
Revenues
    Amount      % of
Revenues
   

Revenues

   $ 259,360         100   $ 191,725         100   $ 67,635   

Direct operating expenses

     171,458         66     130,202         68     (41,256

Selling, general and administrative expenses

     32,795         13     32,415         17     (380

Depreciation and amortization

     5,072         2     4,960         3     (112
  

 

 

      

 

 

      

 

 

 

Operating income

$ 50,035      19 $ 24,148      13 $ 25,887   
  

 

 

      

 

 

      

 

 

 

The following is a reconciliation of operating income to AOCF:

 

     Six Months Ended
December 31,
     Increase
(Decrease)

in AOCF
 
     2014      2013     

Operating income

   $ 50,035       $ 24,148       $ 25,887   

Share-based compensation

     1,850         1,973         (123

Depreciation and amortization

     5,072         4,960         112   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 56,957    $ 31,081    $ 25,876   
  

 

 

    

 

 

    

 

 

 

 

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Revenues

Revenues for the six months ended December 31, 2014 increased $67,635, or 35%, to $259,360 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in event-related revenues at The Garden

$ 32,646   

Increase in event-related revenues at the Forum

  23,403   

Increase in venue-related sponsorship and signage and suite rental fee revenues

  5,911   

Increase in revenues from the presentation of the Radio City Christmas Spectacular franchise

  4,235   

Increase in event-related revenues at The Chicago Theatre

  2,967   

Decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular

  (5,142

Other net increases

  3,615   
  

 

 

 
$ 67,635   
  

 

 

 

The increase in event-related revenues at The Garden was primarily due to additional events held at the venue, including events promoted by MSG Entertainment, as the venue was fully open during the current year period versus the prior year period during which The Garden was closed until late October due to the final phase of the Transformation.

The increase in event-related revenues at the Forum was primarily due to the venue being available for events during the current year period whereas during the prior year period the venue was closed due to the renovation.

The increase in venue-related sponsorship and signage and suite rental fee revenues was primarily due to higher suite rental fee revenue, increased sponsorship revenues as a result of the re-opening of the Forum and the impact of Transformation-related assets that came online as part of the final phase of the Transformation last year.

The increase in revenues from the presentation of the Radio City Christmas Spectacular franchise was primarily driven by the Radio City Music Hall production of the show. The increase in revenues from the Radio City Music Hall production was primarily due to higher ticket-related revenue, mainly a result of higher average ticket prices and higher attendance, despite five fewer performances as compared to the prior year period. During the 2014 holiday season more than one million tickets were sold to the Radio City Music Hall production, which represents a low single digit percentage increase over the prior year period.

The increase in event-related revenues at The Chicago Theatre was primarily due to more events held at the venue during the current year period as compared to the prior year period.

The decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular, was primarily due to fewer events held at the venue during the current year period as compared to the prior year period, including the impact of a compressed schedule for NBC’s America’s Got Talent during the current year period.

 

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Direct operating expenses

Direct operating expenses for the six months ended December 31, 2014 increased $41,256, or 32%, to $171,458 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in event-related direct operating expenses at The Garden

$ 21,651   

Increase in event-related direct operating expenses at the Forum

  14,168   

Increase in venue operating costs

  3,901   

Increase in event-related direct operating expenses at The Chicago Theatre

  2,117   

Decrease in event-related direct operating expenses at Radio City Music Hall, excluding the Radio City Christmas Spectacular

  (2,959

Decrease in direct operating expenses associated with the presentation of the Radio City Christmas Spectacular franchise

  (137

Other net increases

  2,515   
  

 

 

 
$ 41,256   
  

 

 

 

The increase in venue operating costs was primarily due to the Forum being available for events during the current year period whereas during the prior year period the venue was closed due to the renovation.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended December 31, 2014 increased by $380, or 1%, to $32,795 as compared to the prior year period due to higher allocated corporate general and administrative costs and higher employee compensation and related benefits partially offset by the impact of costs recorded in the prior year period associated with the re-opening of the Forum and the debut of the fully transformed Madison Square Garden Arena and, to a lesser extent, other cost decreases.

AOCF

AOCF for the six months ended December 31, 2014 increased by $25,876, or 83%, to $56,957 as compared to the prior year period primarily attributable to an increase in revenues partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above.

The Company regularly evaluates the theatrical productions of the Radio City Christmas Spectacular presented outside of New York and has made the decision to end these productions outside of New York as the Company continues to explore new approaches to best showcase the Radio City Christmas Spectacular and Rockettes brands. The theatrical productions of the Radio City Christmas Spectacular presented outside of New York generated direct contribution to AOCF of approximately $4,400 during the 2014 holiday season.

 

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MSG Sports

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Sports segment.

 

     Six Months Ended December 31,      Increase
(Decrease) in
Operating
Income
 
     2014      2013     
     Amount      % of
Revenues
     Amount     % of
Revenues
    

Revenues

   $ 256,017         100%       $ 221,554        100%       $ 34,463   

Direct operating expenses

     165,448         65%         161,623        73%         (3,825

Selling, general and administrative expenses

     67,551         26%         55,766        25%         (11,785

Depreciation and amortization

     15,735         6%         5,076        2%         (10,659
  

 

 

       

 

 

      

 

 

 

Operating income (loss)

$ 7,283      3%    $ (911   NM    $ 8,194   
  

 

 

       

 

 

      

 

 

 

 

NM – Percentage is not meaningful

The following is a reconciliation of operating income (loss) to AOCF:

 

     Six Months Ended
December 31,
     Increase
(Decrease)
in AOCF
 
     2014      2013     

Operating income (loss)

   $ 7,283       $ (911    $ 8,194   

Share-based compensation

     2,164         2,575         (411

Depreciation and amortization

     15,735         5,076         10,659   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 25,182    $ 6,740    $ 18,442   
  

 

 

    

 

 

    

 

 

 

Revenues

Revenues for the six months ended December 31, 2014 increased $34,463, or 16%, to $256,017 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in professional sports teams’ pre/regular season ticket-related revenue

$ 14,009   

Increase in suite rental fee revenue

  8,517   

Increase in telecast rights fees from MSG Media

  4,467   

Increase in professional sports teams’ sponsorship and signage revenues

  4,013   

Increase in professional sports teams’ pre/regular season food, beverage and merchandise sales

  3,597   

Increase in event-related revenues from other live sporting events

  990   

Decrease in revenues from league distributions

  (466

Other net decreases

  (664
  

 

 

 
$ 34,463   
  

 

 

 

The increase in professional sports teams’ pre/regular season ticket related revenue was primarily due to the Knicks and Rangers playing five additional pre-season games at The Garden during the current year period and, to a lesser extent, higher average per-game revenue. The Garden was fully open during the current year period versus the prior year period, during which The Garden was closed until late October due to the final phase of the Transformation.

 

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The increase in suite rental fee revenue was primarily due to the absence of the prior year period off-season shutdown associated with the Transformation, contractual rate increases, and additional sales of suite products.

The increase in telecast rights fees from MSG Media was primarily due to the overall increase in the number of events exclusively available to MSG Networks during the current year period and, to a lesser extent, higher fees as compared to the prior year period.

The increase in professional sports teams’ sponsorship and signage revenues primarily reflects the impact of Transformation-related assets, expanded inventory and increased sales of existing inventory. The primary driver of the Transformation-related increase is the impact of assets that came online as part of the final phase of the Transformation last year.

The increase in professional sports teams’ pre/regular season food, beverage and merchandise sales was primarily due to the additional Knicks and Rangers pre-season games and the Liberty playing regular season games at The Garden during the current year period and higher average per-game revenue as compared to the prior year period.

The increase in event-related revenues from other live sporting events was primarily due to more events held at The Garden during the current year period, partially offset by the impact of a change in the mix of events. Event-related revenues from other live sporting events include ticket-related revenues, venue license fees the Company charges to promoters for the use of our venues, single night suite rental fees, and food, beverage and merchandise sales.

Direct operating expenses

Direct operating expenses for the six months ended December 31, 2014 increased $3,825, or 2%, to $165,448 as compared to the prior year period. The net increase is attributable to the following:

 

Increase in professional sports teams’ pre/regular season expense associated with food, beverage and merchandise sales

$ 2,099   

Increase in team personnel compensation

  1,173   

Increase in other team operating expenses

  1,095   

Increase in event-related expenses associated with other live sporting events

  560   

Decrease in net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs)

  (2,695

Decrease in net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

  (301

Other net increases

  1,894   
  

 

 

 
$ 3,825   
  

 

 

 

The increase in team personnel compensation was primarily due to non-player team personnel increases and higher overall player salaries, inclusive of the impact of roster changes at the Company’s sports teams.

The increase in other team operating expenses was primarily due to the acceleration of certain costs in the current year period associated with team travel, higher day-of-event costs, mainly the result of the additional pre-season games at The Garden during the current year period, and other team operating expense increases partially offset by lower professional fees and player insurance.

 

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Net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs) and net provisions for certain team personnel transactions (including the impact of NBA luxury tax) were as follows:

 

     Six Months Ended December 31,  
     2014      2013      Decrease  

Net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs)

   $ 18,939       $ 21,634       $ (2,695

Net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

     4,675         4,976         (301

The decrease in net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs) reflects lower NBA luxury tax of $5,810 partially offset by higher net provisions for both NBA and NHL revenue sharing expense of $3,115. The decrease in provisions for NBA luxury tax for the six months ended December 31, 2014 was primarily due to a higher luxury tax threshold. Higher NBA and NHL revenue sharing expense reflects higher estimated expenses for the 2014-15 season partially offset by adjustments to prior seasons’ revenue sharing expense. The actual amounts for net provisions for NBA luxury tax and NBA and NHL revenue sharing expense for the 2014-15 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.

Team personnel transactions for the six months ended December 31, 2014 primarily reflect provisions recorded for player waivers/contract terminations. Team personnel transactions for the six months ended December 31, 2013 reflect provisions recorded for player waivers/contract terminations and player trades of $3,548 and $1,428, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended December 31, 2014 increased $11,785, or 21%, to $67,551 as compared to the prior year period primarily due to higher employee compensation and related benefits, allocated corporate general and administrative costs and team-related marketing costs. These increases were partially offset by the absence of marketing costs recorded in the prior year period associated with the debut of the fully transformed Madison Square Garden Arena.

Depreciation and amortization

Depreciation and amortization for the six months ended December 31, 2014 increased $10,659, or 210%, to $15,735, as compared to the prior year period primarily driven by accelerated depreciation in the current year period related to a change in the planned use of the Company’s professional sports teams’ aircraft associated with a transition by the teams to a new travel program.

AOCF

AOCF for the six months ended December 31, 2014 increased $18,442, or 274%, to $25,182 as compared to the prior year period primarily due to an increase in revenues partially offset by higher selling, general and administrative expenses and, to a lesser extent, higher direct operating expenses, as discussed above.

During January 2015, the Knicks executed multiple player transactions. While the team’s roster could still change, the current roster would result in luxury tax expense for the 2014-15 season that is significantly below the 2013-14 season’s expense on a year-over-year basis, and is low in absolute dollars for fiscal year 2015. This decrease would be reflected in the Company’s results over the next two quarters.

 

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Comparison of the Year Ended June 30, 2014 versus the Year Ended June 30, 2013

Combined Results of Operations

The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.

STATEMENT OF OPERATIONS DATA

 

     Years Ended June 30,      Decrease
(Increase)
in Net Loss
 
     2014      2013     
     Amount     % of
Revenues
     Amount     % of
Revenues
    

Revenues

   $ 913,615        100%       $ 722,943        100%       $ 190,672   

Operating expenses:

            

Direct operating

     714,825        78%         533,282        74%         (181,543

Selling, general and administrative

     221,109        24%         176,139        24%         (44,970

Depreciation and amortization

     91,709        10%         72,551        10%         (19,158
  

 

 

      

 

 

      

 

 

 

Operating loss

  (114,028   (12)%      (59,029   (8)%      (54,999

Other income (expense):

Equity in loss of nonconsolidated affiliates

  (1,323   NM      —        NM      (1,323

Interest income (expense), net

  20      NM      (1,609   NM      1,629   

Miscellaneous

  95      NM      3,497      NM      (3,402
  

 

 

      

 

 

      

 

 

 

Loss from operations before income taxes

  (115,236   (13)%      (57,141   (8)%      (58,095

Income tax expense

  (1,697   NM      (1,133   NM      (564
  

 

 

      

 

 

      

 

 

 

Net loss

$ (116,933   (13)%    $ (58,274   (8)%    $ (58,659
  

 

 

      

 

 

      

 

 

 

 

NM – Percentage is not meaningful

The comparability of the results of operations of the Company and the MSG Sports segment for the year ended June 30, 2014 to the prior year was impacted by the prior year’s NHL work stoppage, which delayed the start of the 2012-13 regular season by approximately three months until January 19, 2013 and led to a shortened 48 game regular season. As a result, the Rangers played fewer regular season home and away games during the prior year as compared to the current year. During the year ended June 30, 2014, the Rangers played 82 regular season games, of which 41 were home games and 41 were away games, as compared to 48 regular season games in the prior year, of which 24 were home games and 24 were away games. In addition, the results for the year ended June 30, 2014 reflect the waiver of a Rangers’ player, which was the second and final compliance buyout allowed under the terms of the NHL CBA.

See “— Business Segment Results” within each presented comparative financial period for a more detailed discussion relating to the operating results of our segments.

Revenues

Revenues for the year ended June 30, 2014 increased $190,672, or 26%, to $913,615 as compared to the prior year. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment revenues

$ 48,803   

Increase in MSG Sports segment revenues

  141,781   

Increase in other revenues

  88   
  

 

 

 
$ 190,672   
  

 

 

 

See above for a discussion of the NHL work stoppage during the 2012-13 season.

 

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Direct operating expenses

Direct operating expenses for the year ended June 30, 2014 increased $181,543, or 34%, to $714,825 as compared to the prior year. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 33,546   

Increase in MSG Sports segment expenses

  148,001   

Decrease in other expenses

  (4
  

 

 

 
$ 181,543   
  

 

 

 

Selling, general and administrative expenses

Selling, general and administrative expenses primarily consist of administrative costs, including compensation, separation-related costs, professional fees, as well as sales and marketing costs, including non-event related advertising expenses. Selling, general and administrative expenses for the year ended June 30, 2014 increased $44,970, or 26%, to $221,109 as compared to the prior year. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 12,615   

Increase in MSG Sports segment expenses

  19,132   

Increase in other expenses

  13,223   
  

 

 

 
$ 44,970   
  

 

 

 

The increase in other expenses was primarily due to executive management transition costs recorded during the third quarter of the year ended June 30, 2014.

Depreciation and amortization

Depreciation and amortization for the year ended June 30, 2014 increased $19,158, or 26%, to $91,709 as compared to the prior year primarily due to higher depreciation expense on property and equipment placed into service associated with the Transformation of The Garden and, to a lesser extent, assets placed in service as a result of the re-opening of the Forum.

Equity in loss of nonconsolidated affiliates

Equity in loss of nonconsolidated affiliates for the year ended June 30, 2014 reflects the Company’s share of the net loss of nonconsolidated affiliates, inclusive of amortization expense for intangible assets associated with these investments. The Company’s share of the earnings (loss) of its equity investments in Azoff-MSG, BBLV and Tribeca Enterprises are recorded on a three-month lag basis.

Interest income (expense), net

The increase in interest income, net was primarily due to the increase in interest income from MSG and nonconsolidated affiliates.

Miscellaneous income

Miscellaneous income for the year ended June 30, 2013 included a pre-tax gain of approximately $3,100 from the sale of all of the Company’s holdings of Live Nation Entertainment, Inc. (“Live Nation”) common stock (see Note 13 to our audited combined financial statements included elsewhere in this information statement).

 

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Income taxes

Income tax expense for the years ended June 30, 2014 and 2013 was $1,697 and $1,133, respectively. A valuation allowance is recorded on the Company’s net deferred tax asset as it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Due to the indefinite life of certain intangible assets, the related deferred tax liability cannot serve as a source of taxable income to support the realization of deferred tax assets. An income tax benefit is not recognized on net operating losses attributable to these periods. Instead, the income tax expense is the result of a change in the deferred tax liability on indefinite lived intangibles.

