Accounting for Entertainment Distributions and Merger Transactions

12 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Accounting for Entertainment Distribution and Merger Transactions

Accounting for Entertainment Distribution and Merger Transactions

The Company accounted for the Entertainment Distribution and Merger transactions as follows:

Entertainment Distribution:

•Fiscal Year 2020 is presented as carve-out financial statements as the financial information from July 1, 2019 through April 17, 2020 was prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent. These consolidated and combined financial statements reflect the combined historical results of operations, financial position and cash flows of MSG Sports in accordance with 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.

•The combined financial statements include certain assets and liabilities that were historically held by MSG Sports or its subsidiaries but were specifically identifiable or otherwise attributable to the Company. Subsequent to the Entertainment Distribution, the net assets were transferred to the Company at a carry-over basis, and thus, the combined financial statements are reflected on a historical cost basis. All significant intercompany transactions between MSG Sports and the Company have been included as components of MSG Sports Corp. Investment in the combined financial statements, as they were considered effectively settled pursuant to the Entertainment Distribution.

•The financial information from July 1, 2019 through April 17, 2020 that is included in the results of operations for Fiscal Year 2020 includes allocations for certain support functions that were provided on a centralized basis and not historically recorded at the business unit level by MSG Sports, such as expenses related to executive management, finance, legal, human resources, government affairs, information technology, and venue operations, among others. As part of the Entertainment Distribution, certain corporate and operational support functions were transferred to the Company. These expenses have been allocated to MSG Sports 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 the Company or MSG Sports, which are recorded as a reduction of either direct operating expenses or selling, general and administrative expense. In addition, certain of the Company’s contracts with its customers for suite license, sponsorship, and venue signage arrangements contain performance obligations that are fulfilled by both the Company and MSG Sports. Revenue sharing expenses attributable to MSG Sports have primarily been recorded on the basis of specific identification where possible, with the remainder allocated proportionately as a component of direct operating expenses within the combined statements of operations.

•Management believes the assumptions underlying the combined financial statements, including those used in 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 standalone company during the period presented. Actual costs that would have been incurred if the Company had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. The Company is unable to quantify the amounts that it would have recorded during the historical periods on a standalone basis as it is not practicable to do so. See Note 22, Segment Information for more information regarding allocations of certain costs from the Company to MSG Sports.

•Most of the cash and cash equivalents held at the corporate level by MSG Sports were attributed to the Company for the period presented, and as such, cash was held in accounts legally owned by the Company. Transfers of cash both to and from MSG Sports are included as components of the MSG Sports Corp. Investment in the accompanying combined statements of divisional equity and redeemable noncontrolling interests. In connection with the Entertainment Distribution, the Company received $816,896 of cash and cash equivalents from MSG Sports.

•MSG Sports’ net investment in the Company has been presented as a component of divisional equity in the combined financial statements. Distributions made by MSG Sports to the Company, or to MSG Sports from the Company, are recorded as transfers to and from MSG Sports, and the net amount is presented on the combined statements of cash flows as “Net transfers to/from Madison Square Garden Sports Corp. and its subsidiaries”.

•As of the Entertainment Distribution date, MSG Sports’ net investment in the Company was contributed to MSG Sports’ stockholders through the distribution of all the common stock of the Company. The par value of the Company’s stock was recorded as a component of common stock, with the remaining balance recorded as additional paid-in capital in the consolidated and combined balance sheet on the Entertainment Distribution Date.

•In connection with the Entertainment Distribution, the Company entered into amended employment agreements with the redeemable noncontrolling interest holders of Tao Group Hospitality in the fourth quarter of Fiscal Year 2020, which provided the noncontrolling interest holders with put rights that could require the Company to purchase the remaining noncontrolling interest. In addition, in accordance with the transaction agreement related to the acquisition of Hakkasan in April 2021, the noncontrolling interest holders of the acquiree are provided with put rights that could require the Company to purchase the remaining noncontrolling interest. Upon the exercise of the put rights by the noncontrolling interest holders, the price to be paid for redeemable noncontrolling interests is the current fair market value of the redeemable noncontrolling interest, subject to a minimum price (“floor”). In accordance with ASC Topic 480, Distinguishing Liabilities From Equity, the Company elected to apply the Equity Classification —

Entire Adjustment Method which treats the entire adjustment for the redeemable noncontrolling interests to an amount other than fair value using retained earnings (or additional paid-in capital in absence of retained earnings). The adjustments to retained earnings are not a component of net income attributable to the Company’s common stockholders, rather than the adjustment to the control number (numerator) of the EPS computation. See Note 6, Computation of Earnings (Loss) per Common Share for the adjustment of redeemable noncontrolling interest to redemption value in the computation of earnings per share.

•For purposes of the combined financial statements for the Entertainment Distribution, income tax expense has been recorded as if the Company filed tax returns on a standalone basis separate from Former Parent. This separate return methodology applies to accounting guidance for income taxes in the combined financial statements as if the Company was a standalone public company for the periods prior to the Entertainment Distribution. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the Entertainment Distribution. Prior to the Entertainment Distribution, the Company's operating results were included in Former Parent’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, the Company filed its initial U.S. income tax return for the period from April 18, 2020 through June 30, 2020. The calculation of the Company’s income taxes involves considerable judgment and use of both estimates and allocations. In addition, although the Company and MSG Networks Inc. did not file consolidated tax returns for periods prior to the Merger, income tax expense or benefit and deferred tax assets and liabilities have been presented on a combined basis for all historical periods.

Merger with MSG Networks Inc.:

•The Merger has been accounted for as a transaction between entities under common control as the Company and MSG Networks Inc. were, prior to the Merger, each controlled by the Dolan Family Group (as defined herein). Upon the closing of the Merger, the net assets of MSG Networks Inc. were consolidated with those of the Company at their historical carrying amounts and the companies are presented on a consolidated basis for all historical periods. As a result, all prior period balances in these consolidated and combined financial statements (including share activities) were retrospectively adjusted as if MSG Entertainment and MSG Networks Inc. had been operating as one company.