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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
| | | | | | | | |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
| | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-36900
MADISON SQUARE GARDEN SPORTS CORP.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 47-3373056 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | | | | | | | |
Two Penn Plaza | , | New York | , | NY | | 10121 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (212) 465-4111
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock | MSGS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Number of shares of common stock outstanding as of October 21, 2022:
| | | | | | | | |
Class A Common Stock par value $0.01 per share | — | 19,802,683 | |
Class B Common Stock par value $0.01 per share | — | 4,529,517 | |
MADISON SQUARE GARDEN SPORTS CORP.
INDEX TO FORM 10-Q
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | | | | | | | | | | | | |
| | September 30, 2022 | | June 30, 2022 |
| | (Unaudited) | | |
ASSETS | | | | |
Current Assets: | | | | |
Cash and cash equivalents | | $ | 81,036 | | | $ | 91,018 | |
| | | | |
| | | | |
Accounts receivable, net of allowance for doubtful accounts of $0 and $0 as of September 30, 2022 and June 30, 2022, respectively | | 37,267 | | | 47,240 | |
| | | | |
Net related party receivables | | 21,107 | | | 28,333 | |
Prepaid expenses | | 64,822 | | | 18,810 | |
| | | | |
Other current assets | | 15,770 | | | 19,868 | |
Total current assets | | 220,002 | | | 205,269 | |
| | | | |
Property and equipment, net of accumulated depreciation and amortization of $47,710 and $46,794 as of September 30, 2022 and June 30, 2022, respectively | | 32,165 | | | 32,892 | |
Right-of-use lease assets | | 685,844 | | | 686,782 | |
Amortizable intangible assets, net | | 528 | | | 636 | |
Indefinite-lived intangible assets | | 112,144 | | | 112,144 | |
Goodwill | | 226,955 | | | 226,955 | |
Deferred income tax assets, net | | 11,607 | | | — | |
Other assets | | 56,611 | | | 37,288 | |
Total assets | | $ | 1,345,856 | | | $ | 1,301,966 | |
| | | | |
| | | | |
See accompanying notes to consolidated financial statements. |
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except per share data)
| | | | | | | | | | | | | | |
| | September 30, 2022 | | June 30, 2022 |
| | (Unaudited) | | |
LIABILITIES AND EQUITY | | |
Current Liabilities: | | | | |
Accounts payable | | $ | 6,378 | | | $ | 11,263 | |
Net related party payables | | 28,235 | | | 19,624 | |
Debt | | 30,000 | | | 30,000 | |
| | | | |
Accrued liabilities: | | | | |
Employee related costs | | 69,593 | | | 119,279 | |
League-related accruals | | 71,868 | | | 75,269 | |
Other accrued liabilities | | 5,191 | | | 6,796 | |
Operating lease liabilities, current | | 43,796 | | | 43,699 | |
| | | | |
Deferred revenue | | 267,087 | | | 132,369 | |
Total current liabilities | | 522,148 | | | 438,299 | |
| | | | |
Long-term debt | | 220,000 | | | 220,000 | |
Operating lease liabilities, noncurrent | | 689,302 | | | 699,587 | |
Defined benefit obligations | | 5,003 | | | 5,005 | |
Other employee related costs | | 49,190 | | | 43,411 | |
Deferred tax liabilities, net | | — | | | 8,917 | |
Deferred revenue, noncurrent | | 31,122 | | | 31,122 | |
Other liabilities | | 1,001 | | | 1,002 | |
Total liabilities | | 1,517,766 | | | 1,447,343 | |
Commitments and contingencies (see Note 10) | | | | |
Madison Square Garden Sports Corp. Stockholders’ Equity: | | | | |
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,803 and 19,697 shares outstanding as of September 30, 2022 and June 30, 2022, respectively | | 204 | | | 204 | |
Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of September 30, 2022 and June 30, 2022 | | 45 | | | 45 | |
Preferred stock, par value $0.01, 15,000 shares authorized; none outstanding as of September 30, 2022 and June 30, 2022 | | — | | | — | |
Additional paid-in capital | | — | | | 17,573 | |
Treasury stock, at cost, 645 and 751 shares as of September 30, 2022 and June 30, 2022, respectively | | (109,981) | | | (128,026) | |
Accumulated deficit | | (62,447) | | | (35,699) | |
Accumulated other comprehensive loss | | (1,183) | | | (1,186) | |
Total Madison Square Garden Sports Corp. stockholders’ equity | | (173,362) | | | (147,089) | |
Nonredeemable noncontrolling interests | | 1,452 | | | 1,712 | |
Total equity | | (171,910) | | | (145,377) | |
Total liabilities and equity | | $ | 1,345,856 | | | $ | 1,301,966 | |
See accompanying notes to consolidated financial statements.