AOCF

The following is a reconciliation of operating loss to AOCF:

 

     Years Ended June 30,      Increase
(Decrease)
in AOCF
 
     2014      2013     

Operating loss

   $ (114,028    $ (59,029    $ (54,999

Share-based compensation

     13,698         8,537         5,161   

Depreciation and amortization

     91,709         72,551         19,158   
  

 

 

    

 

 

    

 

 

 

AOCF

$ (8,621 $ 22,059    $ (30,680
  

 

 

    

 

 

    

 

 

 

AOCF for the year ended June 30, 2014 decreased $30,680, or 140%, to a loss of $8,621 as compared to the prior year. The net decrease is attributable to the following:

 

Increase in AOCF of the MSG Entertainment segment

$ 3,443   

Decrease in AOCF of the MSG Sports segment

  (23,310

Other net decreases

  (10,813
  

 

 

 
$ (30,680
  

 

 

 

Other net decreases were primarily due to executive management transition costs recorded during the third quarter of the year ended June 30, 2014.

See above for a discussion of the NHL work stoppage during the 2012-13 season.

Business Segment Results

MSG Entertainment

The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Entertainment segment.

 

     Years Ended June 30,     Decrease
(Increase) in
Operating
Loss
 
     2014     2013    
     Amount     % of
Revenues
    Amount     % of
Revenues
   

Revenues

   $ 300,998        100   $ 252,195        100   $ 48,803   

Direct operating expenses

     233,116        77     199,570        79     (33,546

Selling, general and administrative expenses

     68,036        23     55,421        22     (12,615

Depreciation and amortization

     9,900        3     9,522        4     (378
  

 

 

     

 

 

     

 

 

 

Operating loss

$ (10,054   (3 )%  $ (12,318   (5 )%  $ 2,264   
  

 

 

     

 

 

     

 

 

 

 

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The following is a reconciliation of operating loss to AOCF:

 

     Years Ended June 30,      Increase
in AOCF
 
     2014      2013     

Operating loss

   $ (10,054    $ (12,318    $ 2,264   

Share-based compensation

     4,397         3,596         801   

Depreciation and amortization

     9,900         9,522         378   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 4,243    $ 800    $ 3,443   
  

 

 

    

 

 

    

 

 

 

Revenues

Revenues for the year ended June 30, 2014 increased $48,803, or 19%, to $300,998 as compared to the prior year. The net increase is attributable to the following:

 

Increase in event-related revenues at The Garden

$ 15,679   

Increase in event-related revenues at the Forum which re-opened in January 2014

  10,405   

Increase in event-related revenues at The Theater at Madison Square Garden

  8,326   

Increase in venue-related sponsorship and signage and suite rental fee revenues

  7,451   

Increase in revenues from the presentation of the Radio City Christmas Spectacular franchise

  6,425   

Increase in event-related revenues at The Chicago Theatre

  2,748   

Decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular

  (5,158

Other net increases

  2,927   
  

 

 

 
$ 48,803   
  

 

 

 

The increase in event-related revenues at The Garden was primarily due to the change in the mix of events including additional MSG Entertainment promoted events, as well as the overall increase in the number of events held at the venue during the year ended June 30, 2014 as compared to the prior year.

The increase in event-related revenues at The Theater at Madison Square Garden was primarily due to the increase in the number of events held at the venue during the year ended June 30, 2014 as compared to the prior year.

The increase in venue-related sponsorship and signage and suite rental fee revenues was primarily due to higher suite rental fee revenue as a result of new suite products which were unavailable for portions of the prior year combined with the impact of expanded inventory and new sponsor relationships as a result of the Transformation of The Garden and the re-opening of the Forum. These increases were partially offset by the planned reduction in certain suite products due to the Transformation and the impact of the off-season shutdowns.

The increase in revenues from the presentation of the Radio City Christmas Spectacular franchise was primarily due to higher attendance at the Radio City Music Hall production of the show and an increase in both average ticket price and attendance at the theatrical productions presented outside of New York. These increases were partially offset by a lower average ticket price at the Radio City Music Hall production. The Radio City Music Hall production of the show in the prior year was negatively impacted by Superstorm Sandy. During the 2013 holiday season more than one million tickets were sold for the Radio City Music Hall production, which represents a mid-single digit percentage increase as compared to the prior year.

 

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The increase in event-related revenues at The Chicago Theatre was primarily due to the increase in the number of events held at the venue during the year ended June 30, 2014 as compared to the prior year.

The decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular, was primarily driven by the impact of the venue being utilized during the majority of the third quarter of the current year for the load-in and rehearsals of New York Spring Spectacular, the Company’s new large-scale theatrical production designed for Radio City Music Hall (the debut of which was postponed from its original planned date in March 2014 until March 2015). To a lesser extent this decrease also reflects the net impact from the absence of Cirque du Soleil’s Zarkana which was presented at the venue during the prior year largely offset by the impact associated with NBC’s America’s Got Talent which was broadcast live from the venue during the current year.

Direct operating expenses

Direct operating expenses for the year ended June 30, 2014 increased $33,546, or 17%, to $233,116 as compared to the prior year. The net increase is attributable to the following:

 

Increase in event-related direct operating expenses at The Garden

$ 12,466   

Increase in direct operating expenses associated with New York Spring Spectacular, which was postponed until the Spring of 2015

  8,568   

Increase in event-related direct operating expenses at the Forum

  6,679   

Increase in event-related direct operating expenses at The Theater at Madison Square Garden

  3,805   

Increase in venue operating costs

  2,100   

Increase in event-related direct operating expenses at The Chicago Theatre

  1,653   

Decrease in direct operating expenses associated with the presentation of the Radio City Christmas Spectacular franchise

  (3,144

Decrease in event-related direct operating expenses at Radio City Music Hall, excluding the Radio City Christmas Spectacular

  (2,096

Other net increases

  3,515   
  

 

 

 
$ 33,546   
  

 

 

 

The decrease in direct operating expenses associated with the presentation of the Radio City Christmas Spectacular franchise was primarily due to the absence of a pre-tax impairment charge of $4,982 which was recorded during the prior year related to a theatrical production of the show presented outside of New York. This decline was partially offset by a write-off of deferred production costs of approximately $2,200 recorded during the current year related to the planned replacement of certain elements of a scene in the Radio City Music Hall production of the show.

Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2014 increased $12,615, or 23%, to $68,036 as compared to the prior year primarily due to higher employee compensation and related benefits, including employee separation-related costs, and, to a lesser extent, increased costs associated with the re-opening of the Forum and the debut of the fully transformed Madison Square Garden Arena.

 

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AOCF

AOCF for the year ended June 30, 2014 increased by $3,443, or 430%, to $4,243 as compared to the prior year primarily due to an increase in revenues which were largely offset by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above.

With respect to fiscal year 2015, the Company expects MSG Entertainment to benefit from The Garden, The Theater at Madison Square Garden and the Forum all being available for events for the full fiscal year, and to also reflect the results of New York Spring Spectacular.

MSG Sports

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Sports segment.

 

     Years Ended June 30,     Increase
(Decrease) in
Operating
Income
 
     2014     2013    
     Amount     % of
Revenues
    Amount      % of
Revenues
   

Revenues

   $ 612,071        100   $ 470,290         100   $ 141,781   

Direct operating expenses

     481,713        79     333,712         71     (148,001

Selling, general and administrative expenses

     129,986        21     110,854         24     (19,132

Depreciation and amortization

     12,225        2     10,451         2     (1,774
  

 

 

     

 

 

      

 

 

 

Operating income (loss)

$ (11,853   (2 )%  $ 15,273      3 $ (27,126
  

 

 

     

 

 

      

 

 

 

The following is a reconciliation of operating income (loss) to AOCF:

 

     Years Ended June 30,      Increase
(Decrease) in
AOCF
 
     2014      2013     

Operating income (loss)

   $ (11,853    $ 15,273       $ (27,126

Share-based compensation

     5,606         3,564         2,042   

Depreciation and amortization

     12,225         10,451         1,774   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 5,978    $ 29,288    $ (23,310
  

 

 

    

 

 

    

 

 

 

 

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Revenues

Revenues for the year ended June 30, 2014 increased $141,781, or 30%, to $612,071 as compared to the prior year. The net increase is attributable to the following:

 

Increase in professional sports teams’ pre/regular season ticket-related revenue

$ 56,634   

Increase in suite rental fee revenue

  18,554   

Increase in telecast rights fees from MSG Media

  13,043   

Increase in event-related revenues from other live sporting events

  12,566   

Increase in professional sports teams’ sponsorship and signage revenues

  12,519   

Increase in professional sports teams’ pre/regular season food, beverage and merchandise sales

  10,306   

Increase in revenues from league distributions

  9,182   

Increase in professional sports teams’ playoff related revenues

  7,254   

Other net increases

  1,723   
  

 

 

 
$ 141,781   
  

 

 

 

The increase in professional sports teams’ pre/regular season ticket-related revenue was primarily driven by the return to a full Rangers regular season schedule as well as higher average per-game revenue for all of the Company’s professional sports teams, inclusive of the impact of the return to pre-Transformation seating capacity.

The increase in suite rental fee revenue was primarily due to the impact of new suite products which were unavailable for portions of the prior year and, to a lesser extent, the return to a full Rangers regular season schedule partially offset by the planned reduction in certain suite products due to the Transformation and the impact of the off-season shutdowns.

The increase in telecast rights fees from MSG Media was primarily due to the return to a full Rangers regular season schedule.

The increase in event-related revenues from other live sporting events was primarily due to a change in the mix of events, as well as more events during the year ended June 30, 2014 as compared to the prior year. Event-related revenues from other live sporting events include ticket-related revenues, venue license fees we charge to promoters for the use of our venues, single night suite rental fees, and food, beverage and merchandise sales.

The increase in professional sports teams’ sponsorship and signage revenues primarily reflects expanded inventory and new sponsor relationships as a result of the Transformation and the return to a full Rangers regular season schedule.

The increase in professional sports teams’ pre/regular season food, beverage and merchandise sales was primarily due to the return to a full Rangers regular season schedule.

The increase in revenues from league distributions was primarily due to the return to a full NHL regular season schedule and, to a lesser extent, other league related increases.

The increase in professional sports teams’ playoff related revenues was primarily due to seven additional Rangers home games, as the team advanced to the Stanley Cup Finals in the year ended June 30, 2014 partially offset by the impact of the Knicks not making the playoffs in the year ended June 30, 2014 versus playing six home games in the prior year.

 

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See “— Comparison of the Year Ended June 30, 2014 versus the Year Ended June 30, 2013 — Combined Results of Operations” for a discussion of the NHL work stoppage during the 2012-13 season.

Direct operating expenses

Direct operating expenses for the year ended June 30, 2014 increased $148,001, or 44%, to $481,713 as compared to the prior year. The net increase is attributable to the following:

 

Increase in team personnel compensation

   $ 43,065   

Increase in net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

     34,953   

Increase in net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs)

     32,672   

Increase in other team operating expenses

     23,676   

Increase in event-related expenses associated with other live sporting events

     5,914   

Increase in professional sports teams’ pre/regular season expense associated with food, beverage and merchandise sales

     4,895   

Decrease in professional sports teams’ playoff related expenses

     (1,250

Other net increases

     4,076   
  

 

 

 
$ 148,001   
  

 

 

 

The increase in team personnel compensation was primarily due to the return to a full Rangers regular season schedule and overall salary increases, inclusive of the impact of roster changes at the Company’s sports teams.

Net provisions for certain team personnel transactions (including the impact of NBA luxury tax) and for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs) were as follows:

 

     Years Ended June 30,      Increase  
     2014      2013     

Net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

   $ 53,394       $ 18,441       $ 34,953   

Net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs)

     53,510         20,838         32,672   

Team personnel transactions for the year ended June 30, 2014 reflect provisions recorded for player waivers/contract terminations and season-ending player injuries of $41,276 and $6,978, respectively, and player trades of $5,140. Team personnel transactions for the year ended June 30, 2013 reflect provisions recorded for player waivers/contract terminations and season-ending player injuries of $10,434 and $7,159, respectively, and player trades of $848.

The increase in net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs) reflects higher NBA luxury tax of $22,147 and higher net provisions for both NBA and NHL revenue sharing expense of $10,525. The increase in provisions for NBA luxury tax for the year ended June 30, 2014 was primarily due to the change in the luxury tax rate structure

 

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beginning with the 2013-14 season and, to a lesser extent, higher aggregate player salaries. The increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) was primarily attributable to higher estimated NBA revenue sharing expense for the 2013-2014 season and, to a lesser extent, higher estimated NHL revenue sharing expense due to the return to a full Rangers regular season schedule which was partially offset by the impact of final assessments of prior seasons’ revenue sharing expense recorded in the current year. The actual amounts for net provisions for NBA and NHL revenue sharing expense for the 2013-14 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.

The increase in other team operating expenses was primarily due to higher professional fees, the return to a full Rangers regular season schedule and, to a lesser extent, the absence of a league expense recoupment which was recorded during the prior year.

The decrease in professional sports teams’ playoff related expenses was primarily due to the impact of the Knicks not making the playoffs in the year ended June 30, 2014 versus playing six home games in the prior year largely offset by the impact of seven additional Rangers home games in the current year as compared to the prior year.

Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2014 increased $19,132, or 17%, to $129,986, as compared to the prior year. The increase was primarily driven by higher employee compensation and related benefits, increased marketing costs (primarily related to the impact of the playoffs), and higher allocated corporate general and administrative costs.

Depreciation and amortization

Depreciation and amortization for the year ended June 30, 2014 increased $1,774, or 17%, to $12,225, as compared to the prior year primarily driven by depreciation that was accelerated due to a change in the anticipated planned use of assets utilized by certain of the Company’s professional sports teams.

AOCF

AOCF for the year ended June 30, 2014 decreased $23,310, or 80%, to $5,978, as compared to the prior year primarily driven by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, largely offset by an increase in revenues as discussed above.

See “— Comparison of the Year Ended June 30, 2014 versus the Year Ended June 30, 2013 — Combined Results of Operations” for a discussion of the NHL work stoppage during the 2012-13 season.

 

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Comparison of the Year Ended June 30, 2013 versus the Year Ended June 30, 2012

Combined Results of Operations

The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues.

STATEMENT OF OPERATIONS DATA

 

     Years Ended June 30,      Decrease
(Increase) in
Net Loss
 
     2013      2012     
     Amount     % of
Revenues
     Amount     % of
Revenues
    

Revenues

   $ 722,943        100%       $ 728,867        100%       $ (5,924

Operating expenses:

            

Direct operating

     533,282        74%         530,307        73%         (2,975

Selling, general and administrative

     176,139        24%         171,757        24%         (4,382

Depreciation and amortization

     72,551        10%         62,940        9%         (9,611
  

 

 

      

 

 

      

 

 

 

Operating loss

  (59,029   (8)%      (36,137   (5)%      (22,892

Other income (expense):

Interest expense, net

  (1,609   NM      (867   NM      (742

Miscellaneous

  3,497      NM      7,072      1%      (3,575
  

 

 

      

 

 

      

 

 

 

Loss from operations before income taxes

  (57,141   (8)%      (29,932   (4)%      (27,209

Income tax expense

  (1,133   NM      (6,350   (1)%      5,217   
  

 

 

      

 

 

      

 

 

 

Net loss

$ (58,274   (8)%    $ (36,282   (5)%    $ (21,992
  

 

 

      

 

 

      

 

 

 

 

NM – Percentage is not meaningful

The NHL CBA expired on September 15, 2012, and effective September 16, 2012, the NHL declared a lockout of NHL players. The delay in reaching an agreement with the NHLPA on the terms of a new CBA delayed the start of the 2012-13 NHL regular season by approximately three months until January 19, 2013. In addition to the delayed start, the resolution of the NHL work stoppage resulted in the 2012-13 regular season being shortened by 34 games, or approximately 41%, to a 48 game season.

As a result, the Rangers played fewer regular season home and away games during the year ended June 30, 2013 as compared to the comparable period of the prior year. During fiscal year 2013, the Rangers played 48 regular season games, of which 24 were home games and 24 were away games, as compared to 82 regular season games in the prior year, of which 41 were home games and 41 were away games. The NHL work stoppage and the waiver of a Rangers player which was allowed under the terms of the new NHL CBA, together, negatively impacted the Company’s and the MSG Sports segment’s revenues and the Company’s and MSG Sports segment’s AOCF, a non-GAAP measure, and operating income during fiscal year 2013.

