Table of Contents
NYNY0001952073falseClass A Common Stock, $0.01 par value per share, 120,000 shares authorized; 45,024 shares issued as of June 30, 2023.Class B Common Stock, $0.01 par value per share, 30,000 shares authorized; 6,867 shares issued as of June 30, 2023.See Note 17. Related Party Transactions for further information on related party arrangements. 0001952073 2022-07-01 2023-06-30 0001952073 2023-06-30 0001952073 2022-06-30 0001952073 2021-07-01 2022-06-30 0001952073 2020-07-01 2021-06-30 0001952073 2023-04-20 0001952073 2023-04-20 2023-06-30 0001952073 2021-02-01 2021-05-31 0001952073 2021-06-01 2023-06-30 0001952073 2023-04-20 2023-04-20 0001952073 2020-06-30 0001952073 2021-06-30 0001952073 2023-04-19 0001952073 us-gaap:CommonClassAMember 2022-06-30 0001952073 us-gaap:CommonClassBMember 2022-06-30 0001952073 us-gaap:OtherCurrentAssetsMember 2022-06-30 0001952073 msge:AccountsReceivableandRelatedPartyReceivablesMember 2022-06-30 0001952073 us-gaap:RelatedPartyMember msge:OtherReceivablesNetCurrentMember 2022-06-30 0001952073 msge:TownsquareMember us-gaap:CommonClassCMember us-gaap:CommonStockMember 2022-06-30 0001952073 msge:DraftkingsMember us-gaap:CommonClassAMember us-gaap:CommonStockMember 2022-06-30 0001952073 msge:TownsquareMember 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As filed with the Securities and Exchange Commission on September 18, 2023
Registration No. 333-            
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
MADISON SQUARE GARDEN ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
7990
 
92-0318813
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
Two Pennsylvania Plaza
New York, New York 10121
(212)
465-6000
(
Address
, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Jamal H. Haughton
Executive Vice President, General Counsel and Secretary
Madison Square Garden Entertainment Corp.
Two Pennsylvania Plaza
New York,
New York
10121
(212)
465-6000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies of Communications to:
 
Robert W. Downes
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212)
558-4000
  
Roxane F. Reardon
Lesley Peng
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
 
 
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐
If this Form is filed to register additional securities for an offering
pursuant
to
Rule
462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
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 7(a)(2)(B) of the Securities Act.  
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
 
 
 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2023

Madison Square Garden Entertainment Corp.

7,150,000 Shares

 

 

LOGO

Class A Common Stock

 

 

The selling stockholder, Sphere Entertainment Group, LLC (the “selling stockholder”), is selling 7,150,000 shares of Class A common stock, par value $0.01 per share (“Class A common stock”), of Madison Square Garden Entertainment Corp., including the shares we will repurchase, as described in the following paragraph. We are not selling any shares of Class A common stock under this prospectus and will not receive any of the proceeds from the sale of the shares by the selling stockholder.

We intend to purchase from the underwriters approximately $50 million of shares of our Class A common stock offered in this offering at a price per share equal to the price at which the underwriters will purchase the shares from the selling stockholder. Assuming that the underwriters purchase the shares of Class A common stock that are the subject of this offering from the selling shareholder at a price of $32.75 per share, which was the last reported sale price per share of our Class A common stock on The New York Stock Exchange on September 15, 2023, we expect to repurchase 1,526,717 shares of our Class A common stock from the underwriters as part of this offering. The underwriters will not receive any compensation for the shares of our Class A common stock being repurchased by us. See “Summary — Share Repurchase.”

Our Class A common stock trades on The New York Stock Exchange under the symbol “MSGE.” On September 15, 2023, the last sale price of our Class A common stock as reported on The New York Stock Exchange was $32.75 per share.

 

 

Investing in our Class A common stock involves risks that are described in the “Risk Factors” section beginning on page 15 of this prospectus. You should consider these risks before deciding to invest in our Class A common stock.

 

     Per Share      Total  

Public offering price

   $                    $                

Underwriting discounts(1)

   $        $    

Proceeds, net of expenses, to selling stockholder.

   $        $    

 

(1)

We have agreed to reimburse the underwriters for certain expenses in connection with this offering. No underwriting discount will be paid on the shares of our Class A common stock sold to us in the Share Repurchase. See “Underwriting.”

The underwriters may also exercise their option to purchase up to an additional 1,071,188 shares of Class A common stock from the selling stockholder, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The shares of Class A common stock will be ready for delivery on or about                 , 2023.

 

BofA Securities*   Goldman Sachs & Co. LLC*   J.P. Morgan*

 

*

In alphabetical order.

The date of this prospectus is                 , 2023.


Table of Contents

TABLE OF CONTENTS

 

Trademarks, Tradenames and Service Marks

     ii  

Prospectus Summary

     1  

Risk Factors

     15  

Special Note Regarding Forward-Looking Statements

     36  

Use of Proceeds

     39  

Dividend Policy

     40  

Capitalization

     41  

Unaudited Pro Forma Condensed Consolidated and Combined Financial Information

     42  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49  

Business

     73  

Corporate Governance and Management

     89  

Executive Compensation

     101  

Certain Relationships and Related Party Transactions

     140  

Principal and Selling Stockholders

     151  

Description of Capital Stock

     160  

Material U.S. Federal Tax Considerations

     165  

Underwriting

     169  

Validity of the Securities

     177  

Experts

     177  

Where You Can Find Additional Information

     178  

Index to Consolidated and Combined Financial Statements

     F-1  

None of us, the selling stockholder or the underwriters have authorized anyone to provide you with information other than the information contained in this prospectus. We, the selling stockholder and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. The information contained in this prospectus is accurate only as of the date hereof, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. It is important for you to read and consider all information contained in this prospectus in making your investment decision. You should also read and consider the information in the documents to which we have referred you in the sections entitled “Where You Can Find Additional Information” in this prospectus.

The selling stockholder is offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The distribution of this prospectus and the offering of the Class A common stock in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of the Class A common stock and the distribution of this prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

 

i


Table of Contents

TRADEMARKS, TRADENAMES AND SERVICE MARKS

We own or have rights to use logos, trademarks, trade names, service marks and copyrights that we use in conjunction with the operation of our business and that appear in this prospectus. Other logos, trademarks, trade names, service marks and copyrights appearing in this prospectus are the property of their respective owners. We do not intend our use or display of other companies’ logos, trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Solely for convenience, trademarks, trade names and copyrights referred to in this prospectus may appear without the ©, ® or symbols, but the absence of such symbols does not indicate the registration status of the trademarks and is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such copyrights, trademarks and trade names. We license the “MSG” trademark to Sphere Entertainment Co. (together with its subsidiaries, as applicable, “Sphere Entertainment”) and Madison Square Garden Sports Corp. (together with its subsidiaries, as applicable, “MSG Sports”) pursuant to trademark license agreements in connection with their use of particular approved marks.

 

ii


Table of Contents

PROSPECTUS SUMMARY

The following is a summary of certain of the information contained in this prospectus. 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 prospectus, which should be read in its entirety.

Unless the context otherwise requires, all references to “we,” “us,” “our,” “MSGE,” “MSG Entertainment” or the “Company” refer to Madison Square Garden Entertainment Corp., together with its direct and indirect subsidiaries.

The Company reports on a fiscal year basis ending on June 30. The fiscal years ended June 30, 2022, 2021 and 2020 are referred to as “Fiscal Year 2022,” “Fiscal Year 2021,” and “Fiscal Year 2020,” respectively, and the fiscal year ending June 30, 2023 is referred to as “Fiscal Year 2023.”

Spin-Off from Sphere Entertainment Co.

On April 20, 2023 (the “MSGE Distribution Date”), Sphere Entertainment (formerly Madison Square Garden Entertainment Corp.) effected the distribution of approximately 67% of the issued and outstanding shares of the common stock of the Company (the “MSGE Distribution”). In the MSGE Distribution, (a) each holder of Sphere Entertainment’s Class A common stock, par value $0.01 per share, received one share of the Company’s Class A common stock, par value $0.01 per share (“Class A common stock”), for every share of Sphere Entertainment’s Class A common stock, par value $0.01 per share, held of record as of the close of business, New York City time, on April 14, 2023 (the “Record Date”) and (b) each holder of Sphere Entertainment Class B common stock, par value $0.01 per share, received one share of the Company’s Class B common stock, par value $0.01 per share (“Class B common stock”) for every share of Sphere Entertainment’s Class B common stock held of record as of the close of business, New York City time, on the Record Date. In the MSGE Distribution, an aggregate of 27,692,030 shares of the Company’s Class A common stock and 6,866,754 shares of the Company’s Class B common stock were distributed, with any fractional shares converted to cash and paid to stockholders. In addition, Sphere Entertainment retained 17,021,491 shares of the Company’s Class A common stock following the MSGE Distribution, representing approximately 33% of the issued and outstanding shares of the common stock of the Company and approximately 38% of the issued and outstanding shares of the Company’s Class A common stock. In addition, in connection with the MSGE Distribution, 187,405 shares of the Company’s Class A common stock were distributed in respect of Sphere Entertainment’s non-employee director restricted stock units to the applicable holders as of the Record Date.

Our Company

MSG Entertainment is a leader in live entertainment experiences, comprised of iconic venues and marquee entertainment content. Utilizing our powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. As of June 30, 2023, we managed our business through one reportable segment.

Our company includes (i) our portfolio of venues: Madison Square Garden (“The Garden”), The Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre, (ii) the original production, the Christmas Spectacular Starring the Radio City Rockettes (the “Christmas Spectacular”), and (iii) our entertainment and sports bookings business, which showcases a broad array of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually.

 

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Share Repurchase

In connection with this offering, we intend to purchase from the underwriters approximately $50 million of shares of our Class A common stock offered in this offering at a price per share equal to the price at which the underwriters will purchase the shares from the selling stockholder (the “Share Repurchase”). Assuming that the underwriters purchase the shares of Class A common stock that are the subject of this offering from the selling stockholder at a price of $32.75 per share, which was the last reported sale price per share of our Class A common stock on The New York Stock Exchange (the “NYSE”) on September 15, 2023, we expect to repurchase 1,526,717 shares of our Class A common stock from the underwriters in the Share Repurchase. The underwriters will not receive any compensation for the shares of our Class A common stock being repurchased by us.