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| September 30, | | |
| 2022 | | 2021 | | | | |
Revenues (a) | | $ | 24,089 | | | $ | 18,794 | | | | | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Direct operating expenses (b) | | 3,681 | | | 8,578 | | | | | |
Selling, general and administrative expenses (c) | | 55,281 | | | 43,728 | | | | | |
Depreciation and amortization | | 1,025 | | | 1,426 | | | | | |
Operating loss | | (35,898) | | | (34,938) | | | | | |
Other income (expense): | | | | | | | | |
Interest income | | 356 | | | 50 | | | | | |
Interest expense | | (3,312) | | | (3,103) | | | | | |
Miscellaneous expense, net | | (166) | | | (63) | | | | | |
| | (3,122) | | | (3,116) | | | | | |
Loss from operations before income taxes | | (39,020) | | | (38,054) | | | | | |
Income tax benefit | | 20,493 | | | 21,169 | | | | | |
Net loss | | (18,527) | | | (16,885) | | | | | |
Less: Net loss attributable to nonredeemable noncontrolling interests | | (707) | | | (480) | | | | | |
Net loss attributable to Madison Square Garden Sports Corp.’s stockholders | | $ | (17,820) | | | $ | (16,405) | | | | | |
| | | | | | | | |
Basic loss per common share attributable to Madison Square Garden Sports Corp.’s stockholders | | $ | (0.73) | | | $ | (0.68) | | | | | |
Diluted loss per common share attributable to Madison Square Garden Sports Corp.’s stockholders | | $ | (0.73) | | | $ | (0.68) | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | | |
Basic | | 24,295 | | | 24,172 | | | | | |
Diluted | | 24,295 | | | 24,172 | | | | | |
_________________
(a)Includes revenues from related parties of $8,174 and $7,247 for the three months ended September 30, 2022 and 2021, respectively.
(b)Includes net charges from related parties of $2,184 and $2,158 for the three months ended September 30, 2022 and 2021, respectively.
(c)Includes net charges from related parties of $13,308 and $12,247 for the three months ended September 30, 2022 and 2021, respectively.
See accompanying notes to consolidated financial statements.
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | September 30, | | |
| | 2022 | | 2021 | | | | |
Net loss | | | | $ | (18,527) | | | | | $ | (16,885) | | | | | | | | | |
Other comprehensive income, before income taxes: | | | | | | | | | | | | | | | | |
Pension plans: | | | | | | | | | | | | | | | | |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | | | | | | |
Amortization of actuarial loss included in net periodic benefit cost | | | | 4 | | | | | 33 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other comprehensive income, before income taxes | | | | 4 | | | | | 33 | | | | | | | | | |
Income tax expense related to items of other comprehensive income | | | | (1) | | | | | (11) | | | | | | | | | |
Other comprehensive income, net of income taxes | | | | 3 | | | | | 22 | | | | | | | | | |
Comprehensive loss | | | | (18,524) | | | | | (16,863) | | | | | | | | | |
Less: Comprehensive loss attributable to nonredeemable noncontrolling interests | | | | (707) | | | | | (480) | | | | | | | | | |
Comprehensive loss attributable to Madison Square Garden Sports Corp.’s stockholders | | | | $ | (17,817) | | | | | $ | (16,383) | | | | | | | | | |
See accompanying notes to consolidated financial statements.
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, |
| | 2022 | | 2021 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (18,527) | | | $ | (16,885) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | 1,025 | | | 1,426 | |
| | | | |
Benefits from deferred income taxes | | (20,525) | | | (21,169) | |
Share-based compensation expense | | 7,220 | | | 4,851 | |
| | | | |
| | | | |
| | | | |
| | | | |
Other non-cash adjustments | | 286 | | | 437 | |
Change in assets and liabilities: | | | | |
Accounts receivable, net | | 9,973 | | | 19,325 | |
Net related party receivables | | 2,993 | | | (3,125) | |
Prepaid expenses and other assets | | (61,521) | | | (47,275) | |
Accounts payable | | (4,797) | | | (534) | |
Net related party payables | | 8,614 | | | 9,623 | |
Accrued and other liabilities | | (48,915) | | | (45,826) | |
| | | | |
Deferred revenue | | 134,709 | | | 88,597 | |
Operating lease right-of-use assets and lease liabilities | | (9,250) | | | (8,755) | |
Net cash provided by (used in) operating activities | | 1,285 | | | (19,310) | |
Cash flows from investing activities: | | | | |
Capital expenditures | | (271) | | | (181) | |
Other investing activities | | — | | | (125) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Net cash used in investing activities | | (271) | | | (306) | |
| | | | |
|
Cash flows from financing activities: | | | | |
| | | | |
| | | | |
Taxes paid in lieu of shares issued for equity-based compensation | | (10,996) | | | (12,142) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Net cash used in financing activities | | (10,996) | | | (12,142) | |
Net decrease in cash, cash equivalents and restricted cash | | (9,982) | | | (31,758) | |
Cash, cash equivalents and restricted cash at beginning of period | | 91,018 | | | 72,036 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 81,036 | | | $ | 40,278 | |
| | | | |
Non-cash investing and financing activities: | | | | |
Capital expenditures incurred but not yet paid | | $ | 39 | | | $ | 41 | |
| | | | |
| | | | |
See accompanying notes to consolidated financial statements.