In addition, the comparability of the results of operations of the Company and the MSG Sports segment for the year ended June 30, 2013 as compared to the prior year was impacted by the 2011 NBA work stoppage, which resulted in a shortened 66-game 2011-12 regular season. As a result, the Knicks played more regular season home and away games during fiscal year 2013 as compared to the prior year. During fiscal year 2013, the Knicks played 82 regular season games, of which 41 were home games and 41 were away games, as compared to 66 regular season games in the prior year, of which 33 were home games and 33 were away games.

 

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Revenues

Revenues for the year ended June 30, 2013 decreased $5,924, less than 1%, to $722,943 as compared to the prior year. The net decrease is attributable to the following:

 

Decrease in MSG Entertainment segment revenues

$ (11,781

Increase in MSG Sports segment revenues

  5,564   

Increase in other revenues

  293   
  

 

 

 
$ (5,924
  

 

 

 

See above for a discussion of the NHL work stoppage during the 2012-13 season and the NBA work stoppage during the 2011-12 season.

Direct operating expenses

Direct operating expenses for the year ended June 30, 2013 increased $2,975, less than 1%, to $533,282 as compared to the prior year. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 280   

Increase in MSG Sports segment expenses

  2,690   

Increase in other expenses

  5   
  

 

 

 
$ 2,975   
  

 

 

 

Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2013 increased $4,382, or 3%, to $176,139 as compared to the prior year. The net increase is attributable to the following:

 

Increase in MSG Entertainment segment expenses

$ 5,255   

Decrease in MSG Sports segment expenses

  (2,007

Increase in other expenses

  1,134   
  

 

 

 
$ 4,382   
  

 

 

 

The increase in other expenses was primarily driven by higher charitable contributions.

Depreciation and amortization

Depreciation and amortization for the year ended June 30, 2013 increased $9,611, or 15%, to $72,551 as compared to the prior year due to higher depreciation and amortization expense on property and equipment. The increase in depreciation and amortization expense on property and equipment was primarily due to the ongoing Transformation, which resulted in higher depreciation expense on property and equipment placed into service partially offset by lower depreciation expense of capitalized costs associated with asset retirement obligations (see Note 8 to our audited combined financial statements included elsewhere in this information statement).

Miscellaneous income

Miscellaneous income for the year ended June 30, 2013 includes a pre-tax gain of approximately $3,100 from the sale of all of the Company’s holdings of Live Nation common stock (see Note 13 to our audited combined financial statements included elsewhere in this information statement). Miscellaneous income for the year ended June 30, 2012 reflects approximately $7,000 related to the recovery of certain claims in connection with a third party bankruptcy proceeding.

 

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Income taxes

Income tax expense for the years ended June 30, 2013 and 2012 was $1,133 and $6,350, respectively. A valuation allowance is recorded on the Company’s net deferred tax asset as it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Due to the indefinite life of certain intangible assets, the related deferred tax liability cannot serve as a source of taxable income to support the realization of deferred tax assets. An income tax benefit is not recognized on net operating losses attributable to these periods. Instead, the income tax expense is the result of a change in the deferred tax liability on indefinite lived intangibles.

AOCF

The following is a reconciliation of operating loss to AOCF:

 

     Years Ended June 30,      Increase
(Decrease)
in AOCF
 
     2013      2012     

Operating loss

   $ (59,029    $ (36,137    $ (22,892

Share-based compensation

     8,537         10,504         (1,967

Depreciation and amortization

     72,551         62,940         9,611   
  

 

 

    

 

 

    

 

 

 

AOCF

$ 22,059    $ 37,307    $ (15,248
  

 

 

    

 

 

    

 

 

 

AOCF for the year ended June 30, 2013 decreased $15,248, or 41%, to $22,059 as compared to the prior year. The net decrease is attributable to the following:

 

Decrease in AOCF of the MSG Entertainment segment

$ (17,322

Increase in AOCF of the MSG Sports segment

  3,182   

Other net decreases

  (1,108
  

 

 

 
$ (15,248
  

 

 

 

Other net decreases were primarily driven by higher charitable contributions.

See above for a discussion of the NHL work stoppage during the 2012-13 season and the NBA work stoppage during the 2011-12 season.

Business Segment Results

MSG Entertainment

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Entertainment segment.

 

     Years Ended June 30,     Increase
(Decrease) in
Operating
Income
 
     2013     2012    
     Amount     % of
Revenues
    Amount      % of
Revenues
   

Revenues

   $ 252,195        100   $ 263,976         100   $ (11,781

Direct operating expenses

     199,570        79     199,290         75     (280

Selling, general and administrative expenses

     55,421        22     50,166         19     (5,255

Depreciation and amortization

     9,522        4     9,653         4     131   
  

 

 

     

 

 

      

 

 

 

Operating income (loss)

$ (12,318   (5 )%  $ 4,867      2 $ (17,185
  

 

 

     

 

 

      

 

 

 

 

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The following is a reconciliation of operating income (loss) to AOCF:

 

     Years Ended June 30,      Decrease
in AOCF
 
     2013      2012     

Operating income (loss)

   $ (12,318    $ 4,867       $ (17,185

Share-based compensation

     3,596         3,602         (6

Depreciation and amortization

     9,522         9,653         (131
  

 

 

    

 

 

    

 

 

 

AOCF

$ 800    $ 18,122    $ (17,322
  

 

 

    

 

 

    

 

 

 

Revenues

Revenues for the year ended June 30, 2013 decreased $11,781, or 5%, to $252,195 as compared to the prior year. The net decrease is attributable to the following:

 

Decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular

$ (13,710

Decrease in revenues from the presentation of the Radio City Christmas Spectacular franchise

  (5,815

Decrease in event-related revenues at the Beacon Theatre

  (2,883

Decrease in event-related revenues at The Garden

  (1,808

Decrease in event-related revenues at The Chicago Theatre

  (1,216

Increase in event-related revenues at The Theater at Madison Square Garden

  6,474   

Increase in venue-related sponsorship and signage and suite rental fee revenues

  5,937   

Other net increases

  1,240   
  

 

 

 
$ (11,781
  

 

 

 

The decrease in event-related revenues at Radio City Music Hall, excluding the Radio City Christmas Spectacular, was primarily due to fewer scheduled performances of Cirque du Soleil’s Zarkana partially offset by an increase in revenues associated with other events.

The decrease in revenues from the presentation of the Radio City Christmas Spectacular franchise, which reflects the Radio City Music Hall production of the show as well as the theatrical productions presented outside of New York, was primarily due to lower attendance partially offset by a higher average ticket price at the Radio City Music Hall. The Radio City Music Hall production of the show was significantly impacted by Superstorm Sandy, which occurred in late October 2012, about ten days prior to the start of the show’s run. Nearly one million tickets were sold for the Radio City Music Hall production during the 2012 holiday season as compared to nearly one million one hundred thousand tickets during the 2011 holiday season.

The decrease in event-related revenues at the Beacon Theatre was primarily driven by the decrease in the number of events held at the venue during the year ended June 30, 2013 as compared to the prior year.

The decrease in event-related revenues at The Garden was primarily driven by a change in the mix of events held at the venue during the year ended June 30, 2013 as compared to the prior year.

The decrease in event-related revenues at The Chicago Theatre was primarily driven by the decrease in the number of events held at the venue during the year ended June 30, 2013 as compared to the prior year.

 

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The increase in event-related revenues at The Theater at Madison Square Garden was primarily due to the increase in the number of events held at the venue during the year ended June 30, 2013 as compared to the prior year.

The increase in venue-related sponsorship and signage and suite rental fee revenues primarily reflects higher suite rental fee revenue as a result of new suite/club products which have come online combined with the impact of more sponsor relationships partially offset by the impact of the planned reduction in certain suite products as a result of the Transformation.

Direct operating expenses

Direct operating expenses for the year ended June 30, 2013 increased $280, less than 1%, to $199,570 as compared to the prior year. The net increase is attributable to the following:

 

Decrease in event-related direct operating expenses at Radio City Music Hall, excluding the Radio City Christmas Spectacular

$ (8,902

Decrease in event-related direct operating expenses at The Garden

  (1,994

Decrease in event-related direct operating expenses at the Beacon Theatre

  (1,066

Decrease in event-related direct operating expenses at The Chicago Theatre

  (734

Increase in venue operating costs, primarily associated with the Forum (which the Company acquired in June 2012) and Radio City Music Hall

  4,629   

Increase in event-related direct operating expenses at The Theater at Madison Square Garden

  4,291   

Increase in direct operating expenses associated with the presentation of the Radio City Christmas Spectacular franchise

  1,304   

Other net increases, including higher costs associated with MSG Entertainment business development initiatives

  2,752   
  

 

 

 
$ 280   
  

 

 

 

The increase in direct operating expenses associated with the presentation of the Radio City Christmas Spectacular franchise was primarily due to a pre-tax impairment charge of $4,982 recorded during the year ended June 30, 2013 related to a theatrical production of the show that played in three markets outside of New York during the 2012 holiday season. As a result of the financial performance of these markets, the Company recorded a pre-tax impairment charge for the remaining unamortized deferred costs of assets related to this theatrical production outside of New York. The impact of the impairment charge was largely offset by a decrease in direct operating expenses associated with the Radio City Music Hall production and the theatrical production of the show outside of New York.

Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2013 increased $5,255, or 11%, to $55,421 as compared to the prior year primarily due to an increase in employee compensation and related benefits, which includes costs associated with MSG Entertainment business development initiatives.

AOCF

AOCF for the year ended June 30, 2013 decreased by $17,322, or 96%, to $800 as compared to the prior year primarily attributable to a decrease in revenues and higher selling, general and administrative expenses, as discussed above.

 

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MSG Sports

The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company’s MSG Sports segment.

 

     Years Ended June 30,     Increase
(Decrease) in
Operating
Income
 
     2013     2012    
     Amount      % of
Revenues
    Amount      % of
Revenues
   

Revenues

   $ 470,290         100   $ 464,726         100   $ 5,564   

Direct operating expenses

     333,712         71     331,022         71     (2,690

Selling, general and administrative expenses

     110,854         24     112,861         24     2,007   

Depreciation and amortization

     10,451         2     11,003         2     552   
  

 

 

      

 

 

      

 

 

 

Operating income

$ 15,273      3 $ 9,840      2 $ 5,433   
  

 

 

      

 

 

      

 

 

 

The following is a reconciliation of operating income to AOCF:

 

     Years Ended June 30,      Increase
(Decrease) in
AOCF
 
     2013      2012     

Operating income

   $ 15,273       $ 9,840       $ 5,433   

Share-based compensation

     3,564         5,263         (1,699

Depreciation and amortization

     10,451         11,003         (552
  

 

 

    

 

 

    

 

 

 

AOCF

$ 29,288    $ 26,106    $ 3,182   
  

 

 

    

 

 

    

 

 

 

Revenues

Revenues for the year ended June 30, 2013 increased $5,564, or 1%, to $470,290 as compared to the prior year. The net increase is attributable to the following:

 

Increase in suite rental fee revenue

$ 14,591   

Increase in professional sports teams’ sponsorship and signage revenues

  4,971   

Increase in telecast rights fees from MSG Media

  896   

Increase in revenues from NHL and NBA distributions

  641   

Decrease in professional sports teams’ pre/regular season ticket-related revenue

  (6,185

Decrease in event-related revenues from other live sporting events

  (4,964

Decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales

  (2,283

Decrease in professional sports teams’ playoff related revenues

  (536

Other net decreases

  (1,567
  

 

 

 
$ 5,564   
  

 

 

 

The increase in suite rental fee revenue was primarily due to new suite/club products which have come online partially offset by the impact of the planned reduction in certain suite products as a result of the Transformation and the NHL work stoppage.

 

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The increase in professional sports teams’ sponsorship and signage revenues primarily reflects expanded inventory and new sponsor relationships as a result of the Transformation and the Knicks’ return to a full regular season schedule. These increases were partially offset by the impact of the NHL work stoppage.

The increase in telecast rights fees from MSG Media was primarily due to the impact of the Knicks’ return to a full regular season schedule offset by the impact of the NHL work stoppage.

The increase in revenues from NHL and NBA distributions was primarily due to the league related increases and the Knicks’ return to a full regular season schedule largely offset by the impact of the NHL work stoppage.

The decrease in professional sports teams’ pre/regular season ticket-related revenue was primarily driven by the impact of the NHL work stoppage. This decrease was largely offset by the Knicks’ return to a full regular season schedule which resulted in more Knicks games played during the year ended June 30, 2013 as compared to the prior year and, to a lesser extent, higher average per-game revenue for our professional sports teams, inclusive of the impact of the temporary reduction in seating capacity due to the Transformation.

The decrease in event-related revenues from other live sporting events was primarily due to fewer events and a change in the mix of events during the year ended June 30, 2013 as compared to the prior year.

The decrease in professional sports teams’ pre/regular season food, beverage and merchandise sales was primarily due to fewer NHL home games played, partially offset by more NBA home games played during the year ended June 30, 2013 as compared to the prior year, and, to a lesser extent, higher average spending per patron (per caps).

See “— Comparison of the Year Ended June 30, 2013 versus the Year Ended June 30, 2012 — Combined Results of Operations” for a discussion of the NHL work stoppage during the 2012-13 season and the NBA work stoppage during the 2011-12 season.

Direct operating expenses

Direct operating expenses for the year ended June 30, 2013 increased $2,690, less than 1%, to $333,712 as compared to the prior year. The net increase is attributable to the following:

 

Increase in net provisions for NBA luxury tax and NBA and NHL revenue sharing expense (excluding playoffs)

$ 3,846   

Increase in net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

  2,127   

Increase in team personnel compensation

  1,759   

Decrease in event-related expenses associated with other live sporting events

  (3,221

Decrease in professional sports teams’ pre/regular season expense associated with food, beverage and merchandise sales

  (671

Decrease in professional sports teams’ playoff related expenses

  (513

Other net decreases

  (637
  

 

 

 
$ 2,690   
  

 

 

 

 

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Net provisions for NBA luxury tax, NBA and NHL revenue sharing expense (excluding playoffs) and certain team personnel transactions (including the impact of NBA luxury tax) were as follows:

 

     Years Ended June 30,         
     2013      2012      Increase  

Net provisions for NBA luxury tax and NBA and NHL revenue sharing expense (excluding playoffs)

   $ 20,838       $ 16,992       $ 3,846   

Net provisions for certain team personnel transactions (including the impact of NBA luxury tax)

     18,441         16,314         2,127   

The increase in net provisions for NBA luxury tax (excluding the impact of team personnel transactions) and NBA and NHL revenue sharing expense (excluding playoffs) reflects higher NBA luxury tax of $6,103 partially offset by lower net provisions for NBA and NHL revenue sharing expense of $2,257. The increase in provisions for NBA luxury tax for the year ended June 30, 2013 was due to the Knicks not being a gross luxury tax payer for the 2011-12 season whereas the Knicks were a luxury tax payer for the 2012-13 season. The decrease in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) was primarily attributable to the impact of the NHL work stoppage and an adjustment to the 2011-12 season revenue sharing expense partially offset by higher estimated NBA revenue sharing for the 2012-13 season as a result of the Knicks’ return to a full regular season schedule.

Team personnel transactions for the year ended June 30, 2013 reflect provisions recorded for player waivers/contract terminations and season-ending player injuries of $10,434 and $7,159, respectively, and player trades of $848. Team personnel transactions for the year ended June 30, 2012 primarily reflect provisions recorded for player waivers/contract terminations and season-ending player injuries of $15,832 and $407, respectively.

The increase in team personnel compensation was primarily due to the impact of the Knicks’ return to a full regular season schedule, and overall salary increases and the impact of roster changes largely offset by the NHL work stoppage.

Other net decreases include the impact on team operating expenses from the NHL work stoppage and, to a lesser extent, a league expense recoupment, which was recorded during the year ended June 30, 2013 that is not expected to be recurring offset by the impact of the Knicks’ return to a full regular season schedule, as well as other team operating expense increases.