The repurchased shares of Class A common stock will no longer be outstanding following the completion of this offering.

The description of and the other information in this prospectus regarding the Share Repurchase is included solely for informational purposes. Nothing in this prospectus should be construed as an offer to sell, or the solicitation of an offer to buy, any of our Class A common stock, subject to the Share Repurchase.

Recent Developments

On September 15, 2023, MSG National Properties, LLC (“MSG National Properties”), a wholly-owned direct subsidiary of MSG Entertainment Holdings, LLC (“MSG Entertainment Holdings”), entered into Amendment No. 3 to Credit Agreement (the “National Properties Amendment”) to the Credit Agreement, dated as of June 30, 2022 (as amended to date and as further amended by the National Properties Amendment, the “National Properties Credit Amendment”), among National Properties, the guarantors party thereto, the lender party thereto and JPMorgan Chase Bank, N.A., in its capacity as administrative agent, pursuant to which, among other things, the commitments under the revolving credit facility (the “National Properties Revolving Credit Facility”) under the National Properties Credit Agreement were increased by an aggregate amount of $50 million to $150 million. We expect to borrow approximately $50 million under the National Properties Revolving Credit Facility to fund the Share Repurchase. Upon completion of the Share Repurchase, MSG Entertainment estimates that the outstanding balance under the National Properties Revolving Credit Facility will be approximately $67 million.

Our Strengths

Our strengths include:

 

   

Strong position in live entertainment through:

 

   

A portfolio of world-renowned venues; and

 

   

Marquee live entertainment brands and content;

 

   

Significant presence in New York, the leading live entertainment market;

 

   

Deep industry relationships that drive top-tier performers and a wide variety of events to the Company’s venues;

 

   

Proven track record of delivering significant value for partners through innovative sponsorships and premium hospitality;

 

   

Reputation for world-class customer experience driven by decades of expertise in sales and marketing, and venue operations;

 

   

Expertise in utilizing data to drive decisions to maximize revenue and the experience of our guests;

 

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Long-term agreements to host home games at The Garden for two of the most recognized franchises in professional sports — the New York Knicks (the “Knicks”) and the New York Rangers (the “Rangers”); and

 

   

A strong and seasoned management team.

Our Strategy

Our strategy is to create world-class live experiences for our guests and partners by leveraging (i) our Company’s unique portfolio of live entertainment assets and brands; (ii) our expertise in venue management, bookings and productions, sponsorship, ticketing, marketing and premium hospitality and content development; (iii) our deep relationships across the entertainment and sports industries; and (iv) our strong connection with diverse and passionate audiences. We believe this strategy will enable us to generate long-term value creation for our stockholders.

Key components of our strategy include:

 

   

Enhancing the live entertainment experience for our customers. We use the strength of our venues, expertise and relationships to attract top talent and deliver unforgettable experiences for our guests. We have a track record of designing world-class facilities with top-quality amenities, including our renovations of The Garden, Radio City Music Hall, and the Beacon Theatre. We also continue to explore new ways to use technology to improve the guest experience. From the way our customers buy food, beverage and merchandise, to how we market and process their tickets, to utilizing next-generation audio technology in our venues, we strive to give our customers the best experience in the industry. We believe this approach will enable us to drive improvements in per-event revenue and profitability at our venues and help create a seamless and memorable guest experience that will help drive repeat visitation to our venues.

 

   

Increasing the utilization of our venues. Part of what drives our success is our “artist first” approach. Through dedicated artist areas and top-tier service, our talent-friendly environment not only attracts artists to our venues, but also brings them back for repeat performances. Another part of this approach is how we use our diverse collection of venues. With seating capacities and configurations that range from 2,800 to 21,000, our venue portfolio enables us to shepherd artists through the growth in their careers, helping us develop deeper industry relationships. We will continue to use this “artist first” approach to attract the industry’s top talent with the goal of increasing utilization across all our venues through more multi-night concerts, as well as more marquee special events. We also plan to continue exploring opportunities for new events that would be unique to our venues, including high-profile residencies that would help build our base of events.

 

   

Delivering unrivaled marketing exposure for our partners. Our assets are highly sought after by companies that value the popularity of our venues and entertainment brands. Our value proposition is further strengthened by our sponsorship sales representation agreement with MSG Sports which enables us to deliver broad-based marketing platforms that combine our assets with MSG Sports’ professional sports brands. We plan to continue utilizing this integrated approach to both renew and extend our relationships with existing partners, as well as to form partnerships with leading companies in emerging industries and in industry verticals where we are currently under penetrated. We also offer our partners expanded reach through outdoor signage around the Madison Square Garden complex, located between 31st and 33rd Streets and Seventh and Eighth Avenues on Manhattan’s West Side (the “Madison Square Garden Complex”), and Pennsylvania Station (“Penn Station”), a major commuter hub in Manhattan. We plan to selectively explore additional opportunities to grow our external signage portfolio which could increase our existing marketing partnerships packages as well as attract new partners.

 

   

Offering best-in-class premium hospitality products. The Company offers a wide array of premium corporate hospitality offerings that cater to a variety of audiences. For example, The Garden has a range of suite and club products, including 21 Event Level suites, 58 Lexus Level suites, 18 Infosys Level suites, the Caesars Sportsbook Lounge, Suite Sixteen, Chase Lounge, and the HUB Loft. These

 

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suites and clubs — which provide exclusive private spaces, first-class amenities and some of the best seats in The Garden — are primarily licensed to corporate customers with the majority being multi-year agreements with annual escalators. Through our long-term arena license agreements (the “Arena License Agreements”) with MSG Sports, we also offer suite holders access to MSG Sports’ premium live sporting events. We believe the strength of our product and content offerings, along with the continued importance of corporate hospitality to our partners, position us well with regard to ongoing renewal and new sales activity. We also plan to explore enhancing and expanding our premium hospitality offerings, which would create new monetization opportunities for the Company.

 

   

Understanding our customers. We continue to forge direct 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 database of millions of customers. The data we collect from our venues and digital products provides the Company with significant insights into our customers, including who is utilizing our digital assets and attending events at our venues. In addition to providing value for our marketing partners, these insights are leveraged to help drive revenue and engagement across our assets, providing us with an opportunity to tailor offerings and cross-promote our products and services, introducing customers to our wide range of assets and brands. We also plan to increasingly use data to proactively identify potential bookings for our venues.

Key Challenges

We face a number of challenges, both pre-existing and as a result of the MSGE Distribution, including:

 

   

Intense competition in the market and industry in which we operate, including with other leisure-time activities such as television, motion pictures and sporting events and other live performances, and concert venues;

 

   

Dependence upon the continued popularity of the entertainment and sporting events presented in our venues and our existing brands (including the Christmas Spectacular and the National Basketball Association’s (the “NBA”) New York Knicks and the National Hockey League’s (the “NHL”) New York Rangers), which are sensitive to customer tastes, and our ability to attract popular artists, groups and events to our venues;

 

   

Effectively managing any impacts of the COVID-19 pandemic (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable;

 

   

Significantly levered balance sheet and liquidity restraints imposed by interest and principal payments as well as a high cost of capital;

 

   

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

 

   

Strength or weakness of, as well as volatility and less predictability in, our operating results and cash flow because the Company’s results will no longer include cash flows from MSG Networks Inc. (“MSG Networks”); and

 

   

Volatility in the market price and trading volume of our Class A common stock. The market price for our Class A common stock could fluctuate significantly for many reasons following the MSGE Distribution, including as a result of the risks set forth under “Risk Factors.”

See the section entitled “Risk Factors” for more information on each of these key challenges.

Organizational Structure

The following charts depict a simplified graphical representation of the Company’s corporate structure before and immediately following the MSGE Distribution. The shares issued in the MSGE Distribution represent approximately 67% of our outstanding shares of common stock and Sphere Entertainment retained approximately 33% of our outstanding shares of common stock immediately following the MSGE Distribution in the form of

 

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Class A common stock. Sphere Entertainment does not own any of our Class B common stock following the MSGE Distribution. The shares issued in the MSGE Distribution include approximately 62% of the outstanding shares of Class A common stock (the holders of which have the right to collectively elect 25% of our Board of Directors (our “Board”), rounded up to the nearest whole number of directors) and 100% of the outstanding shares of Class B common stock (the holders of which have the right to collectively elect the remaining 75% of our Board). As a result, the shares issued in the MSGE Distribution represent at least 90% of the combined voting power of the outstanding common stock with respect to the election of directors. Immediately following the MSGE Distribution, the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the “Dolan Family Group”) collectively owned all of our Class B common stock, approximately 3.6% of our outstanding Class A common stock and approximately 61.6% of the total voting power of all our outstanding common stock (in each case, inclusive of exercisable options). As of September 15, 2023, Sphere Entertainment owned approximately 16.6% of the outstanding common stock of the Company (in the form of Class A common stock).

Before the MSGE Distribution:

 

 

LOGO

Immediately following the MSGE Distribution:

 

 

LOGO

 

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LOGO

Company Information

We are a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, New York 10121. Our telephone number is +1 (212) 465-6000, our website is www.msgentertainment.com. The information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus. Madison Square Garden Entertainment Corp. is a holding company and conducts substantially all of its operations through its subsidiaries.

Our Class A common stock is listed on the NYSE under the symbol “MSGE.” Our Class B common stock is not listed on any securities exchange.

Implications of Being an Emerging Growth Company

We qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted in 2012. As an emerging growth company, we expect to take advantage of reduced reporting requirements otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We may rely on the relief provided by these provisions until the last day of our fiscal year following the fifth anniversary of the completion of the MSGE Distribution. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

 

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We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Summary of Risk Factors

Ownership of our common stock is subject to numerous risks that could adversely affect our business, operations and financial results. The following list of risk factors is not exhaustive. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Related to Our Business

 

   

Our business faces intense and wide-ranging competition that may have a material negative effect on our business and results of operations.

 

   

The success of our business depends on the continued popularity of the Christmas Spectacular production, and the entertainment and sporting events we host at our venues.