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 |
| | Common Stock Issued | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Madison Square Garden Sports Corp. Stockholders’ Equity | | Non - redeemable Noncontrolling Interests | | Total Equity |
Balance as of June 30, 2022 | | $ | 249 | | | $ | 17,573 | | | $ | (128,026) | | | $ | (35,699) | | | $ | (1,186) | | | $ | (147,089) | | | $ | 1,712 | | | $ | (145,377) | |
Net loss | | — | | | — | | | — | | | (17,820) | | | — | | | (17,820) | | | (707) | | | (18,527) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 3 | | | 3 | | | — | | | 3 | |
Comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (17,817) | | | (707) | | | (18,524) | |
Share-based compensation | | — | | | 7,220 | | | — | | | — | | | — | | | 7,220 | | | — | | | 7,220 | |
Tax withholding associated with shares issued for equity-based compensation | | — | | | (15,229) | | | — | | | — | | | — | | | (15,229) | | | — | | | (15,229) | |
Common stock issued under stock incentive plans | | — | | | (9,117) | | | 18,045 | | | (8,928) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Adjustments to noncontrolling interests | | — | | | (447) | | | — | | | — | | | — | | | (447) | | | 447 | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 | | $ | 249 | | | $ | — | | | $ | (109,981) | | | $ | (62,447) | | | $ | (1,183) | | | $ | (173,362) | | | $ | 1,452 | | | $ | (171,910) | |
| | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
MADISON SQUARE GARDEN SPORTS CORP. |
CONSOLIDATED STATEMENTS OF EQUITY (Continued) |
(Unaudited) |
(in thousands) |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 |
| | Common Stock Issued | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Madison Square Garden Sports Corp. Stockholders’ Equity | | Non - redeemable Noncontrolling Interests | | Total Equity | | |
Balance as of June 30, 2021 | | $ | 249 | | | $ | 23,102 | | | $ | (146,734) | | | $ | (78,898) | | | $ | (2,027) | | | $ | (204,308) | | | $ | 2,442 | | | $ | (201,866) | | | |
Net loss | | — | | | — | | | — | | | (16,405) | | | — | | | (16,405) | | | (480) | | | (16,885) | | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 22 | | | 22 | | | — | | | 22 | | | |
Comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (16,383) | | | (480) | | | (16,863) | | | |
Share-based compensation | | — | | | 4,851 | | | — | | | — | | | — | | | 4,851 | | | — | | | 4,851 | | | |
Tax withholding associated with shares issued for equity-based compensation | | — | | | (18,306) | | | — | | | — | | | — | | | (18,306) | | | — | | | (18,306) | | | |
Common stock issued under stock incentive plans | | — | | | (9,376) | | | 17,308 | | | (7,932) | | | — | | | — | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | |
Adjustments to noncontrolling interests | | — | | | (271) | | | — | | | — | | | — | | | (271) | | | 271 | | | — | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 | | $ | 249 | | | $ | — | | | $ | (129,426) | | | $ | (103,235) | | | $ | (2,005) | | | $ | (234,417) | | | $ | 2,233 | | | $ | (232,184) | | | |
| | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements. |
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Description of Business
Madison Square Garden Sports Corp. (together with its subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”) owns and operates a portfolio of assets featuring some of the most recognized teams in all of sports, including the New York Knickerbockers (“Knicks”) of the National Basketball Association (“NBA”) and the New York Rangers (“Rangers”) of the National Hockey League (“NHL”). Both the Knicks and the Rangers play their home games in Madison Square Garden Arena (“The Garden”). The Company’s other professional sports franchises include two development league teams — the Hartford Wolf Pack of the American Hockey League and the Westchester Knicks of the NBA G League. These professional sports franchises are collectively referred to herein as the “sports teams.” In addition, the Company owns Knicks Gaming, an esports franchise that competes in the NBA 2K League, as well as a controlling interest in Counter Logic Gaming (“CLG”), a North American esports organization. The Company also operates two professional sports team performance centers — the Madison Square Garden Training Center in Greenburgh, NY and the CLG Performance Center in Los Angeles, CA. CLG and Knicks Gaming are collectively referred to herein as the “esports teams,” and together with the sports teams, the “teams.”
The Company operates and reports financial information in one segment. The Company’s decision to organize as one operating segment and report in one segment is based upon its internal organizational structure; the manner in which its operations are managed; the criteria used by the Company’s Executive Chairman, its Chief Operating Decision Maker (“CODM”), to evaluate segment performance. The Company’s CODM reviews total company operating results to assess overall performance and allocate resources.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks”). All the outstanding common stock of the Company was distributed to MSG Networks shareholders (the “MSGS Distribution”) on September 30, 2015.
On April 17, 2020 (the “MSGE Distribution Date”), the Company distributed all of the outstanding common stock of Madison Square Garden Entertainment Corp. (formerly MSG Entertainment Spinco, Inc. and referred to herein as “MSG Entertainment”) to its stockholders (the “MSGE Distribution”).
Basis of Presentation
The accompanying unaudited consolidated interim financial statements (referred to as the “Financial Statements” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP“) and Article 10 of Regulation S-X of the SEC for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 (“fiscal year 2022”). The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The dependence of MSG Sports 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 the Company’s fiscal year.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Impact of COVID-19 on our Business
During fiscal years 2020 and 2021, COVID-19 disruptions and actions taken in response by governmental authorities and the leagues materially impacted the Company’s revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of areas. In fiscal year 2022, the Company’s operations and operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year. See Note 1, Description of Business and Basis of Presentation, to the Company’s audited consolidated financial statements and notes thereto for the year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K for more information regarding the impact of the COVID-19 pandemic on our business during fiscal years 2020, 2021 and 2022.