Selling, general and administrative expenses

Selling, general and administrative expenses for the year ended June 30, 2013 decreased $2,007, or 2%, to $110,854, as compared to the prior year. This decrease is primarily attributable to a decrease in allocated corporate general and administrative costs, partially offset by higher professional fees and employee compensation and related benefits, including separation-related costs.

AOCF

AOCF for the year ended June 30, 2013 increased $3,182, or 12%, to $29,288, as compared to the prior year primarily due to higher revenues and a decrease in selling, general and administrative expenses, partially offset by an increase in direct operating expenses, as discussed above.

See “— Comparison of the Year Ended June 30, 2013 versus the Year Ended June 30, 2012 — Combined Results of Operations” for a discussion of the NHL work stoppage during the 2012-13 season and the NBA work stoppage during the 2011-12 season.

 

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Liquidity and Capital Resources

Overview

MSG uses a centralized approach to cash management and financing of operations. Cash is managed centrally with net earnings reinvested and working capital requirements met from existing liquid funds. Cash was historically available for use and was regularly “swept” by MSG at its discretion. Accordingly, the cash and cash equivalents held by MSG were not attributed to the Company for any of the historical periods presented herein. Additionally, cash held in accounts legally owned by subsidiaries of the Company was attributed to the combined balance sheets for each period presented.

Our primary sources of liquidity are cash and cash equivalents on hand and cash flows from the operations of our businesses. The Company also expects to have access to incremental cash through a cash investment from MSG at the time of the Distribution. Our principal uses of cash include working capital-related items, capital spending, and investments that we may fund from time to time. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation.

We believe we will have sufficient liquidity from cash flows from the operations of our businesses (that may fluctuate from time to time) and a cash investment of $[] from MSG prior to the Distribution to operate our businesses, pursue new opportunities and our other initiatives.

We regularly assess capital and credit markets activity and conditions against our ability to meet our net funding and investing requirements over the next twelve months and we believe that the combination of cash and cash equivalents on hand, cash generated from operating activities and a cash investment from MSG to the Company prior to the Distribution should provide us with sufficient liquidity to fund such requirements.

However, economic conditions may lead to lower demand for our offerings, such as lower levels of attendance or advertising. The consequences of such conditions could adversely impact our business and results of operations and might require us to seek alternative sources of funding through the capital and credit markets. Such funding may not be available to us. Our access to financing on acceptable terms in the future may be affected by many factors, including: (a) our credit rating, (b) the liquidity of the overall capital markets and (c) the fiscal health of the economy. There can be no assurances that the Company will continue to have access to the capital markets on acceptable terms. See “Risk Factors — General Risks — We May Require Financing to Fund Our Ongoing Operations and Capital Expenditures, the Availability of Which is Highly Uncertain” for further discussion.

Financing Agreements

The Company does not anticipate having a credit facility in place at the time of the Distribution. However, we may require funding through the capital and credit markets in the future and may enter into a credit agreement following the Distribution. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Overview” above and “Risk Factors — General Risks — We May Require Financing to Fund Our Ongoing Operations and Capital Expenditures, the Availability of Which is Highly Uncertain” for further discussion.

Arrangements with Nonconsolidated Affiliates

In September 2013, the Company acquired a 50% interest in Azoff-MSG. The Company provides a $50,000 revolving credit facility to the entity, which amount was fully borrowed as of June 30, 2014. In September 2014, the revolving credit facility was increased from $50,000 to $100,000, with $56,000 of borrowings outstanding as of December 31, 2014.

 

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Additionally, in June 2014, the Company agreed to loan up to $2,600 to BBLV.

During the quarter ended December 2014, the Company agreed to provide up to $1,000 of revolving credit loans to Tribeca Enterprises, of which no amount had been drawn down as of December 31, 2014. In February 2015, the revolving credit facility was increased from $1,000 to $6,000.

Loan receivable from MSG

On June 21, 2011, the Company’s subsidiary entered into a loan agreement with MSG (the “Loan Agreement”), under which the subsidiary granted MSG an interest bearing, unsecured loan with a principal amount not exceeding $8,000. Subsequently, the Loan Agreement was amended to increase the borrowing capacity to $40,000. While the term of the loan is five years, the subsidiary can induce prepayment by MSG with as little as five business days notice. As of June 30, 2014 and 2013, the subsidiary had an outstanding loan receivable from MSG of $29,683 and $22,926, respectively, inclusive of accrued interest. We expect that the outstanding loan receivable will be repaid to the Company prior to the Distribution.

Cash Flow Discussion

Operating Activities

Net cash provided by operating activities for the six months ended December 31, 2014 decreased by $71,909 to $35,001 as compared to the prior year period primarily driven by an increase in the use of cash of $111,688 resulting from changes in assets and liabilities, as well as an increase in net loss of $14,190. The main drivers of the increase in the use of cash resulting from changes in assets and liabilities were (i) a decrease during the six months ended December 31, 2014 in accrued and other liabilities of $45,381 as compared to an increase of $17,076 during the prior year period and (ii) an increase during the six months ended December 31, 2014 in deferred revenue of $34,314 as compared to an increase of $89,126 during the prior year period partially offset by (iii) an increase during the six months ended December 31, 2014 in accounts payable of $5,817 as compared to an increase of $2,175 during the prior year period. The decrease resulting from the changes in assets and liabilities was partially offset by favorable impacts of other non-cash items as compared to the prior year period.

Net cash provided by operating activities for the year ended June 30, 2014 increased by $78,924 to $137,063 as compared to the prior year primarily driven by an increase of $113,805 from changes in assets and liabilities, an increase of $23,778 in other non-cash items offset by a $58,659 increase in net loss. The increase resulting from changes in assets and liabilities was primarily due to (i) an increase during the year ended June 30, 2014 in accrued and other liabilities of $105,185 as compared to an increase of $17,127 during the prior year, (ii) an increase during the year ended June 30, 2014 in deferred revenue of $62,443 as compared to an increase of $34,531 during the prior year, (iii) a decrease during the year ended June 30, 2014 in accounts receivable of $9,027 as compared to a decrease of $12,213 during the prior year, (iv) an increase during the year ended June 30, 2014 in accounts payable of $3,712 as compared to an increase of $1,866 during the prior year, and (v) an increase during the year ended June 30, 2014 in deferred income taxes of $1,697 as compared to an increase of $1,133 during the prior year. These increases were partially offset by (i) a decrease during the year ended June 30, 2014 in net related party receivables of $499 as compared to an increase of $31 during the prior year, and (ii) a decrease during the year June 30, 2014 in prepaid expenses and other assets of $16,038 as compared to a decrease of $9,955 during the prior year.

Net cash provided by operating activities for the year ended June 30, 2013 decreased by $47,680 to $58,139 as compared to the prior year primarily driven by a decrease of $34,880 resulting from changes in assets and liabilities and a $21,992 increase in net loss, offset by a $9,192 increase in other non-cash items. The decrease resulting from changes in assets and liabilities was primarily due to (i) a decrease during the year ended June 30, 2013 in accounts receivable of $12,213 as compared to an increase of $4,229 during the prior year, (ii) an increase during the year ended June 30, 2013 in accounts payable of $1,866 as compared to an increase of

 

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$15,472 during the prior year, and (iii) an increase during the year ended June 30, 2013 in deferred revenue of $34,531 as compared to an increase of $47,514 during the prior year. These decreases were partially offset by (i) an increase during the year ended June 30, 2013 in accrued and other liabilities of $17,127 as compared to an increase of $12,421 during the prior year, (ii) a decrease during the year ended June 30, 2013 in prepaid expenses and other assets of $9,955 as compared to a decrease of $15,506 during the prior year, (iii) an increase during the year ended June 30, 2013 in net related party payables of $962 as compared to a decrease of $2,059 during the prior year, (iv) an increase during the year ended June 30, 2013 in deferred income taxes of $1,133 as compared to an increase of $6,350 during the prior year, and (v) an increase during the year ended June 30, 2013 in net related party receivables of $31 as compared to a decrease of $59 during the prior year.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2014 decreased by $298,909 to $46,281 as compared to the prior year period. This change is primarily due to (i) the Company’s prior year period acquisition of a 50% interest in Azoff-MSG and an investment in BBLV and (ii) lower capital expenditures for the six months ended December 31, 2014 as compared to the prior year period primarily due to the completion of the Transformation and the renovation of the Forum.

Net cash used in investing activities for the year ended June 30, 2014 increased by $337,021 to $520,675 as compared to the prior year. This increase is primarily due to $226,510 of cash used during the current year for the Company’s investments in and loans to its nonconsolidated affiliates, Azoff-MSG, BBLV and Tribeca Enterprises. In addition, capital expenditures for the year ended June 30, 2014 increased by $87,076 as compared to the prior year primarily due to the renovation of the Forum during the current year partially offset by lower capital expenditures associated with the Transformation. These contributors to the higher net cash used in investing activities during the current year were partially offset by an $18,000 loan provided to the Company (which we expect to be forgiven based on our satisfaction of certain conditions) during the year ended June 30, 2014 from the City of Inglewood in connection with the Company’s renovation of the Forum, and a $4,200 reduction in borrowings by MSG in connection with the Loan Agreement. Cash flow from investing activities during the prior year included proceeds of $44,136 from the sale of all of the Company’s holdings of Live Nation common stock.

Net cash used in investing activities for the year ended June 30, 2013 decreased by $239,242 to $183,654 as compared to the prior year primarily driven by lower capital expenditures associated with the Transformation and, to a lesser extent, proceeds from the March 2013 sale of all the Company’s holdings of Live Nation common stock as well as the Company’s June 2012 acquisition of the Forum, partially offset by increased borrowings by MSG in connection with the Loan Agreement.

Financing Activities

Net cash provided by financing activities for the six months ended December 31, 2014 decreased by $227,990 to $23,194 as compared to the prior year. This decrease is due to net transfers from MSG and MSG’s subsidiaries.

Net cash provided by financing activities for the year ended June 30, 2014 increased by $262,673 to $387,478 as compared to the prior year. This increase is due to net transfers from MSG and MSG’s subsidiaries.

Net cash provided by financing activities for the year ended June 30, 2013 decreased by $189,965 to $124,805 as compared to the prior year. This increase is due to net transfers from MSG and MSG’s subsidiaries.

 

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Contractual Obligations and Off Balance Sheet Arrangements

Future cash payments required under contracts entered into by the Company in the normal course of business as of June 30, 2014 are summarized in the following table:

 

    Payments Due by Period  
    Total     Year 1     Years 2-3     Years 4-5     More Than
5 Years
 

Off balance sheet arrangements:

         

Contractual obligations (a)

  $ 372,527      $ 135,113      $ 132,823      $ 77,069      $ 27,522   

Operating lease obligations (b)

    346,006        33,333        68,237        68,516        175,920   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  718,533      168,446      201,060      145,585      203,442   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contractual obligations reflected on the balance sheet (c)

  84,095      39,003      16,357      10,231      18,504   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

$ 802,628    $ 207,449    $ 217,417    $ 155,816    $ 221,946   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Contractual obligations not reflected on the balance sheet consist primarily of the MSG Sports segment’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination.

 

(b) Operating lease obligations represent future minimum rental payments on various long-term, noncancelable leases for office and storage space, and lease commitments for Radio City Music Hall and the Beacon Theatre.

 

(c) Consists primarily of (i) amounts earned under employment agreements that the Company has with certain of its professional sports teams’ personnel in the MSG Sports segment, and, to a lesser extent, (ii) severance related to certain former corporate employees.

The future cash payments reflected above do not include the impact of potential insurance recoveries or amounts which may be due for NBA luxury tax payments or NBA or NHL revenue sharing.

See “— Financing Agreements — Arrangements with Nonconsolidated Affiliates” above for discussion of the revolving credit facilities provided by the Company to Azoff-MSG, BBLV and Tribeca Enterprises.

Seasonality of Our Business

The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of our fiscal year. The dependence of the MSG Entertainment segment on revenues from the Radio City Christmas Spectacular generally means it earns a disproportionate share of its revenues and operating income in the second quarter of our fiscal year.

Recently Issued Accounting Pronouncements and Critical Accounting Policies

Recently Adopted Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which amends ASC Topic 820, Fair Value Measurement. The amended guidance changes the wording used to describe many requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The Company adopted ASU No. 2011-04 effective January 1, 2012. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

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In September 2011, the FASB issued ASU No. 2011-09, Compensation — Retirement Benefits — Multiemployer Plans (Subtopic 715-80) — Disclosures about an Employer’s Participation in a Multiemployer Plan, which requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures in order to provide more information about an employer’s involvement in multiemployer pension plans. Although the majority of the amendments in this ASU apply only to multiemployer pension plans, there are also amendments that require changes in disclosures for multiemployer plans that provide postretirement benefits other than pensions. The Company adopted this ASU in the fourth quarter of the year ended June 30, 2012. This ASU impacted the Company’s disclosures only and did not have any impact on the Company’s financial position, results of operations, or cash flows. The disclosures required by this ASU are presented in Note 14 to our audited combined financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income, which is intended to improve the overall quality of financial reporting by increasing the prominence of items reported in other comprehensive income, and to additionally align the presentation of other comprehensive income in financial statements prepared in accordance with GAAP with those prepared in accordance with International Financial Reporting Standards. An entity now has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, in December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) — Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to indefinitely defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. During the deferral period, the existing requirements in GAAP for the presentation of reclassification adjustments are required to be followed. These standards were retrospectively adopted by the Company in the first quarter of fiscal year 2013 and the Company elected to present two separate but consecutive statements. The adoption of these standards resulted only in changes in the presentation of its financial statements and did not have an impact on the Company’s financial position, results of operations, or cash flows.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment, which amends ASC Topic 350, Intangibles — Goodwill and Other. This guidance permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying a two-step goodwill impairment test. If an entity can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. This standard was adopted by the Company in the first quarter of fiscal year 2013. The adoption of this standard did not have an impact on the Company’s financial position, results of operations, or cash flows.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles — Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment, to establish an optional two-step analysis for impairment testing of indefinite-lived intangibles other than goodwill. In particular, the two-step analysis establishes an optional qualitative assessment to precede the quantitative assessment, if necessary. This standard was adopted by the Company in the first quarter of fiscal year 2013. The adoption of this standard did not have an impact on the Company’s financial position, results of operations, or cash flows.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to provide information about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified

 

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in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. This standard was adopted by the Company in the first quarter of fiscal year 2014. The adoption of this standard impacted the Company’s disclosures only and did not have any impact on the Company’s financial position, results of operations, or cash flows.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which revises the definition of a discontinued operation to limit the circumstances under which a disposal or classification as held for sale qualifies for presentation as a discontinued operation. Expanded disclosures are required concerning a discontinued operation and the disposal of a significant component of an entity not qualifying as a discontinued operation. The revised standard is effective for any new disposals and new classifications of assets held for sale in annual and interim periods beginning after December 15, 2014. Early adoption is permitted. The Company elected to early adopt this guidance in the fourth quarter of fiscal year 2014. The adoption of this standard did not have any impact on the Company’s financial position, results of operations, or cash flows.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This standard will be effective for the Company beginning in the first quarter of fiscal year 2018 using one of two retrospective application methods. The Company is currently evaluating the impact this standard will have on its combined financial statements.

Critical Accounting Policies

The preparation of the Company’s combined financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Management believes its use of estimates in the combined financial statements to be reasonable. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Multiple-Deliverable Transactions

The Company has various types of multiple-deliverable arrangements, including multi-year sponsorship agreements. The deliverables included in each sponsorship agreement vary and may include suite licenses, event tickets and various advertising benefits, which include items such as, but not limited to, signage at The Garden and the Company’s other venues. The timing of revenue recognition for each deliverable is dependent upon meeting the revenue recognition criteria for the respective deliverable.

The Company allocates revenue to each deliverable within the arrangement based on its relative selling price. For many deliverables in an arrangement, such as event tickets and certain advertising benefits, the Company has vendor specific objective evidence (“VSOE”) of selling price as it typically sells the same or similar deliverables regularly on a stand-alone basis. Absent VSOE the Company considers whether third party evidence (“TPE”) is available; however, in most instances TPE is not available. The Company’s process for determining its estimated selling prices for deliverables without VSOE or TPE involves management’s judgment

 

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and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors considered by the Company in developing a best estimate of selling price for deliverables include, but are not limited to, prices charged for similar deliverables, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar deliverables sold in other multiple-deliverable agreements.