 

   

Our business strategy may, in the future, include the development of new productions, which could require us to make considerable investments for which there can be no guarantee of success.

 

   

We depend on licenses from third parties for the performance of musical works at our venues.

 

   

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.

 

   

A change to or withdrawal of a New York City real estate tax exemption for the Madison Square Garden Complex may have a material negative effect on our business and results of operations.

 

   

Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.

Economic and Operational Risks

 

   

Our business has been adversely impacted and may, in the future, be materially adversely impacted by an economic downturn, recession, financial instability, inflation or changes in consumer tastes and preferences.

 

   

We do not own all of our venues and our failure in the future to renew our leases on economically attractive terms may have a material negative effect on our business and results of operations.

 

   

The geographic concentration of our business could subject us to greater risk than our competitors and 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, weather and other conditions that discourage congregation at prominent places of public assembly.

 

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We may pursue acquisitions and other strategic transactions and/or investments to complement or expand our business that may not be successful.

 

   

We are subject to extensive governmental regulation, including building and zoning regulation, and our failure to comply with these regulations may have a material negative effect on our business and results of operations. For example, The Garden requires a zoning special permit, which was originally granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years (while our current application for renewal of the zoning special permit remains pending, we have been advised that we can continue to use and operate The Garden as normal until the renewal review process concludes). On August 28, 2023, the New York City Council Land Use Committee and Subcommittee on Zoning and Franchises recommended a five year term for a new zoning special permit for The Garden that will expire in September 2028, which was approved by the entire New York City Council on September 14, 2023. The failure to obtain a renewal of this zoning special permit in the future, or to do so on favorable terms, would have a negative effect on our business.

 

   

Our business is subject to seasonal fluctuations, and our operating results and cash flow have in the past varied, and could in the future, vary substantially from period to period.

 

   

Labor matters may have a material negative effect on our business and results of operations.

 

   

We are subject to the risk of adverse outcomes or negative publicity in litigation.

Risks Related to Indebtedness, Financial Condition, Cybersecurity, and Intellectual Property

 

   

We have substantial indebtedness and are highly leveraged, which could adversely affect our business.

 

   

We have and could in the future incur substantial operating losses, adjusted operating losses and negative cash flow.

 

   

We face continually evolving cybersecurity and similar risks, which could result in loss, disclosure, theft, destruction or misappropriation of, or access to, our confidential information and cause disruption of our business, damage to our brands and reputation, legal exposure and financial losses.

 

   

Theft of our intellectual property may have a material negative effect on our business and results of operations.

Corporate Governance Risks

 

   

We are materially dependent on affiliated entities’ performances under various agreements.

 

   

Sphere Entertainment owns a significant amount of our total outstanding shares in the form of Class A common stock, which may be sold freely into this market. This has caused and could in the future cause the market price of our common stock to drop significantly, even if our business is doing well.

 

   

We may have a significant indemnity obligation to Sphere Entertainment if the MSGE Distribution is treated as a taxable transaction.

 

   

The tax rules applicable to the MSGE 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 MSGE Distribution.

 

   

Certain adverse U.S. federal income tax consequences might apply to non-U.S. holders that hold our Class A common stock if we are treated as a “United States real property holding corporation” (“USRPHC”).

 

   

We do not have an operating history as a stand-alone public company.

 

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Our historical financial results may not be representative of our results as a separate, stand-alone company.

 

   

When applicable, if 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.

 

   

We share certain key directors and officers with Sphere Entertainment, MSG Sports and/or AMC Networks Inc. (together with its subsidiaries, as applicable, “AMC Networks”) (referred to herein as the “Other Entities”), which means those directors and officers do not devote their full time and attention to our affairs and the overlap may give rise to conflicts. These overlaps may result in the diversion of corporate opportunities and other conflicts, and provisions in our amended and restated certificate of incorporation may provide us no remedy in that circumstance.

 

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The Offering

 

Issuer

Madison Square Garden Entertainment Corp.

 

Shares of Class A common stock offered by the selling stockholder

7,150,000 shares (or 8,221,188 shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock)

 

Share Repurchase

In connection with this offering, we intend to purchase from the underwriters approximately $50 million of shares of our Class A common stock offered in this offering at a price per share equal to the price at which the underwriters will purchase the shares from the selling stockholder. Assuming that the underwriters purchase the shares of Class A common stock that are the subject of this offering from the selling stockholder at a price of $32.75 per share, which was the last reported sale price per share of our Class A common stock on the NYSE on September 15, 2023, we expect to repurchase 1,526,717 shares of our Class A common stock from the underwriters in the Share Repurchase. The underwriters will not receive any compensation for the shares of our Class A common stock being repurchased by us.

 

Shares of Class A common stock outstanding after this offering

41,178,705 shares(a)

 

Shares of Class A common stock owned by the selling stockholder immediately after this offering

1,071,188 shares (or 2.6% of our outstanding shares of Class A common stock) (or 0 shares (or 0% of our outstanding shares of Class A common stock) if the underwriters exercise in full their option to purchase additional shares of Class A common stock)(a)

 

Use of proceeds

We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholder. All of the shares in this offering are being sold by the selling stockholder. The selling stockholder will pay the underwriting discounts and certain of its legal expenses, and we will bear all other costs, fees and expenses incurred in connection with the offering.

 

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 from time to time in accordance with applicable law.

 

(a) 

In this prospectus, unless otherwise indicated, the number of shares of Class A common stock outstanding and the other information based thereon is based on 42,705,422 shares of Class A common stock outstanding as of September 15, 2023 (not inclusive of shares of Class A common stock issuable upon the exercise of outstanding options, conversion of outstanding Class B common stock or shares of Class A common stock reserved for issuance under our employee and non-employee director stock plans) and, for purposes of information regarding the number of shares of Class A common stock outstanding and the amounts and

 

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  percentages of shares beneficially owned immediately after this offering, assumes the purchase of 1,526,717 shares of our Class A common stock from the selling stockholder in connection with the Share Repurchase, based on an assumed purchase price calculated using $32.75, the last reported sale price of our Class A common stock on the NYSE on September 15, 2023.

 

Listing

Our Class A common stock is listed on the NYSE.

 

Ticker symbol

“MSGE”

 

Risk factors

Please read the section entitled “Risk Factors” beginning on page 15 of this prospectus for a discussion of some of the factors you should carefully consider before deciding to invest in our Class A common stock.

 

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Selected Historical and Unaudited Pro Forma Condensed Consolidated and Combined Financial Data

The historical operating and balance sheet data included in the following selected financial data table have been derived from the audited consolidated and combined financial statements as of June 30, 2023 and 2022 and for the three years ended June 30, 2023, 2022 and 2021 included elsewhere in this prospectus. The historical financial information presented below 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 historical financial data presented below should be read in conjunction with the consolidated and combined financial statements included elsewhere in this prospectus and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All amounts included in the selected historical financial data presented below are in thousands, except per share data or as otherwise noted.

Also set forth below are summary unaudited pro forma condensed consolidated and combined balance sheet data as of June 30, 2023 and summary unaudited pro forma condensed consolidated and combined statement of operations data for the year ended June 30, 2023. The unaudited pro forma condensed consolidated and combined balance sheet has been prepared giving effect to Sphere Entertainment’s draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50 million under the National Properties Revolving Credit Facility and the Share Repurchase as if these transactions had occurred as of June 30, 2023. Note that the MSGE Distribution is fully reflected in the audited consolidated balance sheet as of June 30, 2023. The unaudited pro forma condensed consolidated and combined statement of operations has been prepared giving effect to the MSGE Distribution, Sphere Entertainment’s draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50 million under the National Properties Revolving Credit Facility and the Share Repurchase as if these transactions had occurred on July 1, 2022. The unaudited pro forma condensed consolidated and combined financial information also reflects certain assumptions that we believe are reasonable given the information currently available. The unaudited pro forma condensed consolidated and combined financial information does not purport to represent what the Company’s financial position and results of operations actually would have been had the MSGE Distribution and other transactions occurred on the dates indicated, or to project the Company’s financial performance for any future period. See “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information” for more information.

 

    Pro Forma     Historical  
    Year Ended
June 30,
    Years Ended June 30,  
    2023     2023     2022     2021  
    (in thousands, except per share information)  

Operating Data:

       

Revenues

  $ 851,496     $ 851,496     $ 653,490     $ 81,812  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    72,631       105,008       (5,648     (237,288
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    38,154       76,044       (136,200     (219,308

Less: Net loss attributable to nonredeemable noncontrolling interests

    (553     (553     (2,864     (694
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MSG Entertainment’s stockholders

    38,707       76,597       (133,336     (218,614
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data:

       

Total assets

    1,336,157       1,401,157       1,526,701    

Total debt, net of deferred financing costs

    696,434       646,434       663,674    

Total MSG Entertainment stockholders’ deficit

    (184,472     (69,472     (1,475  

Earnings (loss) per share attributable to MSG Entertainment’s stockholders:

       

Basic

  $ 0.80     $ 1.48     $ (2.58   $ (4.22

Diluted

  $ 0.79     $ 1.47     $ (2.58   $ (4.22

Weighted-average number of shares of common stock:

       

Basic

    48,369       51,819       51,768       51,768  

Diluted

    48,828       52,278       51,768       51,768  

Non-GAAP Financial Measures (a)

       

Adjusted operating income (loss)

  $ 139,508     $ 175,048     $ 79,134     $ (123,384

 

(a) 

See “Adjusted operating income (loss)(“AOI”)” below.