It is unclear to what extent COVID-19, including new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact the Company’s operations and operating results.
Note 2. Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Madison Square Garden Sports Corp. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the consolidated financial statements of the Company include the accounts from CLG, in which the Company has a controlling voting interest. The Company’s consolidation criteria are based on authoritative accounting guidance for voting interest, controlling interest or variable interest entities. CLG is consolidated with the equity owned by other shareholders shown as nonredeemable noncontrolling interests in the accompanying consolidated balance sheets, and the other shareholders’ portion of net earnings (loss) and other comprehensive income (loss) shown as net income (loss) or comprehensive income (loss) attributable to nonredeemable noncontrolling interests in the accompanying consolidated statements of operations and consolidated statements of comprehensive income (loss), respectively.
Use of Estimates
The preparation of the accompanying 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. Such estimates include the valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, deferred tax valuation allowance, and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax expense, income tax expense, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the Financial Statements to be reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time and, as such, these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 3. Revenue Recognition
Contracts with Customers
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers. For the three months ended September 30, 2022 and 2021, the Company did not have any material impairment losses on receivables or contract assets arising from contracts with customers.
Disaggregation of Revenue
The following table disaggregates the Company’s revenues by type of goods or services in accordance with the required entity-wide disclosure requirements set forth in ASC Subtopic 280-10-50-38 to 40 and the disaggregation of revenue required disclosures in accordance with ASC Subtopic 606-10-50-5 for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | September 30, |
| | | | | | 2022 | | 2021 |
Event-related (a) | | | | | | $ | 5,346 | | | $ | 3,870 | |
Media rights (b) | | | | | | 6,986 | | | 6,586 | |
Sponsorship, signage and suite licenses | | | | | | 4,814 | | | 3,170 | |
League distributions and other | | | | | | 6,943 | | | 5,168 | |
Total revenues from contracts with customers | | | | | | $ | 24,089 | | | $ | 18,794 | |
_________________
(a)Consists of (i) ticket sales and other ticket-related revenues, and (ii) food, beverage and merchandise sales at The Garden.
(b)Consists of (i) local media rights fees, (ii) revenue from the distribution through league-wide national and international television contracts, and (iii) other local radio rights fees.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet. The following table provides information about contract balances from the Company’s contracts with customers as of September 30, 2022 and June 30, 2022.
| | | | | | | | | | | | | | |
| | September 30, | | June 30, |
| | 2022 | | 2022 |
Receivables from contracts with customers, net (a) | | $ | 26,362 | | | $ | 24,729 | |
Contract assets, current (b) | | 8,554 | | | 13,839 | |
Deferred revenue, including non-current portion (c), (d) | | 298,209 | | | 163,491 | |
_________________
(a)Receivables from contracts with customers, net, which are reported in Accounts receivable, net and Net related party receivables in the Company’s accompanying consolidated balance sheets, represent the Company’s unconditional rights to consideration under its contracts with customers. As of September 30, 2022 and June 30, 2022, the Company’s receivables reported above included $922 and $1,258, respectively, related to various related parties associated with contracts with customers. See Note 15 for further details on related party arrangements. Receivables from contracts with customers, net, excludes amounts recorded in Accounts receivable, net, associated with amounts due from the NBA and NHL related to escrow and player compensation recoveries and luxury tax payments. As of September 30, 2022, the Company had receivable balances related to escrow and player compensation recoveries of $11,694 and $6,782, recorded in Accounts receivable, net and Other assets, respectively. As of June 30, 2022, the Company had receivable balances related to escrow and player compensation recoveries of $12,464 and $6,782, recorded in Accounts receivable, net and Other assets, respectively.
(b)Contract assets, current, which are reported as Other current assets in the Company’s accompanying consolidated balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to the customer, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable once the Company’s right to consideration becomes unconditional.
(c)Deferred revenue, including non-current portion primarily relates to the Company’s receipt of consideration from customers or billing customers in advance of the Company’s transfer of goods or services to those customers. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to a customer. The non-current portion of deferred revenue primarily consists of a $30,000 receipt from the NBA in December 2020 of league distributions in advance of the Company’s recognition. The Company’s deferred revenue related to local media rights was $36,169 and $0 as of September 30, 2022 and June 30, 2022, respectively. See Note 15 for further details on these related party arrangements.
(d)Revenue recognized for the three months ended September 30, 2022 relating to the deferred revenue balance as of June 30, 2022 was $5,356.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Transaction Price Allocated to the Remaining Performance Obligations
The following table depicts the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2022 and is based on current projections. In developing the estimated revenue, the Company applies the allowable practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Additionally, the Company has elected to exclude variable consideration from its disclosure related to the remaining performance obligations under its local media rights arrangements, league-wide national and international television contracts, and certain other arrangements with variable consideration.