Impairment of Long-Lived and Indefinite-Lived Assets

The Company’s long-lived and indefinite-lived assets accounted for approximately 80% of the Company’s combined total assets as of June 30, 2014 and consist of the following:

 

Goodwill

$ 277,166   

Indefinite-lived intangible assets

  163,850   

Amortizable intangible assets, net

  29,263   

Property and equipment, net

  1,231,300   
  

 

 

 
$ 1,701,579   
  

 

 

 

In assessing the recoverability of the Company’s long-lived and indefinite-lived assets, the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets. These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also the magnitude of any such charge. Fair value estimates are made at a specific point in time, based on relevant information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. If these estimates or material related assumptions change in the future, we may be required to record impairment charges related to our long-lived and/or indefinite-lived assets.

Goodwill

Goodwill is tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we would not need to perform the two-step impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment then the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be recognized in a business combination. The Company’s two reporting units for evaluating goodwill impairment are the same as its reportable segments, and both of them have goodwill. The estimates of the fair value of the Company’s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. For all periods presented the Company elected to perform the qualitative assessment of impairment for the MSG Sports reporting unit. These assessments considered factors such as:

 

    Macroeconomic conditions;

 

    Industry and market considerations;

 

    Cost factors;

 

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    Overall financial performance of the reporting unit;

 

    Other relevant company-specific factors such as changes in management, strategy or customers; and

 

    Relevant reporting unit specific events such as changes in the carrying amount of net assets.

For all periods presented, the Company performed the quantitative assessment of impairment for the MSG Entertainment reporting unit. For MSG Entertainment, these valuations of the reporting unit include assumptions for the number and expected financial performance of live entertainment events and productions, which includes, but is not limited to, the level of ticket sales, concessions and sponsorships. Significant judgments inherent in a discounted cash flow valuation include the selection of appropriate discount rates, estimating the amount and timing of estimated future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.

The goodwill balance reported on the Company’s balance sheet as of June 30, 2014 by reportable segment is as follows:

 

MSG Entertainment

$ 58,979   

MSG Sports

  218,187   
  

 

 

 
$ 277,166   
  

 

 

 

During the quarters ended September 30, 2013 and September 30, 2014, the Company performed its annual impairment test of goodwill, and there was no impairment of goodwill identified for either of its reportable segments. Based on these impairment tests, the Company’s reporting units had sufficient safety margins, representing the excess of the estimated fair value of each reporting unit less its respective carrying value (including goodwill allocated to each respective reporting unit).

Identifiable Indefinite-Lived Intangible Assets

Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, according to which an impairment charge is recognized for the amount of the asset’s carrying amount exceeding the fair value, if the Company (1) determines that such an impairment is more likely than not to exist, or (2) forgoes the qualitative assessment entirely. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s combined balance sheet as of June 30, 2014 by reportable segment:

 

Sports franchises (MSG Sports segment)

$ 101,429   

Trademarks (MSG Entertainment segment)

  62,421   
  

 

 

 
$ 163,850   
  

 

 

 

 

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When the Company performs the qualitative assessment, the Company considers the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include:

 

    Cost factors;

 

    Financial performance;

 

    Legal, regulatory, contractual, business or other factors;

 

    Other relevant company-specific factors such as changes in management, strategy or customers;

 

    Industry and market considerations; and

 

    Macroeconomic conditions.

In March 2014, the Company acquired an NBA Development League franchise, which began operations for the 2014-15 season. The purchase was accounted for as the acquisition of an indefinite-lived franchise intangible asset.

When the quantitative assessment is performed, the Company determines the fair value of the intangible asset. During the quarters ended September 30, 2013 and September 30, 2014, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets, and there was no impairment identified. Based on this impairment test, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value.

Other Long-Lived Assets

For other long-lived assets, including intangible assets that are amortized, the Company evaluates assets for recoverability when there is an indication of potential impairment. If the undiscounted cash flows from a group of assets being evaluated is less than the carrying value of that group of assets, the fair value of the asset group is determined and the carrying value of the asset group is written down to fair value.

The Company has recognized intangible assets for season ticket holder relationships, suite holder relationships, and other intangibles as a result of purchase accounting. The Company has determined that certain of such intangible assets have finite lives.

The estimated useful lives and net carrying values of these intangibles at June 30, 2014 are as follows:

 

     Net Carrying
Value
     Estimated
Useful Lives

Season ticket holder relationships

   $ 24,464       12 to 15 years

Suite holder relationships

     2,454       11 years

Other intangibles

     2,345       15 years
  

 

 

    
$ 29,263   
  

 

 

    

The useful lives for season ticket holder relationships and suite holder relationships were determined based upon an estimate for renewals of existing agreements the Company had in place with its major customers in April 2005 (the time that purchase accounting was applied). The Company has maintained customer relationships in the past and believes it will be able to maintain those customer relationships in the future. Furthermore, the Company has been successful in maintaining its relationships with its season ticket holders and suite holders in the past and believes it will be able to significantly renew its season ticket and suite holder relationships and maintain those relationships in the future. However, it is possible that the Company will not successfully renew such agreements as they expire or that if it does, the net revenue earned may not equal or exceed the net revenue currently being earned, which could have a material negative effect on our business. In light of these facts and circumstances, the Company has determined that its estimated useful lives are appropriate.

 

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Defined Benefit Pension Plans and Other Postretirement Benefit Plan

The Company utilizes actuarial methods to calculate pension and other postretirement benefit obligations and the related net periodic benefit cost which are based on actuarial assumptions. Two key assumptions, the discount rate and the expected long-term rate of return on plan assets, are important elements of the plans’ expense and liability measurement and we evaluate these key assumptions annually. Other assumptions include demographic factors, such as mortality, retirement age and turnover. The actuarial assumptions used by the Company may differ materially from actual results due to various factors, including, but not limited to, changing economic and market conditions. Differences between actual and expected occurrences could significantly impact the actual amount of net periodic benefit cost and the benefit obligation recorded by the Company. Material changes in the costs of the plans may occur in the future due to changes in these assumptions, changes in the number of the plan participants, changes in the level of benefits provided, changes in asset levels and changes in legislation. Our assumptions reflect our historical experience and our best judgment regarding future expectations.

Accumulated and projected benefit obligations reflect the present value of future cash payments for benefits. We use the Towers Watson U.S. Rate Link: 40-90 discount rate model (which is developed by examining the yields on selected highly rated corporate bonds) to discount these benefit payments on a plan by plan basis, to select a rate at which we believe each plan’s benefits could be effectively settled. Lower discount rates increase the present value of benefit obligations and will usually increase the subsequent year’s net periodic benefit cost. The weighted-average discount rates used to determine benefit obligations as of June 30, 2014 for the Company’s pension plans and postretirement plan were 4.32% and 4.00%, respectively. A 25 basis point decrease in these assumed discount rates would increase the projected benefit obligations for the Company’s pension plans and postretirement plan at June 30, 2014 by $5,950 and $240, respectively. The weighted-average discount rates used to determine net periodic benefit cost for the year ended June 30, 2014 for the Company’s pension plans and postretirement plan were 4.80% and 4.50%, respectively. A 25 basis point decrease in these assumed discount rates would increase the total net periodic benefit cost for the Company’s pension plans by $490 and decrease net periodic benefit cost for the postretirement plan by $13 for the year ended June 30, 2014.

The expected long-term return on plan assets is based on a periodic review and modeling of the plans’ asset allocation structures over a long-term horizon. Expectations of returns for each asset class are the most important of the assumptions used in the review and modeling, and are based on comprehensive reviews of historical data, forward-looking economic outlook, and economic/financial market theory. The expected long-term rate of return was selected from within the reasonable range of rates determined by (a) historical real returns, net of inflation, for the asset classes covered by the investment policy, and (b) projections of inflation over the long-term period during which benefits are payable to plan participants. The expected long-term rate of return on plan assets for the Company’s funded pension plans was 4.57% for the year ended June 30, 2014.

Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under the Company’s funded plans. Adverse market performance in the future could result in lower rates of return for these assets than projected by the Company which could increase the Company’s funding requirements related to these plans, as well as negatively affect the Company’s operating results by increasing the net periodic benefit cost. A 25 basis point decrease in the long-term return on pension plan assets assumption would increase net periodic pension benefit cost by $227 for the year ended June 30, 2014.

Another important assumption for our postretirement plan is healthcare cost trend rates. We developed our estimate of the healthcare cost trend rates through examination of the Company’s claims experience and the results of recent healthcare trend surveys.

 

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Assumptions for healthcare cost trend rates used to determine the benefit obligation and net periodic benefit cost for our postretirement plan as of and for the year ended June 30, 2014 are as follows:

 

     Net Periodic
Benefit Cost
    Benefit Obligation  

Healthcare cost trend rate assumed for next year

     7.75     7.25

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

     5.00     5.00

Year that the rate reaches the ultimate trend rate

     2020        2020   

A one percentage point change in assumed healthcare cost trend rates would have the following effects on the benefit obligation for our postretirement plan and net periodic postretirement benefit cost as of and for the year ended June 30, 2014:

 

     Increase
(Decrease) on
Total of Service
and Interest Cost
Components
     Increase
(Decrease) on
Benefit Obligation
 

One percentage point increase

   $ 76       $ 1,031   

One percentage point decrease

     (66      (906

GAAP includes mechanisms that serve to limit the volatility in the Company’s earnings that otherwise would result from recording changes in the value of plan assets and benefit obligations in our combined financial statements in the periods in which those changes occur. For example, while the expected long-term rate of return on the plans’ assets should, over time, approximate the actual long-term returns, differences between the expected and actual returns could occur in any given year. These differences contribute to the deferred actuarial gains or losses, which are then amortized over time.

See Note 14 to our audited combined financial statements included in this information statement for more information on our pension plans and other postretirement benefit plan.

 

 

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CORPORATE GOVERNANCE AND MANAGEMENT

Corporate Governance

General

We will apply to list our Class A Common Stock on [NASDAQ] under the symbol “[•].” As a result, we are generally subject to [NASDAQ] corporate governance listing standards.

A listed company that meets [NASDAQ’s] definition of “controlled company” may elect not to comply with certain of these requirements. Holders of MSG Class B Common Stock who are members of the Dolan family and certain related family entities entered into a Stockholders Agreement relating to, among other things, the voting of their shares of MSG Class B Common Stock and filed a Schedule 13D with the SEC as a “group” under the rules of the SEC. We have been informed that prior to the Distribution, these parties will enter into a similar stockholders agreement with respect to the voting of their shares of the Class B Common Stock that will be issued in the Distribution. As a result, following the Distribution, we will be a “controlled company.” As a controlled company, we will have the right to elect not to comply with the corporate governance rules of [NASDAQ] requiring: (i) a majority of independent directors on our Board, (ii) an independent corporate governance and nominating committee and (iii) an independent compensation committee. Our Board of Directors has elected for the Company to be treated as a “controlled company” under [NASDAQ] corporate governance rules and not to comply with the [NASDAQ] requirement for a majority independent board of directors and for a corporate governance and nominating committee because of our status as a controlled company. Nevertheless, we expect our Board of Directors to elect to comply with the [NASDAQ] requirement for an independent compensation committee.

In connection with the consideration of the Distribution by MSG’s board of directors, a committee of MSG’s board of directors, comprising two independent Class A Directors, recommended to the full MSG board of directors the principal elements of our governance structure, including the replication in our amended and restated certificate of incorporation of the MSG common stock voting structure, which the MSG board adopted as part of its approval of the filing with the SEC of the registration statement, of which this information statement forms a part.

Corporate Governance Guidelines

Our Board of Directors has adopted our Corporate Governance Guidelines. These guidelines set forth our practices and policies with respect to Board composition and selection, Board meetings, executive sessions of the Board, Board committees, the expectations we have of our directors, selection of the Executive Chairman and the Chief Executive Officer, management succession, Board and executive compensation, and Board self-evaluation. The full text of our Corporate Governance Guidelines may be viewed at our corporate website at [•]. A copy may be obtained by writing to MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121; Attention: Corporate Secretary.

Executive Sessions of Non-Management and Independent Board Members

Under our Corporate Governance Guidelines, our directors who are not also officers of our Company or any of its affiliates (“non-management directors”) may meet in executive sessions. In addition, our directors who are independent under [NASDAQ] rules are required to meet in executive sessions at least twice a year.

Communicating with Our Directors

Our Board has adopted policies designed to allow stockholders and other interested parties to communicate with our directors. Any interested party that wishes to communicate directly with the Board or any director or the non-management directors as a group should send communications in writing to Chairman of the Audit

 

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Committee, MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121. Any person, whether or not an employee, who has a concern with respect to our accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate those concerns to our Audit Committee by contacting the MSG Integrity Hotline, which is operated by a third-party service provider, at [].

Code of Conduct and Ethics

Our Board of Directors has adopted a Code of Conduct and Ethics for our directors, officers and employees. A portion of this Code of Conduct and Ethics also serves as a code of conduct and ethics for our senior financial officers and principal accounting officers or controller. Among other things, our Code of Conduct and Ethics covers conflicts of interest, disclosure responsibilities, legal compliance, reporting and compliance under the Code, confidentiality, corporate opportunities, fair dealing, protection and proper use of assets, and equal employment opportunity and harassment. The full text of the code is available on our website at []. In addition, a copy may be obtained by writing to MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121; Attention: Corporate Secretary.

Our Directors

The following individuals are expected to be elected to serve as directors of the Company commencing on the Distribution date:

Directors Elected by Class A Common Stockholders

We expect the following individuals to be appointed, prior to the Distribution, as directors of the Company, and to be designated as directors elected by the Class A Common Stockholders.

RICHARD D. PARSONS, 66. Mr. Parsons has served as a Director of MSG since September 29, 2014. He is Senior Advisor for Providence Equity Partners LLC since September 2009. He also served as the interim Chief Executive Officer of the Los Angeles Clippers from May 2014 to September 2014. Prior to his role at Providence Equity Partners, LLC, Mr. Parsons was Chairman of Citigroup Inc. from February 2009 to April 2012 and was a director of Citigroup from 1996 until April 2012. Prior to that, he was Chairman of Time Warner from 2003 to 2008; Chief Executive Officer of Time Warner from 2002 to 2007; Co-Chief Operating Officer of AOL Time Warner from 2001 to 2002; and President of Time Warner from 1995 to 2000. Chairman and Chief Executive Officer of Dime Bancorp from 1990 to 1995; President and Chief Operating Officer of Dime Bancorp from 1988 to 1990. He was a Partner of Patterson, Belknap, Webb & Tyler law firm from 1979 to 1988. Mr. Parsons is a director of Estee Lauder Companies and Lazard Ltd. Mr. Parsons is Chairman of the Apollo Theater Foundation and the Jazz Foundation of America and is a director of the Commission on Presidential Debates. Mr. Parsons’ qualifications to serve on our Board include his extensive skills and wide-ranging experience arising from his roles as legal counsel, executive officer and outside director and independent Chairman of the Board, in areas such as consumer business, professional sports, corporate governance, financial reporting, risk management, compensation and corporate affairs. In addition, he brings to our Board the knowledge and experience he has gained about the Company’s business and the contributions he has made during his tenure as a director of the Company.

NELSON PELTZ, 72. Mr. Peltz has served as a Director of MSG since December 18, 2014. He has served as the Chief Executive Officer and a founding partner of Trian Fund Management, L.P., an asset management company for various investment funds and accounts, since its formation in 2005. From April 1993 through June 2007, Mr. Peltz served as Chairman and Chief Executive Officer of Triarc Companies, Inc. (now known as The Wendy’s Company), which during that time period owned Arby’s Restaurant Group, Inc. and Snapple Beverage Group, as well as other consumer and industrial businesses and has served as its non-executive Chairman since June 2007. In addition, since January 2014, Mr. Peltz has been a director of Mondelēz International, Inc. Mr. Peltz has also served as a director of Legg Mason Inc. from 2009 until December 2014 and served as the Chair of its Nominating and Corporate Governance Committee from July 2013 until December 2014. In addition,

 

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he served as a director of Ingersoll-Rand plc from August 2012 to June 2014, H.J. Heinz Company from September 2006 to June 2013 and Trian Acquisition I Corp. from October 2007 to January 2010.