 

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     Pro Forma     Historical  
     Year Ended
June 30,
    Years Ended June 30,  
     2023     2023     2022     2021  
     (in thousands)  
Other Financial Data:         

Reconciliation of Operating income (loss) to Adjusted operating income (loss):

        

Operating income (loss)

   $ 72,631     $ 105,008     $ (5,648   $ (237,288

Non-cash portion of arena license fees from MSG Sports (b)

     (26,545     (26,545     (27,754     (13,026

Share-based compensation expense

     26,358       29,521       37,746       40,663  

Depreciation and amortization

     60,463       60,463       69,534       71,576  

Restructuring charges

     10,241       10,241       5,171       14,691  

Gains, net of dispositions

     (4,361     (4,361     —         —    

Amortization for capitalized cloud computing arrangement costs

     600       600       39       —    

Remeasurement of deferred compensation plan liabilities

     121       121       46       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income (loss)

   $ 139,508     $ 175,048     $ 79,134     $ (123,384
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(b)

This adjustment represents the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports. Pursuant to GAAP (as defined below), recognition of operating lease revenue is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease revenue is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Operating income on a GAAP basis includes lease income of (i) $41,524, $40,319 and $8,319 collected in cash for Fiscal Years 2023, 2022 and 2021, respectively, and (ii) a non-cash portion of $26,545, $27,754 and $13,026 for Fiscal Years 2023, 2022 and 2021, respectively.

Adjusted operating income (loss) (“AOI”)

The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) before the following adjustments, which is referred to as adjusted operating income (loss) (“AOI”), a financial measure not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). We define adjusted operating income (loss) as operating income (loss) excluding:

 

  (i)

the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with MSG Sports,

 

  (ii)

depreciation, amortization and impairments of property and equipment, goodwill and intangible assets,

 

  (iii)

share-based compensation expense,

 

  (iv)

restructuring charges or credits,

 

  (v)

merger and acquisition-related costs, including litigation expenses,

 

  (vi)

gains or losses on sales or dispositions of businesses and associated settlements,

 

  (vii)

the impact of purchase accounting adjustments related to business acquisitions,

 

  (viii)

gains and losses related to the remeasurement of liabilities under MSG Entertainment’s Executive Deferred Compensation Plan (the “EDCP”), and

 

  (ix)

amortization for capitalized cloud computing arrangement costs.

 

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The Company believes that given the length of the Arena License Agreements and resulting magnitude of the difference in leasing revenue recognized and cash revenue received, the exclusion of non-cash leasing revenue provides investors with a clearer picture of the Company’s operating performance. Management believes that this adjustment is beneficial for other incremental reasons as well. This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with MSG Sports. In addition, this adjustment is included under the Company’s debt covenant compliance calculations and is a component of the performance measures used to evaluate, and compensate, senior management of the Company. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the EDCP, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the EDCP are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the EDCP, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss).

The Company believes AOI is an appropriate measure for evaluating the operating performance of the Company on a consolidated and combined basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.

AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI.

 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. Before you invest in our Class A common stock, you should carefully consider the following risks, together with all of the other information contained in this prospectus, including our financial statements and related notes. Any of the following risks could have a material adverse effect on our business, operating results, and financial condition and could cause the trading price of our Class A common stock to decline, which would cause you to lose all or part of your investment. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to Our Business

Our business faces intense and wide-ranging competition that may have a material negative effect on our business and results of operations.

Our business competes, in certain respects and to varying degrees, with other leisure-time activities such as television, radio, motion pictures, sporting events and other live performances, the Internet, social media and social networking platforms, 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 business is largely dependent on the continued success of the Christmas Spectacular, and the availability of, and our venues’ ability to attract, concerts, family shows, sporting events and other events, competition for which is intense, and the ability of performers 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 and elsewhere. The Chicago Theatre faces similar competition from other entertainment options in its market and elsewhere.

In addition, our business is highly sensitive to customer tastes and depends on our ability to attract artists and events. The success of our business depends in part upon our ability to offer live entertainment that is popular with customers. We contract with promoters and others to provide performers and events at our venues. There may be a limited number of popular artists, groups or events that can attract audiences to our venues, and our business would suffer to the extent that we are unable to continue to attract such artists, groups and events to perform at our venues.

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. In addition, we must maintain 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. We invest in our Christmas Spectacular production to continue to attract audiences. We cannot be assured that such investments will generate revenues that are sufficient to justify our investment or even that exceed our expenses.

The success of our business depends on the continued popularity of the Christmas Spectacular production, and the entertainment and sporting events we host at our venues, the decline of which could have a material negative effect on our business and results of operations.

The financial results of our business are dependent on the Christmas Spectacular production, for which the 2022 production represented 15% of our revenues in Fiscal Year 2023. Fan and consumer tastes also change frequently and it is a challenge to anticipate what will be successful at any point in time. The popularity of the Christmas Spectacular has in the past declined, for example, as a result of the COVID-19 pandemic, and if it were to decline in the future (including, for example, due to an economic downturn or another pandemic or other public health emergency), our revenues from ticket sales and concession and merchandise sales would likely

 

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decline, possibly materially as they did during the COVID-19 pandemic, and we might not be able to replace the lost revenue with revenues from other sources.

As a result of our commercial agreements with MSG Sports, the success of our business is also impacted in part by the popularity of MSG Sports’ Knicks and Rangers franchises with their fan bases and, in varying degrees, the teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in additional suite, sponsorship, food and beverage and merchandise sales during the teams’ regular seasons. Furthermore, success in the regular season may qualify the Knicks and Rangers for participation in post-season playoffs, which provides us with additional revenue by increasing the number of games played by the teams at The Garden, potentially helping improve attendance in subsequent seasons and increasing the popularity of our suites and sponsorships.

Our business strategy may, in the future, include the development of new productions, which could require us to make considerable investments for which there can be no guarantee of success.

As part of our business strategy, we may, in the future, explore the development of new productions for our existing venues, which may include expansions or enhancements of our existing productions or the creation of entirely new productions. Expansion or enhancement of productions and/or the development of new productions could require significant upfront expense that may never result in a viable show, as well as investment in sets, staging, creative processes, commissioning and/or licensing of intellectual property, casting and advertising, and may lead to dislocation of other alternative sources of entertainment that may have played in our venues absent these productions. To the extent that any efforts at expanding or enhancing productions or creating new productions do not result in a viable show, or to the extent that any such productions do not achieve expected levels of popularity among audiences, we may not recover the substantial expenses we previously incurred for non-capitalized investments. We have in the past written off, and may in the future write off, all or a portion of capitalized investments. In addition, any delay in launching potential productions or enhancements has in the past resulted and could in the future result in the incurrence of operating costs that are not recouped. For example, we wrote off approximately $75.4 million of deferred production costs across Fiscal Years 2016 and 2017 related to the New York Spectacular Starring the Radio City Rockettes.

We depend on licenses from third parties for the performance of musical works at our venues, the loss of which or renewal of which on less favorable terms may have a negative effect on our business and results of operations.

We are required to obtain public performance licenses from music performing rights organizations, commonly known as “PROs,” in connection with the performance of musical works at concerts and certain other live events held at our venues. In exchange for public performance licenses, PROs are paid a per-event royalty, traditionally calculated either as a percentage of ticket revenue or a per-ticket amount. The PRO royalty obligation of any individual event is generally paid by, or charged to, the promoter of the event.

If we are unable to obtain these licenses, or are unable to obtain them on terms consistent with past practice, it may have a negative effect on our business and results of operations. An increase in the royalty rate and/or the revenue base on which the royalty rate is applied could substantially increase the cost of presenting concerts and certain other live events at our venues. If we are no longer able to pass all or a portion of these royalties on to promoters (or other venue licensees), it may have a 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 from Seventh Avenue in New York City is a significant easement that we share with other property owners. Our ability to continue to utilize these and other easements, including for

 

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advertising and promotional purposes, requires us to comply with a number of conditions. 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.

A change to or withdrawal of a New York City real estate tax exemption for the Madison Square Garden Complex 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 2023, the tax exemption was $42.4 million. From time to time, there have been calls to repeal or amend the tax exemption. For example, in January 2023, a number of elected representatives from New York issued a public letter and, in July 2023, the New York City Independent Budget Office issued a report, in each case noting the tax exemption status should be reexamined. Any repeal of the tax exemption status would require action by the New York State legislature.

We are party to Arena License Agreements with subsidiaries of MSG Sports that require two of MSG Sports’ professional sports teams — the Knicks and Rangers — to play all of their home games at The Garden. Under the Arena License Agreements, which each have a term of 35 years running through 2055 (unless extended), the Knicks and the Rangers pay an annual license fee in connection with their respective use of The Garden. In addition, the Arena License Agreements provide us with additional revenue opportunities. Under the Arena License Agreements, the teams are responsible for 100% of any real property or similar taxes applicable to The Garden.

If the tax exemption is repealed or the teams are otherwise subject to the property tax due to no fault of the teams, the revenue that we generate from team events will be reduced on a percentage basis as set forth in the Arena License Agreements. The value of any such revenue reduction could be significant but is expected to be substantially less than the property tax paid by the teams. There can be no assurance that the tax exemption will not be amended in a manner that imposes property tax or repealed in its entirety, either of which could have a material negative effect on our business and results of operations.

Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.

The Company’s operations and operating results were materially impacted by the COVID-19 pandemic (including COVID-19 variants) and actions taken in response by governmental authorities and certain professional sports leagues during Fiscal Years 2020, 2021 and 2022. As a result of government-mandated assembly limitations and closures, all of our venues were closed beginning in March 2020 and substantially all of our business operations were suspended for the majority of Fiscal Year 2021. Use of The Garden resumed for Knicks and Rangers home games without fans in December 2020 and January 2021, respectively, and was available at 10% seating capacity from February through May 2021, subject to certain safety protocols and social distancing measures, and our New York and Chicago venues were not permitted to host events at full capacity until May 2021 and June 2021, respectively. The impact of the COVID-19 pandemic on our operations included (i) reduced payments under the Arena License Agreements while attendance at Knicks and Rangers home games was limited, (ii) the cancellation of the 2020 production of the Christmas Spectacular and the partial cancellation of the 2021 Christmas Spectacular production, (iii) fewer ticketed events at our venues once capacity restrictions

 

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were eliminated due to the lead time required to book touring acts and artists and (iv) the implementation of cost savings initiatives in order to streamline operations and preserve liquidity, including furloughing our venue employees while activities were limited, reducing our full-time workforce and additional comprehensive cost reduction measures. During Fiscal Years 2020 and 2021, over 70% and over 90% of the respective overall declines in our revenues were the result of the COVID-19 pandemic, in each case compared to the prior year period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations.”