| | | | | | | | |
Fiscal Year 2023 (remainder) | | $ | 147,175 | |
Fiscal Year 2024 | | 116,909 | |
Fiscal Year 2025 | | 78,739 | |
Fiscal Year 2026 | | 51,866 | |
Fiscal Year 2027 | | 28,354 | |
Thereafter | | 24,672 | |
| | $ | 447,715 | |
Note 4. Computation of Earnings (Loss) per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings (loss) per common share attributable to the Company’s stockholders (“EPS”) and the number of shares excluded from diluted earnings (loss) per common share, as they were anti-dilutive.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | Three Months Ended |
| | | | September 30, |
| | | | | | 2022 | | 2021 |
Weighted-average shares (denominator): | | | | | | | | |
Weighted-average shares for basic EPS | | | | | | 24,295 | | | 24,172 | |
Dilutive effect of shares issuable under share-based compensation plans | | | | | | — | | | — | |
Weighted-average shares for diluted EPS | | | | | | 24,295 | | | 24,172 | |
Weighted-average shares excluded from diluted earnings (loss) per share | | | | | | 128 | | | 196 | |
Note 5. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statements of operations include a net expense for transactions relating to the Company’s teams for waiver/contract termination costs and player trades (“Team personnel transactions”). Team personnel transactions were a net credit of $329 and a net provision of $727 for the three months ended September 30, 2022 and 2021, respectively.
Note 6. Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of the amounts recorded as cash, cash equivalents and restricted cash.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | June 30, 2021 |
Captions on the consolidated balance sheets: | | | | | | | | |
Cash and cash equivalents | | $ | 81,036 | | | $ | 91,018 | | | $ | 33,610 | | | $ | 64,902 | |
Restricted cash (a) | | — | | | — | | | 6,668 | | | 7,134 | |
Cash, cash equivalents and restricted cash on the consolidated statements of cash flows | | $ | 81,036 | | | $ | 91,018 | | | $ | 40,278 | | | $ | 72,036 | |
_________________
(a)Restricted cash as of September 30, 2021 and June 30, 2021 relates to the Company’s revolving credit facilities (see Note 11 for more information).
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 7. Leases
The Company’s leases primarily consist of the lease of the Company’s principal executive offices under the Sublease Agreement with MSG Entertainment (the “Sublease Agreement”) and the lease of CLG Performance Center. In addition, the Company accounts for the rights of use of The Garden pursuant to the Arena License Agreements as leases under the ASC Topic 842, Leases. See Note 8 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 for more information regarding the Company’s accounting policies associated with its leases.
As of September 30, 2022, the Company’s existing operating leases, which are recorded in the accompanying financial statements, have remaining lease terms ranging from 8 months to 33 years. In certain instances, leases include options to renew, with varying option terms. The exercise of lease renewals, if available under the lease options, is generally at the Company’s discretion and is considered in the Company’s assessment of the respective lease term. The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.
The following table summarizes the ROU assets and lease liabilities recorded on the Company’s accompanying consolidated balance sheets as of September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | |
| | Line Item in the Company’s Consolidated Balance Sheet | | September 30, 2022 | | June 30, 2022 | | |
Right-of-use assets: | | | | | | | | |
Operating leases | | Right-of-use lease assets | | $ | 685,844 | | | $ | 686,782 | | | |
Lease liabilities: | | | | | | | | |
Operating leases, current (a) | | Operating lease liabilities, current | | $ | 43,796 | | | $ | 43,699 | | | |
Operating leases, noncurrent (a) | | Operating lease liabilities, noncurrent | | 689,302 | | | 699,587 | | | |
Total lease liabilities | | | | $ | 733,098 | | | $ | 743,286 | | | |
_________________
(a)As of September 30, 2022, Operating lease liabilities, current and Operating lease liabilities, noncurrent included balances of $43,225 and $689,302, respectively, that are payable to MSG Entertainment. As of June 30, 2022, Operating lease liabilities, current and Operating lease liabilities, noncurrent included balances of $43,028 and $699,587, respectively, that are payable to MSG Entertainment.
The following table summarizes the activity recorded within the Company’s accompanying consolidated statements of operations for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Line Item in the Company’s Consolidated Statement of Operations | | | | Three Months Ended September 30, |
| | | | | | | 2022 | | 2021 |
Operating lease cost | | Direct operating expenses | | | | | | $ | 1,403 | | | $ | 1,407 | |
Operating lease cost | | Selling, general and administrative expenses | | | | | | 613 | | | 611 | |
Short-term lease cost | | Direct operating expenses | | | | | | 45 | | | 36 | |
| | | | | | | | | | |
Total lease cost | | | | | | | | $ | 2,061 | | | $ | 2,054 | |
Supplemental Information
For the three months ended September 30, 2022 and 2021, cash paid for amounts included in the measurement of lease liabilities was $11,263 and $10,768, respectively.
The weighted average remaining lease term for operating leases recorded on the accompanying consolidated balance sheet as of September 30, 2022 was 32.5 years. The weighted average discount rate was 7.13% as of September 30, 2022 and represented the Company’s estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of either (i) adoption of the standard or (ii) the period in which the lease term expectation commenced or was modified.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Maturities of operating lease liabilities as of September 30, 2022 are as follows:
| | | | | | | | |
Fiscal Year 2023 (remainder) | | $ | 34,072 | |
Fiscal Year 2024 | | 45,361 | |
Fiscal Year 2025 | | 44,900 | |
Fiscal Year 2026 | | 45,374 | |
Fiscal Year 2027 | | 46,735 | |
Thereafter | | 2,066,577 | |
Total lease payments | | 2,283,019 | |
Less imputed interest | | (1,549,921) | |
Total lease liabilities | | $ | 733,098 | |
Note 8. Goodwill and Intangible Assets
During the first quarter of fiscal year 2023, the Company performed its annual impairment test of goodwill and determined that there were no impairments identified as of the impairment test date. The carrying amount of goodwill as of September 30, 2022 and June 30, 2022 is $226,955.