In September 2012, Mr. Peltz was recognized for a third consecutive year by the National Association of Corporate Directors as among the most influential persons in the global corporate governance arena. Mr. Peltz’s qualifications to serve on our Board include more than 40 years of business and investment experience including as the Chairman and Chief Executive Officer of public companies. Mr. Peltz has developed extensive experience working with management teams and boards of directors, and in acquiring, investing in and building companies and implementing operational improvements at the companies with which he has been involved. As a result, he has strong operating experience and strategic planning skills and has strong relationships with institutional investors, investment banking and capital markets advisors and others that can be drawn upon for the Company’s benefit.

SCOTT M. SPERLING, 57. Mr. Sperling has served as a Director of MSG since December 18, 2014. He is Co-President of Thomas H. Lee Partners, L.P., a private equity firm that he joined in 1994. Prior to that, Mr. Sperling served as a Managing Partner of The Aeneas Group, Inc., the private capital affiliate of Harvard Management Company, for more than ten years. Before that, Mr. Sperling was a senior consultant with the Boston Consulting Group. Mr. Sperling is currently a director of Thermo Fisher Scientific Inc. and iHeartMedia, Inc. (formerly CC Media Holdings, Inc.), a portfolio company of Thomas H. Lee Partners, L.P. He also serves on the boards of the Brigham & Women’s/Faulker Hospital Group and Partners Healthcare. Mr. Sperling previously served on the board of Warner Music Group Corp. and numerous other public and private companies. Mr. Sperling’s qualifications to serve on our Board include his decades of business experience investing in and advising companies in a variety of industries, including media and entertainment. As a result of Mr. Sperling’s leadership of a private equity firm, his service as a director of both public and private companies and his consulting and advisory background, Mr. Sperling has extensive experience collaborating with senior management teams of companies to identify and implement operational and strategic improvements.

Directors Elected by Class B Stockholders

We expect the following individuals to be appointed, prior to the Distribution, as directors of the Company, and to be designated as directors elected by the Class B Common Stockholders.

JAMES L. DOLAN, 59, is the Director and Executive Chairman of the Company since March 4, 2015. Mr. Dolan is also a Director and the Executive Chairman of MSG since July 29, 2009. He was Chairman of MSG Holdings, L.P. from 1999 to 2010. Mr. Dolan is Chief Executive Officer of Cablevision since October 1995. He was President of Cablevision from June 1998 to April 2014; Chief Executive Officer of Rainbow Media Holdings, Inc., a former subsidiary of Cablevision, from September 1992 to October 1995; Vice President of Cablevision from 1987 to September 1992. Mr. Dolan serves as a director of MSG, Cablevision and AMC Networks Inc.

Additional directors elected by the Class B Common Stockholders will be appointed prior to the Distribution.

The term of office of our directors will expire at the next annual meeting of stockholders and at each succeeding annual meeting after that. The business address for each director is c/o MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121 and each director is a citizen of the United States. We will encourage our directors to attend annual meetings of stockholders and believe that attendance at annual meetings is just as important as attendance at meetings of the Board.

Because we did not have any operations in 2014, our Board did not hold any meetings during that year.

 

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Director Compensation

A director who is a Company employee will receive no extra compensation for serving as a director. Each non-employee director will receive a base fee of $[] per year; $[] per Board or committee meeting attended in person; and $[] per Board, committee or non-management director meeting attended by telephone. Non-employee directors will also receive $[] annually per committee membership and $[] annually per committee chairmanship. In addition, we will reimburse our directors for reasonable expenses in connection with attendance at Board, committee and stockholder meetings.

We will also pay our non-employee directors compensation in restricted stock units. Each year, each non-employee director will receive a grant of restricted stock units for the number of shares of common stock equal to $[] based on the average closing price over the twenty trading day period concluding on the date immediately preceding the grant date. The restricted stock units the non-employee directors will receive will be fully vested on the date of grant. Such compensation will be made pursuant to our Stock Plan for Non-Employee Directors. Please see “Executive Compensation — Our Stock Plan for Non-Employee Directors” for information concerning our Director Stock Plan.

Board Committees

The board will have two permanent committees: the Audit Committee and the Compensation Committee.

Audit Committee

At the time of the Distribution, our Audit Committee will consist of three members. The primary purposes and responsibilities of our Audit Committee are to: (a) assist the Board (i) in its oversight of the integrity of our financial statements, (ii) in its oversight of our compliance with legal and regulatory requirements, (iii) in assessing our independent registered public accounting firm’s qualifications and independence, and (iv) in assessing the performance of our internal audit function and independent registered public accounting firm; (b) appoint, compensate, retain and oversee the Company’s registered public accounting firm and pre-approve, or adopt appropriate procedures to pre-approve, all audit and non-audit services, if any, to be provided by the independent registered public accounting firm; (c) review the appointment and replacement of the head of our internal audit department; (d) establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by Company employees or any provider of accounting-related services of concerns regarding questionable accounting and auditing matters and review of submissions and the treatment of any such complaints; (e) review and approve related party transactions that are required to be disclosed under SEC rules other than transactions that require approval under the Company’s Related Party Transaction Approval Policy; (f) conduct and review with the Board an annual performance evaluation of the Audit Committee; (g) prepare any report of the Audit Committee required by the rules and regulations of the SEC for inclusion in our annual proxy statement; (h) review and reassess the Audit Committee charter at least annually; and (i) report to the Board on a regular basis. The text of our Audit Committee charter is available on our website at []. A copy may be obtained by writing to MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121; Attention: Corporate Secretary.

We expect our Board of Directors to determine that each member of our Audit Committee is “independent” within the meaning of the rules of both [NASDAQ] and the SEC, and that each has not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years and is able to read and understand fundamental financial statements, including balance sheets, income statements and cash flow statements. All directors we add to the Audit Committee in the future will also meet those standards. We expect our Board to also determine that at least one member of our Audit Committee is an “audit committee financial expert” within the meaning of the rules of the SEC.

Our Board has established a procedure whereby complaints or concerns with respect to accounting, internal controls and auditing matters may be submitted to the Audit Committee. This procedure is described under “Communicating with Our Directors” above.

 

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Our Audit Committee did not exist in 2014.

Compensation Committee

At the time of the Distribution, our Compensation Committee will consist of not less than two members. The primary purposes of our Compensation Committee are to: (a) establish our general compensation philosophy and, in consultation with management, oversee the development and implementation of compensation programs; (b) review and approve corporate goals and objectives relevant to the compensation of our Chief Executive Officer and our other executive officers who are required to file reports with the SEC under Section 16 of the Exchange Act (together with the Chief Executive Officer, the “Senior Employees”), evaluate their performance in light of these goals and objectives and determine and approve their compensation based upon that evaluation; (c) approve any new equity compensation plan or material changes to an existing plan; (d) oversee the activities of the committee or committees administering our retirement and benefit plans; (e) in consultation with management, oversee regulatory compliance with respect to compensation matters; (f) determine and approve any severance or similar termination payments to be made to Senior Employees (current or former); (g) determine the components and amount of Board compensation and review such determinations from time to time in relation to other similarly situated companies; (h) prepare any reports of the Compensation Committee to be included in the Company’s annual proxy statement; (i) conduct and review with the Board an annual performance evaluation of the Compensation Committee; and (j) report to the Board on a regular basis, but not less than annually. The Compensation Committee may, in its discretion, delegate a portion of its duties and responsibilities to one or more subcommittees of the Compensation Committee. For example, the Compensation Committee may delegate the approval of certain transactions to a subcommittee consisting solely of members of the Compensation Committee who are (i) “non-employee directors” for the purposes of Rule 16b-3 issued by the SEC under the Exchange Act, and (ii) “outside directors” for the purposes of Section 162(m) of the Code, as in effect from time to time. The Compensation Committee may also engage outside compensation consultants to assist in the performance of its duties and responsibilities. The text of our Compensation Committee charter is available on our website at []. A copy may be obtained by writing to MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121; Attention: Corporate Secretary.

We expect our Board of Directors to determine that each member of our Compensation Committee is “independent” under the rules of [NASDAQ].

Our Compensation Committee did not exist in 2014.

Absence of Nominating Committee

We will not have a nominating committee. We believe that it is appropriate not to have a nominating committee because of our stockholder voting structure. Under the terms of our amended and restated certificate of incorporation, the holders of our Class B Common Stock will have the right to elect 75% of the members of our Board. We believe that creating a committee consisting solely of independent directors charged with responsibility for recommending nominees for election as directors would be inconsistent with the vested rights that the holders of Class B Common Stock will have under our certificate of incorporation. Instead, our Corporate Governance Guidelines provide a mechanism for the selection of nominees for election as directors by the holders of our Class A Common Stock (“Class A Directors”) and by the holders of our Class B Common Stock (“Class B Directors”). The holders of our Class A Common Stock are currently entitled to elect 25% of the members of our Board. Under our Corporate Governance Guidelines, nominees for election as Class A Directors shall be recommended to the Board by the Class A Directors then in office who were elected by the holders of our Class A Common Stock. Nominees for election as Class B Directors shall be recommended to our Board by the Class B Directors then in office who were elected by the holders of the Class B Common Stock.

Our directors have not set specific, minimum qualifications that nominees must meet in order for them to be nominated for election to the Board, but rather believe that each nominee should be evaluated based on his or her

 

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individual merits, taking into account, among other matters, the factors set forth in our Corporate Governance Guidelines under “Board Composition” and “Selection of Directors.” Those factors include:

 

    The desire to have a Board that encompasses a broad range of skills, expertise, industry knowledge, diversity of viewpoints, opinions, background and experience, and contacts relevant to our business;

 

    Personal qualities and characteristics, accomplishments and reputation in the business community;

 

    Ability and willingness to commit adequate time to Board and committee matters; and

 

    The fit of the individual’s skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of our Company.

The Class A Directors will evaluate possible candidates to recommend to the Board for nomination as Class A Directors and suggest individuals for the Board to explore in more depth. The Board will consider nominees for Class A Directors recommended by our stockholders. Nominees recommended by stockholders will be given appropriate consideration in the same manner as other nominees. Stockholders who wish to submit nominees for consideration by the Board for election at our annual meeting of stockholders may do so by submitting in writing such nominees’ names, in compliance with the procedures and along with the other information required by our by-laws. Any such nominee must be submitted to the Corporate Secretary of the Company, at MSG Spinco, Inc., Two Pennsylvania Plaza, New York, NY 10121 not less than 60 or more than 90 days prior to the date of our annual meeting of stockholders, provided that if the date of the meeting is publicly announced or disclosed less than 70 days prior to the date of the meeting, such notice must be given not more than ten days after such date is first announced or disclosed.

The Class B Directors will consult from time to time with one or more of the holders of Class B Common Stock to assure that all Class B Director nominees recommended to the Board are individuals who will make a meaningful contribution as Board members and will be individuals likely to receive the approving vote of the holders of a majority of the outstanding Class B Common Stock. The Class B Directors do not intend to consider unsolicited suggestions of nominees by holders of our Class A Common Stock. We believe that this is appropriate in light of the voting provisions of our amended and restated certificate of incorporation which vest exclusively in the holders of our Class B Common Stock the right to elect our Class B Directors.

Other Committees

In addition to standing committees, the Company has adopted a policy whereby a committee of our Board of Directors consisting entirely of independent directors (an “Independent Committee”) will review and approve transactions with Other Entities. The Independent Committee will also review and approve or take such other action as it may deem appropriate with respect to transactions involving the Company and its subsidiaries, on the one hand, and in which any director, officer, greater than 5% stockholder of the Company or any other “related person” as defined in Item 404 of Regulation S-K of the SEC (“Item 404”) has or will have a direct or indirect material interest. This approval requirement covers any transaction that meets the related party disclosure requirements of the SEC as set forth in Item 404, which currently apply to any transaction (or any series of similar transactions) in which the amount involved exceeds $120,000. The policy does not cover decisions on compensation or benefits or the hiring or retention of any person. The hiring or retention of executive officers is determined by our full Board of Directors. Compensation of executive officers is subject to the approval of our Compensation Committee. This policy also does not cover any pro rata distributions to all Company stockholders, including a pro rata distribution of our Class A Common Stock to holders of our Class A Common Stock and our Class B Common Stock to holders of our Class B Common Stock. No director on an Independent Committee will participate in the consideration of a related party transaction with that director or any related person of that director.

Our by-laws provide for the formation of an Executive Committee of the Board of Directors which would have the power to exercise all of the powers and authority of the Board in the management of the business and affairs of the Company, except as limited by the Delaware General Corporation Law. Our Board has not formed an Executive Committee, although it could do so in the future.

 

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Our Executive Officers

The following individual is expected to continue to serve as our executive officer at the time of the Distribution. Additional executive officers will be appointed prior to the Distribution.

JAMES L. DOLAN, 59, is the Director and Executive Chairman of the Company since March 4, 2015. Mr. Dolan is also a Director and the Executive Chairman of MSG since July 29, 2009. He was Chairman of MSG Holdings, L.P. from 1999 to 2010. Mr. Dolan is Chief Executive Officer of Cablevision since October 1995. He was President of Cablevision from June 1998 to April 2014; Chief Executive Officer of Rainbow Media Holdings, Inc., a former subsidiary of Cablevision, from September 1992 to October 1995; Vice President of Cablevision from 1987 to September 1992. Mr. Dolan serves as a director of MSG, Cablevision and AMC Networks Inc.

 

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EXECUTIVE COMPENSATION

Introduction

This section presents information concerning compensation arrangements for our named executive officer. We present historical and current fiscal year information concerning the compensation of Mr. James L. Dolan from MSG for the year ended June 30, 2014. We have not yet identified our other executive officers and will disclose information regarding those executive officers who will be our named executive officers in an amendment to this information statement prior to the Distribution. The historical compensation information, including in particular the information set forth below under “— Historical Compensation Information,” is not directly relevant to the compensation that these officers will receive from the Company.

Mr. Dolan holds various cash and equity based long-term incentive awards that were granted by MSG. Treatment of these in the Distribution is described under “— Treatment of Outstanding Options, Rights, Restricted Stock, Restricted Stock Units and Other Awards.”

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes MSG’s compensation philosophy for Mr. Dolan for the year ended June 30, 2014. MSG’s compensation philosophy may be relevant to the Company because it is anticipated that the elements of our compensation will be similar to the elements of MSG’s compensation. However, our Compensation Committee will review the impact of the Distribution and will review all aspects of compensation and make appropriate adjustments.

For purposes of this Compensation Discussion and Analysis, the Company’s named executive officers are James L. Dolan and any other individuals identified in an amendment to this information statement. These individuals are referred to collectively as Named Executive Officers (“NEOs”). Mr. Dolan is also a named executive officer of MSG and will continue as an officer of MSG following the Distribution.

Overview of MSG’s Executive Compensation Program

MSG compensates its NEOs through salary, annual incentive awards, long-term incentive awards, perquisites and fringe benefit programs. MSG’s annual and long-term incentive programs provide performance-based incentives for MSG’s management tied to key financial measures that drive stockholder value and reward sustained achievement of MSG’s key financial goals.

MSG’s Compensation Committee administers MSG’s executive compensation program. The responsibilities of MSG’s Compensation Committee are set forth in its charter. Among other responsibilities, MSG’s Compensation Committee (1) establishes the general compensation philosophy and, in consultation with management, oversees the development and implementation of compensation programs; (2) reviews and approves corporate goals and objectives relevant to the compensation of MSG’s executive officers who are required to file reports with the SEC under Section 16(a) of the Exchange Act, evaluates their performance in light of those goals and objectives, and determines and approves their respective compensation level based on this evaluation; (3) oversees the activities of the committee or committees administering the retirement and benefit plans and (4) administers the stockholder-approved compensation plans.

Role of the Independent Compensation Consultant

MSG’s Compensation Committee has authority under its charter to engage outside consultants to assist in the performance of its duties and responsibilities. MSG’s Compensation Committee utilizes the services of an independent compensation consultant to assist in determining whether the elements of MSG’s executive compensation program are reasonable and consistent with its objectives.