It is unclear to what extent COVID-19, including variants thereof, or another pandemic or public health emergency, could result in renewed government or league-mandated capacity restrictions or vaccination/mask requirements or impact the use of and/or demand for our venues, demand for our sponsorship and signage assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations. Governmental regulations enacted in response to the COVID-19 pandemic or another pandemic or public health emergency may impact the revenue we derive and/or the expenses we incur from events that we choose to host such that events that were historically profitable would instead result in losses, and could also materially impact the payments we receive under the Arena License Agreements to the extent the Knicks and/or the Rangers are required to play games without an audience during future seasons or to suspend, cancel or otherwise reduce the number of games scheduled in the regular reason or playoffs. See “— Economic and Operational 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.”

Our business is particularly sensitive to reductions in travel and discretionary consumer spending. A pandemic such as COVID-19, or the fear of a new pandemic or public health emergency, has in the past and could in the future impede economic activity in impacted regions and globally over the long term leading to a decline in discretionary spending on sports and entertainment events and other leisure activities, including declines in domestic and international tourism, which could result in long-term effects on our business. To the extent a pandemic or other public health emergency adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our liquidity, indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Economic and Operational Risks

Our business has been adversely impacted and may, in the future, be materially adversely impacted by an economic downturn, recession, financial instability, inflation or changes in consumer tastes and preferences.

Our business depends upon the ability and willingness of consumers and businesses to purchase tickets at our venues, license suites and club memberships at The Garden, spend on food and beverages and merchandise, and drive continued sponsorship and signage revenues, and these revenues are sensitive to general economic conditions, recession, fears of recession and consumer behavior. For example, following the 2008 financial crisis, we experienced a lower level of event bookings and reduced renewals of certain of our suite licenses, which adversely affected the Company’s results of operations. Further, the industry is often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities (including spending on leisure travel), demographic trends, traffic patterns and the type, number and location of competing businesses.

Consumer and corporate spending has in the past declined and may in the future decline at any time for reasons beyond our control. The risks associated with our businesses generally become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and signage and decreases in attendance at live events, among other things, which we have experienced in the past and may experience in the future. In addition, inflation, which has significantly risen, has increased and may continue to

 

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increase operational costs, including labor costs, and continued increases in interest rates in response to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks. As a result, instability and weakness of the U.S. and global economies, disruptions to financial markets, inflation, recession, high unemployment, geopolitical events, including any prolonged effects caused by the COVID-19 pandemic or other similar outbreak or public health emergency, and the resulting negative effects on consumers’ and businesses’ discretionary spending, have in the past materially negatively affected, and may in the future materially negatively affect our business and results of operations. A prolonged period of reduced consumer or corporate spending, including with respect to sponsorship, such as during the COVID-19 pandemic, could have an adverse effect on our business and our results of operations. See “— Risks Related to Our Business — Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.”

We do not own all of our venues and our failure in the future to renew our leases on economically attractive terms may have a material negative effect on our business and results of operations.

We lease the Beacon Theatre and Radio City Music Hall under long-term leases that expire in 2036 and 2038, respectively. Under each of these leases, we have an option to renew for an additional ten years by providing notice prior to the expiration. If we are unable to renew our lease agreements on economically attractive terms, our business could be materially negatively affected. MSG Entertainment Holdings, the entity that guarantees the lease for Radio City Music Hall, is required to maintain a certain net worth that, if not maintained, would require the entity to post a letter of credit or provide cash collateral. If MSG Entertainment Holdings were to breach or become unable to satisfy this obligation, we could suffer operational difficulties and/or significant losses.

The geographic concentration of our business could subject us to greater risk than our competitors and have a material negative effect on our business and results of operations.

The Company primarily operates in New York City and, as a result, is subject to greater degrees of risk than competitors with more operating properties or that operate in more markets. The Garden, The Theater at Madison Square Garden, Radio City Music Hall and the Beacon Theatre are all located in New York City. Therefore, the Company is particularly vulnerable to adverse events (including acts of terrorism, natural disasters, epidemics, pandemics, weather conditions, labor market disruptions and government actions) and economic conditions in New York City and surrounding areas. For example, our operations and operating results were materially impacted by the COVID-19 pandemic. See “— Risks Related to Our Business — Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.”

Our business could be adversely affected by terrorist activity or the threat of terrorist activity, weather and other conditions that discourage congregation at prominent places of public assembly.

The success of our business 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, including acts of domestic terrorism, or other actions that discourage attendance. Any such activity or threatened activity at or near one of our venues or other similar venues, including those located elsewhere, could result in reduced attendance at our venues and a material negative effect on our business and results of operations. If one or more of our venues were unable to operate for an extended period of time, our business and operations may be materially adversely affected. Similarly, a major epidemic or pandemic, such as the COVID-19 pandemic, or the threat or perceived threat of such an event, has in the past adversely affected and could in the future adversely affect attendance at our events and venues by discouraging public assembly at our

 

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events and venues. Moreover, the costs of protecting against such incidents, including the costs of implementing additional protective measures for the health and safety of our guests, could reduce the profitability of our operations. See “— Risks Related to Our Business — Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.”

Weather or other conditions, including natural disasters, in locations where we own or operate venues may affect patron attendance as well as sales of food and beverages 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, and any such events may harm our ability to obtain or renew insurance coverage on favorable terms or at all.

We may pursue acquisitions and other strategic transactions and/or investments to complement or expand our business that may not be successful.

From time to time, we may explore opportunities to purchase or invest in other businesses, venues or assets that we believe will complement, enhance or expand our current business or that might otherwise offer us growth opportunities, including opportunities that may differ from the Company’s current business. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the payment of advances, the diversion of management’s attention and resources from our existing business to develop and integrate the acquired or combined business, the inability to successfully integrate such business or assets into our operations, litigation or other claims in connection with acquisitions or against companies we invest in or acquire, our lack of control over certain companies, including joint ventures and other minority investments, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful. At times, we have had significant investments in businesses that we account for under the equity method of accounting, and we may again in the future. Certain of these investments have generated operating losses in the past and certain have required additional investments from us in the form of equity or loans. There can be no assurance that these investments will become profitable individually or in the aggregate or that they will not require material additional funding from us in the future.

We may not control the day-to-day operations of these investments. We have in the past written down and, to the extent that these investments are not successful in the future, we may write down all or a portion of such investments. Additionally, these businesses may be 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. 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 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 business is subject to the general powers of federal, state and local governments, as well as foreign governmental authorities. We are also subject to the rules, regulations and decisions of the NBA and NHL to the extent such rules, regulations and decisions impact Knicks and Rangers home games.

 

   

Public Health and Safety. As a result of government mandated assembly limitations and closures implemented in response to the COVID-19 pandemic, our venues were unable to host events for the substantial majority of Fiscal Year 2021. There can be no assurance that some or all of these restrictions will not be imposed again in the future due to increased infection rates of COVID-19 (including variants) or another pandemic. We are unable to predict what the long-term effects of these events, including renewed government regulations or requirements, will be. For example, future governmental regulations adopted in response to the COVID-19 or another pandemic or public health

 

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emergency may impact the revenue we derive and/or the expenses we incur from the events that we choose to host, such that events that were historically profitable would instead result in losses. See “— Risks Related to Our Business — Our operations and operating results were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues, and a resurgence of the pandemic or another pandemic or other public health emergency could adversely affect our business and results of operations.”

 

   

Hospitality-related Permits/Licenses. 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 certain damages arising out of such violations. Our liability insurance coverage may not be adequate or available to cover any or all such potential liability.

 

   

Environmental Laws. 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. Compliance with these regulations and the associated costs may be heightened as a result of the purchase, construction or renovation of a venue. 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, as well as for any personal injury or property damage related to any contamination. Our liability insurance coverage may not be adequate or available to cover any or all such potential liability.

 

   

Zoning and Building Regulations. Our venues are subject to zoning and building regulations including permits relating to the operation of The Garden. The Garden requires a zoning special permit, which was originally granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years (while our current application for renewal of the zoning special permit remains pending, we have been advised that we can continue to use and operate The Garden as normal until the renewal review process concludes). On August 28, 2023, the New York City Council Land Use Committee and Subcommittee on Zoning and Franchises recommended a five year term for a new zoning special permit for The Garden that will expire in September 2028, which was approved by the entire New York City Council on September 14, 2023. Relevant rail agencies are considering proposals to redevelop Penn Station, which proposed redevelopment would impact The Garden, which sits atop Penn Station (and could impact the Theater at Madison Square Garden, which is part of The Garden complex, depending on the outcome of negotiations between relevant stakeholders, including us). Certain government officials and special interest groups may use a future renewal process for the zoning special permit to pressure us to make financial contributions to the redevelopment of Penn Station, relocate or transfer all or portions of The Madison Square Garden Complex. For example, in June 2023 the New York Metropolitan Transportation Authority, New Jersey Transit and Amtrak, which operate commuter rail services from Penn Station, issued a compatibility report asserting that The Garden imposes severe constraints on Penn Station that restrict efforts to make its desired improvements. The report also called for the Company to make significant cash contributions and property transfers to facilitate the Penn Station redevelopment. There can be no assurance regarding the future renewal of the special permit or the terms thereof (including requirements for us to make significant capital expenditures as a condition to renewal of the permit), and the failure to obtain such renewal or to do so on favorable terms would have a material negative effect on our business.

 

   

Data Privacy. We are subject to various data privacy and protection laws, regulations, policies and contractual obligations that apply to the collection, transmission, storage, processing and use of

 

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personal information or personal data, which, among other things, impose certain requirements relating to the privacy and security of personal information. The variety of laws and regulations governing data privacy and protection, and the use of the internet as a commercial medium, are rapidly evolving, extensive and complex, and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application. The data protection landscape is rapidly evolving in the United States. As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. For example, California has passed a comprehensive data privacy law, the California Consumer Privacy Act of 2018 (the “CCPA”), and a number of other states, including Virginia, Colorado, Utah and Connecticut have also passed similar laws, and additional states may do so in the near future. Additionally, the California Privacy Rights Act (the “CPRA”) imposes additional data protection obligations on covered businesses, including additional consumer rights procedures and obligations, limitations on data uses, new audit requirements for higher-risk data, and constraints on certain uses of sensitive data. The majority of the CPRA provisions went into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, there are several legislative proposals in the United States, at both the federal and state level, that could impose new privacy and security obligations. We cannot yet determine the impact that these future laws and regulations may have on our business.