The Company’s indefinite-lived intangible assets as of September 30, 2022 and June 30, 2022 are as follows:
| | | | | | | | |
| | |
| | |
Sports franchises | | $ | 111,064 | |
Photographic related rights | | 1,080 | |
| | $ | 112,144 | |
During the first quarter of fiscal year 2023, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified as of the impairment test date.
The Company’s intangible assets subject to amortization are as follows:
| | | | | | | | | | | | | | | | | | | | |
September 30, 2022 | | Gross | | Accumulated Amortization | | Net |
Trade names | | $ | 2,300 | | | $ | (2,300) | | | $ | — | |
Non-compete agreements | | 2,400 | | | (2,400) | | | — | |
Other intangibles | | 1,200 | | | (672) | | | 528 | |
| | $ | 5,900 | | | $ | (5,372) | | | $ | 528 | |
| | | | | | | | | | | | | | | | | | | | |
June 30, 2022 | | Gross | | Accumulated Amortization | | Net |
Trade names | | $ | 2,300 | | | $ | (2,262) | | | $ | 38 | |
Non-compete agreements | | 2,400 | | | (2,360) | | | 40 | |
Other intangibles | | 1,200 | | | (642) | | | 558 | |
| | $ | 5,900 | | | $ | (5,264) | | | $ | 636 | |
For the three months ended September 30, 2022 and 2021, amortization expense of intangible assets was $108 and $265, respectively.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 9. Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents:
| | | | | | | | | | | | | | | | | | | | |
| | Fair Value Hierarchy | | September 30, 2022 | | June 30, 2022 |
Assets: | | | | | | |
| | | | | | |
Money market accounts | | I | | $ | 23,022 | | | $ | 26,018 | |
Time deposit | | I | | 54,316 | | | 56,082 | |
| | | | | | |
Equity investments | | I | | 10,269 | | | 2,736 | |
Total assets measured at fair value | | | | $ | 87,607 | | | $ | 84,836 | |
Assets listed above are classified within Level I of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company’s money market accounts and time deposit approximates fair value due to their short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | June 30, 2022 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Liabilities | | | | | | | | |
Debt, current (a) | | $ | 30,000 | | | $ | 30,000 | | | $ | 30,000 | | | $ | 30,000 | |
Long-term debt (b) | | $ | 220,000 | | | $ | 220,000 | | | $ | 220,000 | | | $ | 220,000 | |
| | | | | | | | |
_________________(a)The Company’s debt, current is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable. The fair value of the Company’s debt, current is the same as its carrying amount as the debt bears interest at current market conditions. See Note 11 for further details.
(b)The Company’s long-term debt is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable. The fair value of the Company’s long-term debt is the same as its carrying amount as the debt bears interest at a variable rate indexed to current market conditions. See Note 11 for further details.
Note 10. Commitments and Contingencies
Commitments
As more fully described in Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, the Company’s commitments consist primarily of the Company’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. In addition, see Note 7 for more information on the contractual obligations related to future lease payments. The Company did not have any material changes in its contractual obligations, including off-balance sheet commitments, since the end of fiscal year 2022 other than activities in the ordinary course of business.
Legal Matters
The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty (including the extent of available insurance), management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 11. Debt
Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “2016 Knicks Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “2016 Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The 2016 Knicks Revolving Credit Facility would have matured and any unused commitments thereunder would have expired on September 30, 2021.
On November 6, 2020, the Company amended and restated the 2016 Knicks Credit Agreement in its entirety (the “2020 Knicks Credit Agreement”). On December 14, 2021, Knicks LLC entered into Amendment No. 2 to the 2020 Knicks Credit Agreement, which amended and restated the 2020 Knicks Credit Agreement (the “2021 Knicks Credit Agreement”).
The 2021 Knicks Credit Agreement provides for a senior secured revolving credit facility of up to $275,000 (the “2021 Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The maturity date of the 2021 Knicks Credit Agreement is December 14, 2026. Amounts borrowed may be distributed to the Company except during an event of default.
All borrowings under the 2021 Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the 2021 Knicks Credit Agreement bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.250% to 0.500% per annum or (ii) term Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment of 0.100% per annum plus a margin ranging from 1.250% to 1.500% per annum depending on the credit rating applicable to the NBA’s league-wide credit facility. Knicks LLC is required to pay a commitment fee ranging from 0.250% to 0.300% per annum in respect of the average daily unused commitments under the 2021 Knicks Revolving Credit Facility. The outstanding balance under the 2021 Knicks Revolving Credit Facility was $220,000 as of September 30, 2022, which was recorded as Long-term debt in the accompanying consolidated balance sheet. The interest rate on the 2021 Knicks Revolving Credit Facility as of September 30, 2022 was 4.37%. During the three months ended September 30, 2022 the Company made interest payments of $1,892 in respect of the 2021 Knicks Revolving Credit Facility.