 

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ClearBridge Compensation Group LLC (the “compensation consultant”) serves as the independent compensation consultant to MSG’s Compensation Committee. The compensation consultant reports directly to MSG’s Compensation Committee and, at the request of MSG’s Compensation Committee, the compensation consultant meets with members of management from time to time for purposes of gathering information on management proposals and recommendations to be presented to MSG’s Compensation Committee.

The compensation consultant provided the following services to MSG’s Compensation Committee during the year ended June 30, 2014:

 

    Attended all Compensation Committee meetings;

 

    Provided information, research, and analysis pertaining to executive compensation program for the 2014 fiscal year;

 

    Regularly updated the Compensation Committee on market trends, changing practices, and legislation pertaining to compensation;

 

    Assisted the Compensation Committee in making pay determinations for the Executive Chairman, the President and Chief Executive Officer, and the other executive officers;

 

    Assisted the Compensation Committee in making compensation decisions in connection with the entry into agreements with the Vice Chairman and the President and Chief Executive Officer;

 

    Advised on the design of the executive compensation program and the reasonableness of individual compensation targets and awards;

 

    Provided advice and recommendations that incorporated both market data and company-specific factors;

 

    Provided advice, analysis and recommendations with respect to certain separation benefits for employees in connection with both MSG’s sale of its Fuse network business and management restructurings; and

 

    Assisted the Compensation Committee in connection with its review of non-employee director compensation.

During the 2014 fiscal year, the compensation consultant provided no other services to MSG.

MSG’s Compensation Committee charter requires the Compensation Committee to consider NASDAQ independence factors before receiving advice from an advisor, despite the fact that such independence rules are not applicable to controlled companies. Following such consideration, MSG’s Compensation Committee concluded that the compensation consultant satisfies the independence requirements of NASDAQ rules. In addition, MSG’s Compensation Committee believes that the compensation consultant’s work did not raise any conflict of interest during the year ended June 30, 2014. In reaching this conclusion, MSG’s Compensation Committee considered the same rules regarding advisor independence.

MSG’s Compensation Committee reviews the performance and compensation of the Executive Chairman and the President and Chief Executive Officer and, following discussions with the compensation consultant, establishes each of their compensation. Senior management of MSG assists MSG’s Compensation Committee and the compensation consultant as described in this Compensation Discussion and Analysis, and provides to MSG’s Compensation Committee, either directly or through the compensation consultant, management’s recommendations on the compensation for executive officers other than the Executive Chairman and the President and Chief Executive Officer. Other members of management provide support to MSG’s Compensation Committee as needed. Based upon a review of performance and historical compensation, recommendations and information from members of management, and discussions with the compensation consultant, MSG’s Compensation Committee determines and approves compensation for the executive officers.

 

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Executive Compensation Program Objectives and Philosophy

MSG places great importance on its ability to attract, retain, motivate and reward experienced executive officers who can continue to drive MSG’s business objectives and achieve strong financial, operational and stock price performance. MSG’s Compensation Committee has designed executive compensation policies and programs that are consistent with, explicitly linked to, and supportive of, the strategic objectives of growing MSG’s businesses and maximizing stockholder value.

MSG’s Compensation Committee has designed a program that reflects four key overarching executive compensation principles:

 

    Significant portion of compensation opportunity should be at risk. The majority of compensation for MSG’s executive officers should be at risk and based on the performance of MSG, so that actual compensation levels depend upon MSG’s actual performance as determined by MSG’s Compensation Committee;

 

    Long-term performance incentives should outweigh short-term performance incentives. Incentive compensation of MSG’s executive officers should focus more heavily on long-term rather than short-term accomplishments and results;

 

    Executives should be aligned with stockholders through equity compensation. Equity-based compensation should be used to align the interests of MSG’s executive officers with the interests of MSG’s stockholders; and

 

    Compensation structure should enable MSG to attract, retain, motivate and reward the best talent. The overall executive compensation program should be highly competitive, equitable and structured so as to ensure MSG’s ability to attract, retain, motivate and reward talented executives who are essential to MSG’s continuing success. Total direct compensation, rather than individual compensation elements, is the MSG Compensation Committee’s focus in providing competitive compensation opportunities.

In designing the executive compensation program, MSG’s Compensation Committee seeks to fulfill these objectives by maintaining appropriate balances between (1) short-term and long-term compensation, (2) cash and equity compensation and (3) performance-based and non-performance-based compensation.

Compensation Practices and Policies

General

The following discussion describes the practices and policies implemented by MSG’s Compensation Committee during the year ended June 30, 2014. In the case of Mr. Dolan, all of his compensation for the year ended June 30, 2014 was subject to an employment agreement that was entered into before the spinoff of MSG from Cablevision and approved by Cablevision’s compensation committee.

MSG’s Compensation Committee considered the results of the 2011 advisory “say-on-pay” proposal and incorporated such results as one of many factors in its assessment and development of the compensation program. Because the compensation described in MSG’s 2011 proxy statement was approved by a substantial majority of shares voted (including substantial majorities of each of the MSG Class A Common Stock and the MSG Class B Common Stock voted), the result of such vote has not contributed to the implementation of any changes to MSG’s executive compensation program. Additionally, the compensation described in MSG’s 2014 proxy statement was approved by a substantial majority of shares voted (including substantial majorities of each of the MSG Class A Common Stock and the MSG Class B Common Stock voted).

 

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Performance Objectives

As described below under “— Elements of MSG’s Compensation Program,” performance-based incentive compensation is an important element of MSG’s executive compensation program.

Generally, the performance metrics for MSG’s incentive compensation have been based on net revenues and on the adjusted operating cash flow, or AOCF, of its business units. MSG considers these performance metrics to be key measures of MSG’s operating performance.

MSG defines AOCF, which is a non-GAAP financial measure, as operating income (loss) before (i) depreciation, amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses. Because it is based on operating income (loss), AOCF also excludes interest expense (including cash interest expense) and other non-operating income and expense items. AOCF of MSG’s business units is based upon the AOCF of MSG’s reporting units less the cost of MSG’s long-term incentive program that is included as an expense of the units. At the time of grant of an award, the performance measures used may contemplate certain potential future adjustments and exclusions.

Tally Sheets

MSG’s Compensation Committee reviewed tally sheets prepared by the compensation consultant, setting forth all components of compensation payable, and the benefits accruing, to Mr. Dolan for the year ended June 30, 2014, including all cash compensation, benefits, perquisites and the current value of outstanding equity-based awards. The tally sheets also set forth potential payouts to Mr. Dolan upon various termination scenarios. MSG’s Compensation Committee considers the information presented in the tally sheets in determining future compensation.

Determining Compensation Levels; Benchmarking

As part of the MSG Compensation Committee’s review of the total compensation for the year ended June 30, 2014, the compensation consultant assisted MSG’s Compensation Committee in: (1) determining if a peer group should be used for comparative purposes, (2) assessing executive compensation in light of internal and external considerations and (3) reviewing MSG’s equity and cash-based executive incentive programs, taking into account evolving market trends. MSG’s Compensation Committee, in consultation with the compensation consultant considered broad market data (industry-related and general industry data) and multiple broad-based compensation surveys in order to appropriately assess compensation levels.

For the 2014 fiscal year, MSG’s Compensation Committee, in consultation with the compensation consultant, also reviewed and considered compensation data from the following group of 13 companies of comparable size (as measured by annual revenue) in the same general industry or industries as MSG in order to evaluate the competitiveness and appropriateness of the compensation program: AMC Networks Inc., CC Media Holdings Inc., Cumulus Media Inc., Discovery Communications Inc., Dreamworks Animation Inc., Lions Gate Entertainment CP, Live Nation Entertainment, Inc., Scripps Networks Interactive, Inc., Shaw Communications Inc., Sinclair Broadcast GP, Sirius XM Radio Inc., Starz, and World Wrestling Entertainment Inc. In addition, MSG’s Compensation Committee, in consultation with the compensation consultant, considered compensation data from the following group of companies within the broader media industry: CBS Corp.; Cablevision Systems Corporation; Charter Communications Inc.; Comcast Corp.; DirecTV; Dish Network Corp.; Liberty Global PLC; News Corp.; The Walt Disney Company; Time Warner Cable Inc.; Time Warner Inc. and Viacom Inc. When considering MSG’s executive compensation in the context of both groups, MSG’s Compensation Committee did not target a specific percentage or quartile of compensation at such other companies.

Besides the market data listed above, MSG’s Compensation Committee considered internal information (historical compensation, job responsibility, experience, parity among executive officers, contractual commitments and attraction and retention of talent) to determine compensation.

 

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Elements of MSG’s Compensation Program

MSG’s executive compensation philosophy is reflected in the principal elements of its executive compensation program, each of which is important to MSG’s desire to attract, retain, motivate and reward highly-qualified executive officers. The compensation program included the following key elements for the year ended June 30, 2014: base salary, annual cash incentives, long-term incentives, retirement, health and welfare and other benefits, which are generally provided to all other eligible employees, and additional executive benefits, including post-termination compensation under certain circumstances and certain perquisites, each as described below.

A significant percentage of total direct compensation is allocated to incentive compensation in accordance with the MSG Compensation Committee’s philosophy. MSG’s Compensation Committee reviews historical MSG company compensation, other information provided by the compensation consultant and other factors, such as experience, performance, length of service and contractual commitments, to determine the appropriate level and mix of compensation for executive officers. The allocation between cash and equity compensation and short-term and long-term compensation is designed to provide a variety of fixed and at-risk compensation that is related to the achievement of MSG’s short-term and long-term objectives.

Mr. Dolan is also employed by Cablevision as its Chief Executive Officer. Mr. Dolan is separately compensated by Cablevision with respect to such employment.

Base Salaries

MSG’s Compensation Committee is responsible for setting Mr. Dolan’s base salary, which is intended to compensate Mr. Dolan for the day-to-day services performed for MSG. Base salaries have been set at a level that is intended to reflect the competitive marketplace in attracting and retaining quality executives. Mr. Dolan’s employment agreement with MSG contains a minimum base salary level. MSG’s Compensation Committee reviews the salaries of the executive officers at least annually. MSG’s Compensation Committee may adjust base salaries for executive officers over time, based on their performance and experience and in accordance with the terms of their employment agreements.

The base salary paid to Mr. Dolan in the year ended June 30, 2014 was $549,995. Mr. Dolan’s base salary was not increased for the year ended June 30, 2015.

See “— Key Elements of 2015 Expected Compensation from the Company” below for information on Mr. Dolan’s base salary following the Distribution.

Annual Cash Incentives

Under MSG’s executive compensation program, annual incentive awards are made to executive officers and certain other members of management. Annual incentive awards are designed to link executive compensation directly to MSG’s performance and provide incentives and rewards for excellent business performance during the applicable fiscal year.

Each employee eligible for an annual incentive award is assigned a target award equal to a percentage of that employee’s base salary earned during the applicable fiscal year. The target annual incentive awards are determined based upon the applicable employee’s position, grade level, responsibilities, and historical and expected future contributions to MSG. In addition, Mr. Dolan’s employment agreement contains a minimum target annual incentive award level.

MSG’s Compensation Committee currently reviews the target annual incentive award levels of its executive officers at least annually. MSG’s Compensation Committee evaluates each such executive’s performance and

 

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experience and, based on their performance and in accordance with the terms of their employment agreements, MSG’s Compensation Committee, in its sole discretion, may revise target annual incentive award levels for the executive officers. The target incentive award level for Mr. Dolan as a percentage of base salary paid in the year ended June 30, 2014 was 200%.

See “— Key Elements of 2015 Expected Compensation from the Company” below for information on Mr. Dolan’s annual incentive awards following the Distribution.

For Mr. Dolan and other individuals that MSG’s Compensation Committee determines may be covered by Section 162(m) of the Code, the bonuses for the year ended June 30, 2014 were granted under MSG’s 2010 Cash Incentive Plan (the “MSG CIP”), a plan approved by MSG’s stockholders on November 30, 2011 and administered by MSG’s Compensation Committee. See “— Tax Deductibility of Compensation” below. For all other members of management, the bonuses for the year ended June 30, 2014 were granted under MSG’s management performance incentive program (“MPIP”) administered by MSG’s Compensation Committee. The MSG CIP and MPIP plans and 2014 awards are described below. Both annual incentive plans are fully performance based.

MSG CIP

The payment of the annual incentive awards under the MSG CIP is conditioned upon the satisfaction of performance objectives established by MSG’s Compensation Committee at the beginning of the performance year. Any such performance objective is subject to various adjustments such as for acquisitions and dispositions and investments in new venues or business ventures. The performance metrics for the 2014 fiscal year annual bonus were established by MSG’s Compensation Committee in September 2013. These targets were intended to achieve tax deductibility under Code Section 162(m) for bonuses paid to those individuals then employed by MSG who are covered by Code Section 162(m).

Upon achievement of the performance objective(s), each participant is eligible to receive payment of an incentive bonus equal to the lesser of $10 million and two times the individual’s target annual incentive award, subject to the MSG Compensation Committee’s discretion to reduce the award. In general, under the MSG CIP, regardless of whether MSG achieves, exceeds or fails to achieve its target performance objective(s), MSG’s Compensation Committee has the discretion only to decrease annual incentive awards if MSG wishes to preserve the Code Section 162(m) deduction.

2014 Targets and Achievements

For the year ended June 30, 2014, threshold performance for the AOCF of the business units for the year ended June 30, 2014 was set at $264.15 million. If AOCF of the business units fell below the designated threshold, no incentive payments would be made under the MSG CIP. Given MSG’s strong performance, actual AOCF of the business units for the year ended June 30, 2014 equaled $355.4 million. Such achievement was certified by MSG’s Compensation Committee on September 4, 2014. Despite this strong performance, MSG’s Compensation Committee determined to apply negative discretion under the MSG CIP to bring payouts generally in line with calculated payouts under the MPIP for individuals who hold corporate positions (as described below). On September 4, 2014, the annual incentive award for the year ended June 30, 2014 approved to be paid by MSG to Mr. Dolan was $1,375,000.

MPIP

The payment of annual incentive awards under the MPIP to all eligible members of management is conditioned upon the satisfaction of performance objectives established by MSG’s Compensation Committee depending upon the applicable eligible employee’s specific business unit. For the year ended June 30, 2014, under the MPIP, these performance objectives related to items such as net revenues, AOCF of the business units,

 

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sponsorship, signage and advertising revenue, and other division-specific strategic and operating metrics. For individuals who hold corporate positions at MSG, the MPIP performance objectives were predominantly based on corporate and company-wide achievement of the performance metrics. Annual incentive awards under the MPIP are adjusted based on recipients’ individual performances. To the extent MSG exceeds or falls short of the MPIP performance objectives, eligible employees may receive payments greater than or less than their target annual incentive award.

Long-term Incentives

MSG’s core long-term incentive program has historically been a mix of restricted stock units and cash performance awards, with the size of target awards based upon an eligible employee’s grade level or employment agreement. For the year ended June 30, 2014, MSG’s Compensation Committee determined to award long term incentives in restricted stock units and cash performance awards, split equally based on target award value.

MSG’s Compensation Committee believes that restricted stock units provide Mr. Dolan with an incentive to improve MSG’s stock price performance and a direct alignment with stockholders’ interests, as well as a continuing stake in the long-term success of MSG. All restricted stock unit grants vest in their entirety on the third anniversary of the grant date (i.e., cliff vesting) to provide strong incentive for Mr. Dolan to remain with MSG.

MSG makes its annual long-term incentive grants to eligible employees after the public announcement of MSG’s annual financial information. Long-term awards of restricted stock units and cash performance awards were granted in September 2013 for MSG’s fiscal year ended on June 30, 2014.

See “— Key Elements of 2015 Expected Compensation from the Company” below for information on Mr. Dolan’s long-term target incentive awards following the Distribution.

Restricted Stock Units

Under MSG’s executive compensation program, long-term incentive grants of restricted stock units are made to executive officers and certain other members of management pursuant to MSG’s 2010 Employee Stock Plan (the “MSG Employee Stock Plan”). If the recipient remains employed by MSG through the date that the restrictions lapse, an award of a restricted stock unit will be settled in a share of MSG Class A Common Stock or, at the MSG Compensation Committee’s discretion, in a cash amount equal to the value of one share of MSG Class A Common Stock as of the date such restrictions lapse. The restricted stock units granted to Mr. Dolan also include a performance condition designed to achieve tax deductibility under Code Section 162(m). The number of restricted stock units granted to each eligible employee is determined based on the average closing price over the twenty-day trading period concluding on the day prior to the grant.