In addition, governmental authorities and private litigants continue to bring actions against companies for online collection, use, dissemination and security practices that are unfair or deceptive.

Our business is, 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; and compliance with the Americans with Disabilities Act (and related state and local statutes).

Any changes to the legal and regulatory framework applicable to our business, especially in the rapidly evolving area of data privacy or to a lesser extent public health and safety, could have an adverse impact on our business and our failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could result in liability or government actions that could have a material negative effect on our business and results of operations.

Our business is subject to seasonal fluctuations, and our operating results and cash flow have in the past varied, and could in the future, vary substantially from period to period.

Our revenues and expenses have been seasonal and we expect they will continue to be seasonal. For example, 15% of our revenues in Fiscal Year 2023 were derived from the Christmas Spectacular. Our revenues are highest in the second quarter of our fiscal year when these performances primarily occur. As a result, our business earns a disproportionate amount of its revenue and operating income in the second quarter of each fiscal year. Therefore, our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Consequently, 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.

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, email marketing, point of sale transactions, database, inventory, human resource management and financial systems. From time to time, certain of these

 

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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.

Labor matters may have a material negative effect on our business and results of operations.

As a result of labor market disruptions due to lingering effects of the COVID-19 pandemic and otherwise, we have in the past faced difficulty in maintaining staffing at our venues and retaining talent in our corporate departments. As a result, we have had to scale back hours and days of operations in certain markets and venues. If we are unable to attract and retain qualified people or to do so on reasonable terms, our venues could be short staffed or become more expensive to operate and affect our ability to meet our customers’ demand, any of which could materially adversely affect our business and results of operations.

Our business is dependent upon the efforts of unionized workers. As of June 30, 2023, approximately 70% of the Company’s workforce was subject to CBAs. Approximately 26% of such union employees are subject to CBAs that expired as of June 30, 2023 and approximately 20% are subject to CBAs that will expire by June 30, 2024 if they are not extended prior thereto. Any labor disputes, such as strikes or lockouts, with the unions with which we have CBAs could have a material negative effect on our business and results of operations (including our ability to produce or present concerts, programming, theatrical productions, sporting events and other events).

Additionally, NBA and NHL players are covered by CBAs. Both leagues have experienced labor difficulties in the past and may have labor issues in the future, such as player strikes or management lockouts. If any Knicks or Rangers games are cancelled because of any such labor difficulties, the loss of revenue, including from customers who would have attended home games at The Garden would have a negative impact on our business and results of operations.

There is a risk of 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 or negative publicity in other types of litigation.

There are inherent risks associated with producing and hosting events and operating, maintaining, renovating or constructing our venues. As a result, personal injuries, accidents and other incidents have occurred and may occur from time to time, which have in the past and could in the future subject us to claims and liabilities.

These risks may not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance policy. Incidents in connection with events at any of our venues could also reduce attendance at our events and may have a negative impact on our revenue and results of operations. We seek to obtain contractual indemnities for events at our venues that we do not promote, and under the Arena License Agreements, MSG Sports and the Company have reciprocal indemnity obligations to each other in connection with the home games of the Knicks and Rangers held at The Garden. While we also 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, the Company, its subsidiaries and/or our affiliates are involved in various legal proceedings, including proceedings or lawsuits brought by governmental agencies, stockholders, customers, employees, private parties and other stakeholders. The outcome of litigation is inherently unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming, disruptive to our operations and distracting to management. In addition, publicity from these matters could negatively impact our business or reputation, regardless of the accuracy of such publicity. As a result, we may incur liability from litigation (including in connection with settling such litigation) which could be material and for which we may not have

 

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available or adequate insurance coverage, or be subject to other forms of non-monetary relief which may adversely affect the Company. By its nature, the outcome of litigation is difficult to assess and quantify, and its continuing defense is costly. The liabilities and any defense costs we incur in connection with any such litigation could have an adverse effect on our business and results of operations.

Risks Related to Indebtedness and Financial Condition

We have substantial indebtedness and are highly leveraged, which could adversely affect our business.

The Company is highly leveraged with a significant amount of debt and may continue to incur additional debt in the future. As of June 30, 2023, our total indebtedness was $643 million, $16 million of which matures before the end of fiscal year 2024.

On June 30, 2022, MSG National Properties and certain other subsidiaries entered into the National Properties Credit Agreement, providing for a five-year $650 million senior secured term loan facility (the “National Properties Term Loan Facility”) and the National Properties Revolving Credit Facility, a five-year $100 million revolving credit facility (together with the National Properties Term Loan Facility, the “National Properties Facilities”), which are guaranteed by MSG Entertainment Holdings, to fund working capital needs, for general corporate purposes of MSG National Properties and its subsidiaries, and to make distributions to MSG Entertainment Holdings. As of June 30, 2023, outstanding letters of credit were $8.4 million and the remaining balance available under the National Properties Revolving Credit Facility was $74.5 million. The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended March 31, 2023, in an aggregate amount equal to 2.50% per annum (0.625% per quarter), stepping up to 5.0% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facility. The National Properties Credit Agreement also includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. On September 15, 2023, MSG National Properties entered into the National Properties Amendment, pursuant to which, among other things, the commitments under the National Properties Revolving Credit Facility were increased by an aggregate amount of $50 million to $150 million. See “Summary — Recent Developments.”

As a result of this indebtedness, we are required to make interest and principal payments on our borrowings that are significant in relation to our revenues and cash flows. These payments reduce our earnings and cash available for other potential business purposes. Furthermore, our interest expense could increase if interest rates increase (including in connection with rising inflation) because our indebtedness bears interest at floating rates or to the extent we have to refinance existing debt with higher cost debt.

In addition, the ability of MSG National Properties to draw on its revolving credit facility will depend on its ability to meet certain financial covenants and other conditions. This leverage also exposes us to significant risk by limiting our flexibility in planning for, or reacting to, changes in our business (whether through competitive pressure or otherwise), the entertainment and hospitality industries and the economy at large. Although our cash flows could decrease in these scenarios, our required payments in respect of indebtedness would not decrease.

In addition, our ability to make payments on, or repay or refinance, such debt, and to fund our operating and capital expenditures, depends largely upon our future operating performance and our ability to access the credit markets. Our future operating performance, to a certain extent, is subject to general economic conditions, recession, fears of recession, and financial, competitive, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, or raise additional debt or equity capital. We cannot provide assurance that we could do so on commercially reasonable terms or at all, or that these actions would be sufficient to meet our capital requirements.

 

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Even if our future operating performance is strong, limitations on our ability to access the capital or credit markets, including as a result of general economic conditions, unfavorable terms or general reductions in liquidity may adversely and materially impact our business, financial condition and results of operations.

The failure to satisfy the covenants, including any inability to attain a covenant waiver, and other requirements under the credit agreement could trigger a default thereunder, acceleration of outstanding debt thereunder and a demand for payment under the guarantee provided by MSG Entertainment Holdings, which would negatively impact our liquidity and could have a negative effect on our business.

Our variable rate indebtedness subjects us to interest rate risk, which has caused, and may continue to cause, our debt service obligations to increase significantly.

Borrowings under our facilities are at variable rates of interest and expose us to interest rate risk. The interest rate on the National Properties Facilities was 7.70% as of June 30, 2023. Interest rates have increased significantly (including in connection with rising inflation), and, as a result, our debt service obligations on our variable rate indebtedness have increased significantly even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, have correspondingly decreased. Further increases in interest rates will cause additional increases in our debt service obligations.

We have incurred substantial operating losses, adjusted operating losses and negative cash flow and there is no assurance we will have operating income, positive adjusted operating income or positive cash flow in the future.

We incurred operating income (loss) of $105.0 million and $(5.6) million for Fiscal Year 2023 and Fiscal Year 2022, respectively. In addition, we have in prior periods incurred operating losses and negative cash flow and there is no assurance that we will have operating income, adjusted operating income, or positive cash flow in the future. 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 indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations.”

Sphere Entertainment’s management identified a material weakness during Fiscal Year 2022, which has now been remediated. If we identify other material weaknesses or adverse findings in the future, our ability to report our financial condition or results of operations accurately or timely may be adversely affected, which may result in a loss of investor confidence in our financial reports, significant expenses to remediate any internal control deficiencies, and ultimately have an adverse effect on the market price of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), our management will be required to report on, and our independent registered public accounting firm will be required to attest to, the effectiveness of our internal control over financial reporting. Currently, we are an emerging growth company, and are exempt from complying with the auditor attestation requirements of Section 404, but we will be subject to the requirements in the future. The rules governing the standards that must be met for management to assess internal control over financial reporting are complex and require significant documentation, testing and possible remediation. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. If we fail to achieve and maintain an effective internal control environment, we could suffer misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could result in significant expenses to remediate any internal control deficiencies and lead to a decline in our stock price.

Once we are subject to these requirements, our management may be unable to conclude in future periods that our disclosure controls and procedures are effective due to the effects of various factors, which may, in part,

 

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include unremediated material weaknesses in internal controls over financial reporting. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in those reports is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, we may not be able to identify and remediate other control deficiencies, including material weaknesses, in the future.

Subsequent to the filing of the Fiscal Year 2021 Form 10-K, Sphere Entertainment management evaluated an immaterial accounting error related to interest costs that should have been capitalized for the Sphere in Las Vegas in Fiscal Years 2021, 2020 and 2019 and in the fiscal quarter ended September 30, 2021, as prescribed by Accounting Standards Codification Topic 835-20 — Capitalization of Interest. As a result of the accounting error, Sphere Entertainment re-evaluated the effectiveness of its internal control over financial reporting and identified a material weakness as of June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022. Sphere Entertainment undertook certain remediation efforts by implementing additional controls which were operating effectively as of June 30, 2022, and as a result, Sphere Entertainment’s management has concluded that the material weakness has been remediated and its internal control over financial reporting was effective as of June 30, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. In the MSGE Distribution, the internal control structure of Sphere Entertainment was transferred to our company, and we now provide those services under the Transition Services Agreement with Sphere Entertainment.