All obligations under the 2021 Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA, (ii) revenues to be paid to Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements, and (iii) revenues to be paid to Knicks LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the 2021 Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to SOFR-based loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the 2021 Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the 2021 Knicks Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2021 Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2021 Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2021 Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
The 2021 Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of at least 1.5:1.0 over a trailing four quarter period. As of September 30, 2022, Knicks LLC was in compliance with this financial covenant.
Knicks Holdings Credit Facility
On November 6, 2020, Knicks Holdings, LLC, an indirect, wholly-owned subsidiary of the Company and the direct parent of Knicks LLC (“Knicks Holdings”), entered into a credit agreement with a syndicate of lenders (the “2020 Knicks Holdings Credit Agreement”). The 2020 Knicks Holdings Credit Agreement provided for a revolving credit facility of up to $75,000 (the “2020 Knicks Holdings Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. On December 14, 2021, the Company terminated the 2020 Knicks Holdings Revolving Credit Facility in its entirety.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Rangers Revolving Credit Facility
On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “2017 Rangers Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “2017 Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The 2017 Rangers Revolving Credit Facility would have matured and any unused commitments thereunder would have expired on January 25, 2022.
On November 6, 2020, the Company amended and restated the 2017 Rangers Credit Agreement in its entirety (the “2020 Rangers Credit Agreement”). On December 14, 2021, Rangers LLC entered into Amendment No. 3 to the 2020 Rangers Credit Agreement, which amended and restated the 2020 Rangers Credit Agreement (the “2021 Rangers Credit Agreement”).
The 2021 Rangers Credit Agreement provides for a senior secured revolving credit facility of up to $250,000 (the “2021 Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The maturity date of the 2021 Rangers Credit Agreement is December 14, 2026. Amounts borrowed may be distributed to the Company except during an event of default.
All borrowings under the 2021 Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the 2021 Rangers Revolving Credit Facility bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.500% to 1.000% per annum or (ii) term SOFR plus a credit spread adjustment of 0.100% per annum plus a margin ranging from 1.500% to 2.000% per annum depending on the credit rating applicable to the NHL’s league-wide credit facility. Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the 2021 Rangers Revolving Credit Facility. There was no borrowing under the 2021 Rangers Revolving Credit Facility as of September 30, 2022 and accordingly the Company did not make any interest payments during the three months ended September 30, 2022 in respect of the 2021 Rangers Revolving Credit Facility.
All obligations under the 2021 Rangers Revolving Credit Facility are, subject to the 2021 Rangers NHL Advance Agreement (as defined below), secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the 2021 Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to SOFR-based loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the 2021 Rangers Revolving Credit Facility.
In addition to the financial covenant described above, the 2021 Rangers Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2021 Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2021 Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2021 Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the 2021 Rangers Revolving Credit Facility.
The 2021 Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of at least 1.5:1.0 over a trailing four quarter period. As of September 30, 2022, Rangers LLC was in compliance with this financial covenant.
2021 Rangers NHL Advance Agreement
On March 19, 2021, Rangers LLC, Rangers Holdings, LLC and MSG NYR Holdings LLC entered into an advance agreement with the NHL (the “2021 Rangers NHL Advance Agreement”) pursuant to which the NHL advanced $30,000 to Rangers LLC. The advance is to be utilized solely and exclusively to pay for Rangers LLC operating expenses.
All obligations under the 2021 Rangers NHL Advance Agreement are senior to and shall have priority over all secured and other indebtedness of Rangers LLC, Rangers Holdings, LLC and MSG NYR Holdings LLC. All borrowings under the 2021 Rangers NHL Advance Agreement were made on a non-revolving basis and bear interest at 3.00% per annum, ending on the date any such advances are fully repaid. Advances received under the 2021 Rangers NHL Advance Agreement are payable upon demand by the NHL. It is expected that the advanced amount will be set off against funds that would otherwise be paid,
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
distributed or transferred by the NHL to Rangers LLC. The outstanding balance under the 2021 Rangers NHL Advance Agreement was $30,000 as of September 30, 2022 and was recorded as Debt in the accompanying consolidated balance sheet. During the three months ended September 30, 2022 the Company made interest payments of $225.
Deferred Financing Costs
The following table summarizes deferred financing costs, net of amortization, related to the Company’s credit facilities as reported on the accompanying consolidated balance sheets:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | June 30, 2022 |
Other current assets | | $ | 1,145 | | | $ | 1,145 | |
Other assets | | 3,668 | | | 3,954 | |
Note 12. Benefit Plans
Defined Benefit Pension Plans
Prior to the MSGE Distribution, the Company sponsored various defined benefit pension plans and a contributory welfare plan. As of the MSGE Distribution Date, the Company and MSG Entertainment entered into an employee matters agreement (the “Employee Matters Agreement”) which determined each company’s obligations after the MSGE Distribution with regard to historical liabilities under the Company’s former pension and postretirement plans. See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 for more information with regard to the liabilities retained by the Company from certain plans, which were transferred to the MSG Sports, LLC Excess Cash Balance Plan and MSG Sports, LLC Excess Retirement Plan, which the Company established in connection with the MSGE Distribution and are collectively referred to the “MSGS Pension Plans.”