In September 2013, MSG’s Compensation Committee approved an award of 15,280 restricted stock units to Mr. Dolan for the fiscal year ended on June 30, 2014. These restricted stock units will vest in September 2016, as long as Mr. Dolan is continuously employed until such date and the performance objectives are attained. The performance objectives with respect to these awards required the AOCF of the business units in any of the fiscal years ending on June 30, 2014, June 30, 2015 or June 30, 2016 to exceed 75% of the 2013 fiscal year AOCF of the business units.

On September 4, 2014, MSG’s Compensation Committee certified the achievement of the performance objectives for the award by virtue of the AOCF of the business units for the 2014 fiscal year ($355.4 million) exceeding 75% of the AOCF of the business units for the 2013 fiscal year ($283.0 million).

 

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Hedging Policy and Holding Requirements

MSG’s Insider Trading Policy prohibits all directors and employees (including NEOs) from engaging in short sales or other “hedging” transactions that might otherwise be used by a director or NEO to weaken their alignment with MSG’s stockholders.

Under the current executive compensation program, annual restricted stock unit awards to NEOs cliff vest on the third anniversary of the date of grant so long as the recipient is continuously employed by MSG until such date (and subject to the performance conditions described above). With respect to MSG’s directors, compensation includes annual awards of restricted stock units. Pursuant to the award agreements, directors’ restricted stock units are not settled in shares of MSG stock (or, in the MSG Compensation Committee’s discretion, cash) until the first business day following 90 days after service on MSG’s Board ceases (other than in the event of a director’s death). One effect of the cliff-vesting and holding requirements is to require each of MSG’s directors and NEOs to maintain significant holdings of MSG securities at all times.

Cash Performance Awards

Under MSG’s executive compensation program, grants of long-term cash performance awards are made to executive officers and certain other members of management pursuant to the MSG CIP. The current executive compensation program contemplates annual grants of three-year performance awards to executive officers and other members of management to be earned on the basis of long-term MSG performance relative to pre-established financial goals. MSG’s Compensation Committee sets the performance objectives for each award in the first quarter of the fiscal year of grant. Each recipient is eligible to receive a specified target dollar amount, depending on the employee’s grade level and subject to the terms of the employee’s employment agreement, if applicable, to the extent that MSG’s target performance objectives are achieved, and subject to continued employment by MSG through the payment date. To the extent MSG exceeds or falls short of the performance objectives, eligible employees may receive payments greater than or less than (or none of) their target cash performance award.

With respect to the award granted to Mr. Dolan in September 2013, the payment of the cash performance award is conditioned upon the satisfaction of one or more performance objectives established by MSG’s Compensation Committee as described in greater detail below. Any such performance objectives are subject to various adjustments such as acquisitions and dispositions, changes in GAAP and/or investments in new venues or business ventures. The performance objectives were designed to achieve tax deductibility under Code Section 162(m).

Upon achievement of the performance objectives, Mr. Dolan is eligible to receive payment of an incentive bonus equal to two times Mr. Dolan’s cash performance award target, subject to his continued employment by MSG through the payment date and the MSG Compensation Committee’s discretion to reduce (but not increase) the award (e.g., to bring the awards in line with the payouts that would have been achieved based on the performance objectives that are applicable to other members of management, as described in the following paragraph). No such reduction may result in a payout (expressed as a percentage of the target award) less than the payout (expressed as a percentage of the target award) for the cash performance awards granted in September 2013 to those eligible MSG employees who MSG’s Compensation Committee determined will not be subject to Code Section 162(m), as described in the following paragraph.

The cash performance awards granted in September 2013 to all eligible MSG employees whom MSG’s Compensation Committee determined are not subject to Code Section 162(m) will be payable in September 2016 if (a) MSG achieves specified targets of net revenues (or, for certain live event production divisions of MSG, contribution (revenue less direct expense and amortization of mounting costs) instead of net revenues), and AOCF of the business units in the year ending June 30, 2016 and (b) continued employment requirements are satisfied. The target levels of net revenues (or contribution) and AOCF of the business units were derived from

 

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MSG’s five-year plan for its operating business units presented to the Board in connection with MSG’s budget for the fiscal year ended June 30, 2014. These targets were intended to measure ongoing operating performance of MSG and are subject to various adjustments such as for acquisitions and dispositions, changes in GAAP and/or investments in new venues or business ventures, and exclude all charges for long-term performance based compensation.

Based on Mr. Dolan’s experience and employment agreement provisions as well as the input of the independent compensation consultant, in September 2013 MSG’s Compensation Committee granted to Mr. Dolan a performance award with a targeted amount of $875,000. The award will be payable in 2016, subject to continued employment requirements and the MSG Compensation Committee’s negative discretion described above, so long as the AOCF of MSG’s business units in any of the fiscal years ended on June 30, 2014, June 30, 2015 or June 30, 2016 exceeds 75% of the 2013 fiscal year AOCF of the business units. On September 4, 2014, MSG’s Compensation Committee certified the achievement of the performance objectives for the award held by Mr. Dolan by virtue of the AOCF of the business units for the 2014 fiscal year ($355.4 million) exceeding 75% of the AOCF of the business units for the 2013 fiscal year ($283.0 million).

The award provides for a potential payout on a sliding scale such that the actual payment may range from 0% of the long-term cash performance award if MSG fails to achieve threshold levels of performance (for example, if both net revenues and AOCF of the business units fail to reach at least 85% and 75%, respectively, of the targets) to 110% of the long-term cash performance award if MSG exceeds the threshold levels of performance by a certain percentage (for example, if both net revenues and AOCF of the business units equal or exceed 115% and 125%, respectively, of the targets). If MSG exceeds threshold levels but does not achieve the targeted rates, or if MSG achieves or exceeds one target but not both, the award provides for partial payments. Fifty percent of the award is tied to achievement of net revenue (or contribution) goals, and 50% of the award is tied to achievement of business unit AOCF goals.

Because the AOCF and net revenue (or contribution) targets for the cash performance award has been derived from MSG’s confidential five-year strategic plans, which are not disclosed publicly for competitive reasons, we do not believe it is appropriate to disclose specific numerical targets. Disclosure of these targets could provide information that could lead to competitive harm. We believe that MSG’s five-year plans, and consequently the targets set for the performance awards, are ambitious and reflect desired above-market performance. In determining the threshold levels of performance, MSG’s Compensation Committee considered, among other factors, MSG’s five-year plans and the degree of difficulty in achieving the targets. MSG’s Compensation Committee believes that the lowest levels on the sliding scale should be achieved, although there can be no assurance this will occur. As the payout scale increases, the likelihood of achievement decreases and the payouts increase. MSG’s Compensation Committee has the authority to amend or waive the performance targets under these awards and to make interpretations and adjustments thereto.

In September 2014, MSG’s Compensation Committee certified MSG’s achievement of the 2014 fiscal year net revenue (or contribution) and AOCF performance objectives for the cash performance award granted in September 2011. With respect to Mr. Dolan, MSG’s Compensation Committee had previously certified the achievement of the 162(m) performance target for such 2011 award, based upon achievement of the applicable business unit AOCF target in the 2012 fiscal year. Based upon MSG’s actual 2014 fiscal year performance of net revenues (or contributions) and business unit AOCF against the targets set for the September 2011 awards granted to employees whom the MSG Compensation Committee determined are not subject to Code Section 162(m), the September 2011 performance awards paid out at 107.1% of target in September 2014. MSG’s Compensation Committee, applying negative discretion, reduced the payout of Mr. Dolan’s award from 200% to 107.1% of target in order to align the payout percentage with those of other employees.

See “— Treatment of Outstanding Options, Rights, Restricted Stock, Restricted Stock Units and Other Awards” for a discussion of the impact of the Distribution on MSG performance awards.

 

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Benefits

Benefits offered to executive officers generally provide for retirement income and serve as a safety net against hardships that can arise from illness, disability or death. The executive officers are generally eligible to participate in the same health and welfare benefit plans made available to the other benefits-eligible employees of MSG, including, for example, medical, dental, vision, life insurance and disability coverage. Notwithstanding the foregoing, Mr. Dolan does not participate in certain MSG benefit plans, including MSG’s qualified defined benefit and defined contribution pension plans, and MSG’s medical, dental and vision plans. Mr. Dolan receives qualified pension benefits and health benefits from Cablevision.

Following the Distribution, we expect to offer health and welfare benefits and retirement plans that are substantially similar to the existing benefits and plans. See “— MSG Pension Benefits — Our Retirement Benefits.”

Defined Benefit Plans

MSG maintains the MSG Holdings, L.P. Cash Balance Pension Plan (the “MSG Cash Balance Pension Plan”), a tax-qualified defined benefit plan, for participating employees, including executive officers. Under the MSG Holdings, L.P. Excess Cash Balance Plan (the “MSG Excess Cash Balance Plan”), a non-qualified deferred compensation plan, MSG provides additional benefits to employees, including executive officers, who are restricted by the applicable IRS annual compensation limitation. Effective March 1, 2011, MSG merged the Madison Square Garden, L.P. Retirement Plan, a frozen defined benefit pension plan, into the MSG Cash Balance Pension Plan.

Defined Contribution Plans

Under the MSG Holdings, L.P. 401(k) Savings Plan (the “MSG Savings Plan”), a tax-qualified retirement savings plan, participating employees, including executive officers, may contribute into their plan accounts a percentage of their eligible pay on a before-tax basis as well as a percentage of their eligible pay on an after-tax basis. MSG matches 50% of the first 6% of eligible pay contributed by participating employees. MSG matching contributions are subject to vesting limitations for the first three years of employment.

In addition, MSG offers the MSG Holdings, L.P. 401(k) Excess Savings Plan (the “MSG Excess Savings Plan”), a non-qualified deferred compensation plan, to employees, including executive officers, who are restricted by the applicable IRS annual compensation limitation and/or the pre-tax income deferral limitation.

Perquisites

MSG provides certain perquisites to executive officers as described below.

Car and Driver

Mr. Dolan has regular access to a car and driver which he is permitted to use for his personal use in addition to business purposes. In addition, certain other executive officers and members of management have had access to cars and drivers on a limited basis for personal use. To the extent employees use a car and driver for personal use without reimbursement to MSG, those employees are imputed compensation for tax purposes.

Aircraft Arrangements

MSG has access to various aircraft through time sharing arrangements with a subsidiary of Cablevision and various Dolan family entities. Generally, Mr. Dolan is permitted to use Cablevision helicopters for personal travel, which has primarily been for purposes of commutation. MSG and Cablevision have agreed on an allocation of the costs of such personal helicopter use.

 

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To the extent any employee uses any of the aircraft, including helicopters, for personal travel without reimbursement to MSG, they are imputed compensation for tax purposes based on the Standard Industry Fare Level rates that are published biannually by the IRS. For compensation reporting purposes, MSG valued the incremental cost of the personal use of the aircraft based on the variable costs incurred by MSG net of any reimbursements received from executives. The incremental cost of the use of the aircraft does not include any costs that would have been incurred by MSG whether or not the personal trip was taken.

It is anticipated that the aircraft arrangements described above for Mr. Dolan as well as other employees will continue following the Distribution. The Company will reimburse Cablevision for such use.

Executive Security

Mr. Dolan participates in Cablevision’s executive security program. MSG and Cablevision have agreed on an allocation of the costs of such participation in their security program. Because certain of these costs can be viewed as conveying personal benefits to Mr. Dolan, they are reported as perquisites.

Event Tickets

From time to time certain employees, including Mr. Dolan (and his guests), have access to tickets to sporting events and other entertainment at MSG’s venues at no cost, and may also purchase tickets at face value. Attendance at such events is integrally and directly related to the performance of his duties, and, as such, MSG does not deem the receipt of such tickets to be perquisites.

Following the Distribution, we may provide similar and additional perquisites to certain of our executive officers or senior executives as determined by our Compensation Committee.

Post-Termination Compensation

MSG believes that post-termination benefits are integral to MSG’s ability to attract and retain qualified executives. Following the Distribution, we expect to provide post-termination benefits for our executives. The terms of these benefits have not yet been determined. Prior to the Distribution, this section will be appropriately amended to describe the post-termination benefits of our NEOs, if any.

Under certain circumstances, payments or other benefits may be provided to employees upon the termination of their employment with MSG. These may include payments or other benefits upon a termination by MSG without cause, termination by the employee for good reason, other voluntary termination by the employee, retirement, death, disability, or termination following a change in control of MSG or following a going-private transaction. With respect to Mr. Dolan, the amounts and terms of such payments and other benefits (including the definition of “cause” and “good reason”) are governed by any applicable award agreements.

Tax Deductibility of Compensation

Code Section 162(m) establishes a $1 million limit on the amount that a publicly held corporation may deduct for compensation paid to the chief executive officer and the next three most highly paid NEOs (other than the chief financial officer) in a taxable year. This limitation does not apply to any compensation that is “qualified performance-based compensation” under Code Section 162(m), which is defined as compensation paid in connection with certain stock options or that is paid only if the individual’s performance meets pre-established objective goals based on performance criteria established under a plan approved by stockholders. MSG’s short-term and long-term incentive compensation plans are generally designed to qualify for this exemption from the deduction limitations of Code Section 162(m) and to be consistent with providing appropriate compensation to executives. MSG’s stockholders approved the MSG CIP and the MSG Employee Stock Plan at MSG’s first annual stockholders’ meeting on November 30, 2011.

 

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From time to time, to the extent it deems appropriate, MSG’s Compensation Committee may make awards (or modifications to awards) that would not qualify for an exemption from Code Section 162(m). For example, MSG expects that the amount of annual base salary in excess of $1 million for each of the President and Chief Executive Officer and the next three most highly paid NEOs, plus any other annual compensation paid or imputed to each of the President and Chief Executive Officer and the next three most highly paid NEOs covered by Code Section 162(m) that causes their respective non-performance-based compensation to exceed the $1 million limit, will not be deductible by MSG for federal income tax purposes.

Although it is the Company’s intent generally to qualify compensation for the exemption from the deduction limitations, we believe that it is in the best interests of the Company’s stockholders to allow our Compensation Committee the flexibility and discretion to design an appropriate executive compensation program so that the Company can attract, retain and motivate our executives, notwithstanding Section 162(m).

Employment Agreements

We may enter into employment agreements with certain of our executive officers prior to the Distribution. These agreements, if any, will be effective as of the Distribution date. The terms of these employment agreements have not yet been determined. Prior to the Distribution, this section will be appropriately amended to describe the employment agreements, if any, of our NEOs.

Key Elements of 2015 Expected Compensation from the Company

As a newly-formed entity, we did not have any executive officers or pay any compensation during the year ended June 30, 2014. The following summarizes the principal components of the annual compensation we expect to provide following the Distribution to Mr. Dolan. Mr. Dolan is our only executive officer at this time. Prior to the Distribution, we will appoint additional executive officers and this section will include compensation information for each of our named executive officers. We have not yet determined the form of any long-term incentives to be granted.

James L. Dolan:

 

Base Salary

Target Bonus

Target Long-Term Incentives

In addition, Mr. Dolan is expected to receive other benefits and perquisites as discussed above.

Historical Compensation Information

All of the information set forth in the following table reflects compensation earned during the years ended June 30, 2014, 2013 and 2012, based upon services rendered to MSG by Mr. Dolan. References in the tables that follow to “2014,” “2013,” or “2012” refer to the year ended June 30, 2014, 2013 or 2012, respectively. The information below is therefore not necessarily indicative of the compensation these individuals will receive as executive officers of the Company.

 

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Summary Compensation Table

 

Name and Principal

Position

  Year     Salary
($) (1)
    Bonus
($)
    Stock Awards
($) (2)
    Non-Equity
Incentive Plan
Compensation
($) (3)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($) (4)
    All Other
Compensation
($) (5)
    Total
($)
 

James L. Dolan Executive Chairman of MSG

    2014        549,995        —         866,376        2,312,125        48,949        251,512        4,028,957  
    2013        545,192        —         907,958        2,485,552        26,815        34,793        4,000,310  
    2012        520,385        —         876,274        1,437,302        61,270        29,863        2,925,09