Risks Related to Cybersecurity and Intellectual Property

The success of our business and other operations depends, in part, on the integrity of our systems and infrastructure, as well as affiliate and third-party computer systems, computer networks and other communication systems. System interruption and the lack of integration and redundancy in these systems and infrastructure may have an adverse impact on our business, financial condition and results of operations.

System interruption and the lack of integration and redundancy in the information systems and infrastructure, both of our own websites and other computer systems and of affiliate and third-party software, computer networks and other communications systems service providers on which we rely with respect to ticket sales, credit card processing, email marketing, point of sale transactions, database, inventory, human resource management and financial systems, may adversely affect our ability to operate websites or apps, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disaster, malicious actions, such as hacking or acts of terrorism or war, or human error. With respect to third-party software or systems, certain of these arrangements are not covered by long-term agreements. In addition, the loss of some or all of certain key personnel could require us to expend additional resources to continue to maintain our software and systems and could subject us to systems interruptions.

While we have backup systems and offsite data centers for certain aspects of our operations, disaster recovery planning by its nature cannot be for all eventualities. In addition, we may not have adequate insurance coverage to compensate for any or all losses from a major interruption. If any of these adverse events were to occur, it could adversely affect our business, financial condition and results of operations.

We face continually evolving cybersecurity and similar risks, which could result in loss, disclosure, theft, destruction or misappropriation of, or access to, our confidential information and cause disruption of our business, damage to our brands and reputation, legal exposure and financial losses.

Through our operations, we collect and store, including by electronic means, certain personal, proprietary and other sensitive information, including payment card information, that is provided to us through purchases,

 

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registration on our websites, mobile applications, or otherwise in communication or interaction with us. These activities require the use of online services and centralized data storage, including through third-party service providers. Data maintained in electronic form is subject to the risk of security incidents, including breach, compromise, intrusion, tampering, theft, destruction, misappropriation or other malicious activity. Our ability to safeguard such personal and other sensitive information, including information regarding the Company and our customers, sponsors, partners and employees, independent contractors and vendors, is important to our business. We take these matters seriously and take significant steps to protect our stored information, including the implementation of systems and processes to thwart malicious activity. These protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. See “— Economic and Operational 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.”

Despite our efforts, the risks of a security incident cannot be entirely eliminated and our information technology and other systems that maintain and transmit consumer, sponsor, partner, Company, employee and other confidential and proprietary information may be compromised due to employee error or other circumstances such as malware or ransomware, viruses, hacking and phishing attacks, denial-of-service attacks, business email compromises, or otherwise. A compromise of our or our vendors’ systems could affect the security of information on our network or that of a third-party service provider. Additionally, outside parties may attempt to fraudulently induce employees, vendors or users to disclose sensitive, proprietary or confidential information in order to gain access to data and systems. As a result, our or our customers’ or affiliates’ sensitive, proprietary and/or confidential information may be lost, disclosed, accessed or taken without consent. For example, in November 2016, a payment card issue that affected cards used at merchandise and food and beverage locations at several of our New York venues and The Chicago Theatre was identified and addressed with the assistance of security firms. The issue was promptly fixed and enhanced security measures were implemented.

We also continue to review and enhance our security measures in light of the constantly evolving techniques used to gain unauthorized access to networks, data, software and systems. We may be required to incur significant expenses in order to address any actual or potential security incidents that arise and we may not have insurance coverage for any or all of such expenses. If we experience an actual or perceived security incident, our ability to conduct business may be interrupted or impaired, we may incur damage to our systems, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property. Unauthorized access to or security breaches of our systems could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, diversion of management’s attention, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation that may include liability for stolen or lost assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities. In addition, in the event of a security incident, changes in legislation may increase the risk of potential litigation. For example, the CCPA, which provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information is breached as a result of a business’ violation of its duty to reasonably secure such information, took effect on January 1, 2020 and was expanded by the CPRA, which took effect in January 2023. A number of other states have passed similar laws and additional states may do so in the near future. Our insurance coverage may not be adequate to cover the costs of a data breach, indemnification obligations or other liabilities.

In addition, in some instances, we may have obligations to notify relevant stakeholders of security breaches. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and may require us to expend significant capital and other resources to respond to or alleviate problems caused by an actual or perceived security breach.

 

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We may become subject to infringement or other claims relating to our content or technology.

From time to time, third parties assert against us alleged intellectual property infringement claims (e.g., copyright, trademark and patent) or other claims relating to our productions, venues and brands, technologies, digital content 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, violation of rights of privacy or publicity or similar types of allegations. Any such claims, regardless of their merit or outcome, could cause us to incur significant costs that could harm our results of operations. We may not be indemnified against, or have insurance coverage for, claims or costs of these types. In addition, if we are unable to continue the use of certain intellectual property rights, our business and results of operations could be materially negatively impacted.

Theft of our intellectual property may have a material negative effect on our business and results of operations.

The success of our business depends in part on our ability to maintain and monetize our intellectual property rights, including our brand logos, our technologies, digital content and other content that is material to our business. Theft of our intellectual property, including content, could have a material negative effect on our business and results of operations because it may reduce the revenue that we are able to receive from the legitimate exploitation of such intellectual property, undermine lawful distribution channels and limit our ability to control the marketing of our content and inhibit our ability to recoup or profit from the costs incurred to create such content. Litigation may be necessary to enforce our intellectual property rights or protect our trade secrets. Any litigation of this nature, regardless of the outcome, could cause us to incur significant costs as well as subject us to the other inherent risks of litigation discussed above under “— Economic and Operational Risks — There is a risk of 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 or negative publicity in other types of litigation.”

Corporate Governance Risks

We are materially dependent on affiliated entities’ performances under various agreements.

We have entered into various agreements with Sphere Entertainment and MSG Sports that govern our ongoing commercial relationship, including the Arena License Agreements, sponsorship agency agreements in connection with the sale of sponsorships for the Knicks and Rangers, as well as MSG Sports’ other teams, and a trademark license agreement regarding the use of the “MSG” name.

The Company provides Sphere Entertainment and MSG Sports with certain business services pursuant to services agreements, such as information technology, accounts payable, payroll, tax, certain legal functions, human resources, insurance and risk management, government affairs, investor relations, corporate communications, benefit plan administration and reporting, and internal audit functions, as well as certain marketing functions. These services include the collection and storage of certain personal information regarding employees and/or customers as well as information regarding the Company, Sphere Entertainment, MSG Sports and our sponsors and partners. See also “— Risks Related to Cybersecurity and Intellectual Property — We face continually evolving cybersecurity and similar risks, which could result in loss, disclosure, theft, destruction or misappropriation of, or access to, our confidential information and cause disruption of our business, damage to our brands and reputation, legal exposure and financial losses.”

The services agreements and certain of the commercial arrangements are subject to potential termination in the event Sphere Entertainment or MSG Sports and the Company are no longer affiliates, as applicable.

The Company and its affiliated entities each rely on the other to perform its obligations under all of these agreements. If one of the affiliated entities were to breach, be unable to satisfy its material obligations under these agreements, including a failure to satisfy its indemnification or other financial obligations, or these agreements otherwise terminate or expire and we do not enter into replacement agreements, we could suffer operational difficulties and/or significant losses.

 

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A significant amount of our total outstanding shares may be sold freely into the market. This has caused and could in the future cause the market price of our common stock to drop significantly, even if our business is doing well.

Sphere Entertainment retained 17,021,491 shares of our Class A common stock, representing 37.8% of our Class A common stock and 33.0% of our total outstanding shares, following the MSGE Distribution. Sphere Entertainment is required by applicable tax rules to dispose of all retained shares as soon as practicable consistent with the business purposes for the retention, and expects to dispose of such retained shares within one year of the date of the MSGE Distribution, subject to market conditions. On June 27, 2023, Sphere Entertainment completed a secondary offering of 6,037,500 shares of our Class A common stock and sold 840,053 shares of our Class A common stock to us pursuant to a stock purchase agreement. Between the launch and pricing of that offering by Sphere Entertainment, the price of our Class A common stock declined by 22%, from $39.64 per share to $31.00 per share (the public offering price). As of June 30, 2023, Sphere Entertainment owned approximately 23.0% of our Class A common stock. On August 9, 2023, Sphere Entertainment repaid the DDTL Facility with 1,922,750 shares of our Class A common stock, and as a result Sphere Entertainment owned approximately 19.3% of our Class A common stock as of September 15, 2023.

We, all of our executive officers and directors and the selling stockholder are subject to lock-up agreements that restrict our and their ability to transfer shares of our capital stock for 60 days from the date of this prospectus. Subject to certain exceptions, the lock-up agreements limit the number of shares of capital stock that may be sold immediately following this offering. Subject to certain limitations, as of September 15, 2023, approximately 2,173,158 shares of Class A common stock (inclusive of exercisable options) and 6,866,754 shares of Class B common stock will become eligible for sale upon expiration of the 60-day lock-up period. J.P. Morgan Securities LLC may, in its sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

The sale of our Class A common stock retained by Sphere Entertainment in this offering or other sales of significant amounts of shares of our Class A common stock could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of our Class A common stock.

We may have a significant indemnity obligation to Sphere Entertainment if the MSGE Distribution is treated as a taxable transaction.

We have entered into a Tax Disaffiliation Agreement with Sphere Entertainment, which sets out each party’s rights and obligations with respect to federal, state, local or foreign taxes for periods before and after the MSGE Distribution and related matters such as the filing of tax returns and the conduct of the Internal Revenue Service (the “IRS”) and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify Sphere Entertainment for losses and taxes of Sphere Entertainment resulting from the breach of certain covenants and for certain taxable gain recognized by Sphere Entertainment, including as a result of certain acquisitions of our stock or assets. If we are required to indemnify Sphere Entertainment 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 MSGE 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 MSGE Distribution.

To preserve the tax-free treatment of the MSGE Distribution to Sphere Entertainment and its stockholders, under the Tax Disaffiliation Agreement with Sphere Entertainment, for the two-year period following the MSGE Distribution, we are 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;

 

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

 

   

certain repurchases of shares of our Class A common stock;

 

   

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 MSGE 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.