The following table presents components of net periodic benefit cost for the MSGS Pension Plans included in the accompanying consolidated statements of operations for the three months ended September 30, 2022 and 2021. Net periodic benefit cost is reported in Miscellaneous expense, net. | | | | | | | | | | | | | | |
| | | | |
| | |
| | Three Months Ended |
| | September 30, |
| | 2022 | | 2021 |
| | | | |
Interest cost | | $ | 60 | | | $ | 31 | |
| | | | |
Recognized actuarial loss | | 4 | | | 33 | |
| | | | |
| | | | |
Net periodic benefit cost | | $ | 64 | | | $ | 64 | |
Defined Contribution Plans
Prior to the MSGE Distribution, the Company sponsored The Madison Square Garden 401(k) Savings Plan (the “401(k) Plan”), which is a multiple employer plan and the MSG S&E, LLC Excess Savings Plan (collectively referred to as the “Savings Plans”). As a result of the MSGE Distribution, the Savings Plans were transferred to MSG Entertainment. However, MSG Sports employees continue to participate in the 401(k) Plan. In addition, pursuant to the Employee Matters Agreement the Company established the MSG Sports LLC Excess Savings Plan to provide non-qualified retirement benefits to eligible MSG Sports employees. See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 for more information with regard to the liabilities retained by the Company.
Expenses related to the Savings Plans that are included in the accompanying consolidated statements of operations for the three months ended September 30, 2022 and 2021 were $1,065 and $939, respectively.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Executive Deferred Compensation Plan
See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 for more information regarding the Company’s Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). For the three months ended September 30, 2022, the Company recorded compensation cost credits of $103 within Selling, general and administrative expenses to reflect the remeasurement of the Deferred Compensation Plan liability. In addition, for the three months ended September 30, 2022, the Company recorded losses of $103 within Miscellaneous income (expense), net to reflect the remeasurement of the fair value of assets under the Deferred Compensation Plan.
The following table summarizes amounts recognized related to the Deferred Compensation Plan in the consolidated balance sheets:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | June 30, 2022 |
Non-current assets (included in other assets) | | $ | 10,269 | | | $ | 2,736 | |
Current liabilities (included in accrued employee related costs) | | (982) | | | (123) | |
Non-current liabilities (included in other employee related costs) | | (9,287) | | | (2,613) | |
Note 13. Share-based Compensation
See Note 15 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 for more information regarding the Company’s 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 Stock Plan for Non-Employee Directors.
Share-based compensation expense was recognized in the consolidated statements of operations as a component of Selling, general and administrative expenses. Share-based compensation expense was $7,220 and $4,851 for the three months ended September 30, 2022 and 2021, respectively. There were no costs related to share-based compensation that were capitalized for the three months ended September 30, 2022 and 2021, respectively.
Restricted Stock Units Award Activity
The following table summarizes activity related to the Company’s restricted stock units and performance restricted stock units, collectively referred to as “RSUs,” held by the Company and MSG Entertainment employees, for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | |
| Number of | | Weighted-Average Fair Value Per Share at Date of Grant (a) |
| Nonperformance Based Vesting RSUs | | Performance Based Vesting RSUs | |
Unvested award balance, June 30, 2022 | 199 | | | 189 | | | $ | 198.21 | |
Granted | 57 | | | 57 | | | $ | 161.58 | |
Vested | (119) | | | (87) | | | $ | 222.48 | |
Forfeited / Cancelled | (1) | | | (1) | | | $ | 158.01 | |
Unvested award balance, September 30, 2022 | 136 | | | 158 | | | $ | 167.12 | |
_____________________
(a)Weighted-average fair value per share at date of grant does not reflect any adjustments to awards granted prior to the MSGE Distribution.
The fair value of RSUs that vested during the three months ended September 30, 2022 was $31,766. Upon delivery, RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations. To fulfill the Company’s and MSG Entertainment’s employees’ required statutory tax withholding obligations for the applicable income and other employment taxes, 99 of these RSUs, with an aggregate value of $15,229, inclusive of $4,233 related to MSG Entertainment employees (who vested in the Company’s RSUs), were retained by the Company and the taxes paid are reflected as a financing activity in the accompanying consolidated statement of cash flows for the three months ended September 30, 2022.
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The fair value of RSUs that vested during the three months ended September 30, 2021 was $36,380. The weighted-average fair value per share at grant date of RSUs granted during the three months ended September 30, 2021 was $262.08.
Stock Options Award Activity
The following table summarizes activity related to the Company’s stock options for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Time Vesting Options | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value |
| | | |
Balance as of June 30, 2022 | 94 | | | $ | 145.78 | | | | | |
Granted | — | | | $ | — | | | | | |
Cancelled | — | | | $ | — | | | | | |
Balance as of September 30, 2022 | 94 | | | $ | 145.78 | | | 5.21 | | $ | — | |
Exercisable as of September 30, 2022 | 94 | | | $ | 145.78 | | | 5.21 | | $ | — | |
Note 14. Stock Repurchase Program
Effective as of October 1, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market or private transactions, block trades or such other manner as the Company may determine, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors.
During the three months ended September 30, 2022 and 2021, the Company did