Certain adverse U.S. federal income tax consequences might apply to non-U.S. holders that hold our Class A common stock if we are treated as a USRPHC.

We have not made a determination as to whether we are deemed to be a USRPHC, as defined in section 897(c)(2) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, we would be considered a USRPHC if, on any applicable determination date, the fair market value of our “U.S. real property interests” equals or exceeds 50% of the aggregate fair market value of our worldwide real property interests and our other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). However, because the determination of whether we are a USRPHC turns on the relative fair market value of our U.S. real property interests and our other assets, and because the USRPHC rules are complex and the determination of whether we are a USRPHC depends on facts and circumstances that may be beyond our control, we can give no assurance as to our USRPHC status. If we are treated as a USRPHC, certain adverse U.S. federal income tax consequences might apply to non-U.S. holders that hold our Class A common stock. A beneficial owner of our Class A common stock that is a non-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. For more information, see “Material U.S. Federal Tax Considerations.”

We do not have an operating history as a stand-alone public company.

Prior to the MSGE Distribution, our operations were a part of Sphere Entertainment, and Sphere Entertainment provided us with various financial, operational and managerial resources for conducting our business. Following the MSGE Distribution, we maintain our own credit and banking relationships and perform certain of our own financial and operational functions. We cannot assure you that we have 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 may not be representative of our results as a separate, stand-alone company.

Historical financial information we have included in this prospectus through April 20, 2023 has been derived from the consolidated financial statements and accounting records of Sphere Entertainment 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 Sphere Entertainment did account for the Entertainment business (inclusive of the Sphere business) as a separate business segment, we were not operated as a separate, stand-alone company for the historical periods presented. The historical costs and expenses

 

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reflected in our consolidated and combined financial statements through April 20, 2023 include an allocation for certain corporate functions historically provided by Sphere Entertainment, including general corporate expenses and employee benefits and incentives. These allocations were based on what we and Sphere Entertainment 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.

We have incurred and may in the future incur additional material costs and expenses as a result of our separation from Sphere Entertainment.

We have incurred and may in the future incur additional material costs and expenses greater than those we incurred prior to our separation from Sphere Entertainment. These increased costs and expenses have arisen and may arise from various factors, including financial reporting and costs associated with complying with federal securities laws (including compliance with 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 Sphere Entertainment, even though following the MSGE Distribution we are a smaller, stand-alone company. We cannot assure you that these costs will not be material to our business.

If 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.

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 (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 non-binding 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 MSGE Distribution. We will cease to be an emerging growth company, and, therefore, become ineligible to rely on the above exemptions, if we: (a) have more than $1.235 billion in annual revenue in a fiscal year; (b) issue more than $1 billion of non-convertible debt over a three-year period; or (c) become a “large accelerated filer” as defined in Rule 12b-2 under 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.

 

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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. As a result of their control, the Dolan Family has the ability to prevent or cause a change in control or approve, prevent or influence certain actions by the Company.

We have two classes of common stock:

 

   

Class A common stock, par value $0.01 per share, which is entitled to one vote per share and is entitled collectively to elect 25% of our Board; and

 

   

Class B common stock, par value $0.01 per share, which is entitled to 10 votes per share and is entitled collectively to elect the remaining 75% of our Board.

As of September 15, 2023, the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the “Dolan Family Group”) collectively owns all of our Class B common stock, approximately 4.7% of our outstanding Class A common stock (inclusive of options exercisable and restricted stock units vesting within 60 days of September 15, 2023) and approximately 63.1% of the total voting power of all our outstanding common stock (in each case, inclusive of exercisable options). The members of the Dolan Family Group holding Class B common stock are parties to a Stockholders Agreement, which 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 our Class B common stock. Under the Stockholders Agreement, the shares of Class B common stock owned by members of the Dolan Family Group (representing all of the outstanding Class B common stock) are to be voted on all matters in accordance with the determination of the Dolan Family Committee (as defined below), except that the decisions of the Dolan Family Committee are non-binding with respect to the Class B common stock owned by certain Dolan family trusts that collectively own approximately 40.5% of the outstanding Class B common stock (“Excluded Trusts”). The “Dolan Family Committee” consists of Charles F. Dolan and his six children, James L. Dolan, Thomas C. Dolan, Patrick F. Dolan, Kathleen M. Dolan, Marianne Dolan Weber and Deborah A. Dolan-Sweeney. The Dolan Family Committee generally acts by majority vote, except that approval of a going-private transaction must be approved by a two-thirds vote and approval of a change-in-control transaction must be approved by not less than all but one vote. The voting members of the Dolan Family Committee are James L. Dolan, Thomas C. Dolan, Kathleen M. Dolan, Deborah A. Dolan-Sweeney and Marianne Dolan Weber, with each member having one vote other than James L. Dolan, who has two votes. Because James L. Dolan has two votes, he has the ability to block Dolan Family Committee approval of any Company change in control transaction. Shares of Class B common stock owned by Excluded Trusts will on all matters be voted on in accordance with the determination of the Excluded Trusts holding a majority of the Class B common stock held by all Excluded Trusts, except in the case of a vote on a going private transaction or a change in control transaction, in which case a vote of trusts holding two-thirds of the Class B common stock owned by Excluded Trusts is required.

The Dolan Family Group is able to prevent a change in control of our Company and no person interested in acquiring us would be able to do so without obtaining the consent of the Dolan Family Group. The Dolan Family Group, by virtue of its stock ownership, has the power to elect all of our directors subject to election by holders of Class B common stock, and is 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.

In addition, the affirmative vote or consent of the holders of at least 6623% 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

 

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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, the Dolan Family Group has the power to prevent such issuance or amendment.

The Dolan Family Group also controls Sphere Entertainment, MSG Sports and AMC Networks.

The members of the Dolan Family Group entered into an agreement with the Company in which they agreed that, during the 12-month period beginning on the MSGE Distribution date, the Dolan Family Group would 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 to be independent directors for purposes of NYSE corporate governance standards.

We have elected to be a “controlled company” for NYSE purposes, which allows us not to comply with certain of the corporate governance rules of the NYSE.

The members of the Dolan Family Group have entered into a Stockholders Agreement relating, among other things, to the voting of their shares of our Class B common stock. As a result, we are a “controlled company” under the corporate governance rules of the NYSE. As a controlled company, we have the right to elect not to comply with the corporate governance rules of the NYSE 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 has elected for the Company to be treated as a “controlled company” under NYSE corporate governance rules and not to comply with the NYSE 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, our Board has elected to comply with the NYSE 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 our Class A common stock are 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.

As described below, certain parties have registration rights covering a portion of our shares of Class A common stock.

We have entered into registration rights agreements with Charles F. Dolan, members of his family, and certain Dolan family interests that provide them with “demand” and “piggyback” registration rights with respect to approximately 8.5 million shares of Class A common stock (inclusive of exercisable options), including shares issuable upon conversion of shares of Class B common stock.

We have also entered into a Stockholder and Registration Rights Agreement with Sphere Entertainment, pursuant to which we provided Sphere Entertainment with “demand” and “piggyback” registration rights with respect to the 17,021,491 shares of Class A common stock it owned following the MSGE Distribution, inclusive of the shares sold in the secondary offering by Sphere Entertainment on June 27, 2023 and shares repurchased by the Company through Sphere Entertainment’s repayment of the DDTL Facility on August 9, 2023. In addition, Sphere Entertainment has agreed to vote the Class A common stock that it owns in proportion to the votes cast by the other holders of the Company’s Class A common stock on such matter, to the extent such shares of Class A

 

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common stock are entitled to be voted on such matter. The shares of Class A common stock owned by Sphere Entertainment will be present at all stockholder meetings for quorum purposes. Sphere Entertainment has granted the Company an irrevocable proxy to implement these voting agreements. Sphere Entertainment is required by applicable tax rules to dispose of all the retained shares, which represented approximately 19.3% of the outstanding shares of our Class A common stock as of September 15, 2023, as soon as practicable consistent with the business purposes for the retention, and expects to dispose of such retained shares within one year of the date of the MSGE Distribution, subject to market conditions.

Sales of a substantial number of shares of Class A common stock, including sales pursuant to these registration rights agreements, 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 Class A common stock. Such adverse effects could be particularly negative during the period between the completion of the MSGE Distribution and the time when Sphere Entertainment completes its disposition of the retained shares.

We share certain directors and officers with Sphere Entertainment, MSG Sports and/or AMC Networks, which means those officers will not devote their full time and attention to our affairs and the overlap may give rise to conflicts.

James L. Dolan serves as the Executive Chairman and Chief Executive Officer of both the Company and Sphere Entertainment and as the Executive Chairman of MSG Sports. James L. Dolan also currently serves as Non-Executive Chairman of AMC Networks. In addition, Gregg G. Seibert serves as a Vice Chairman of the Company, MSG Sports, Sphere Entertainment and AMC Networks and Charles F. Dolan serves as Chairman Emeritus of AMC Networks concurrently with his service on our Board. Furthermore, nine of the members of our Board also serve as directors of Sphere Entertainment, nine serve as directors of MSG Sports and five serve as directors of AMC Networks, including our Executive Chairman and Chief Executive Officer, who serves as Non-Executive Chairman of AMC Networks. There is no overlap of Class A Directors between Sphere Entertainment and the Company. We refer to these persons as “Overlap Persons.” The Overlap Persons 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, on the one hand, and Sphere Entertainment, MSG Sports, and/or AMC Networks and their respective subsidiaries and successors, on the other hand, 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 and us. In addition, certain of our directors and officers continue to own stock and/or stock options or other equity awards of an Other Entity. 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 the section entitled “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of Interest” in the Company’s Information Statement, dated April 3, 2023, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 4, 2023 (the “Information Statement”) for a discussion of certain procedures we have instituted to help ameliorate such potential conflicts that may arise.

Our overlapping directors and officers with Sphere Entertainment, MSG Sports and/or AMC Networks may result in the diversion of corporate opportunities to Sphere Entertainment, MSG Sports 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 acknowledges that directors and officers of the Company may also be serving as directors, officers, employees or agents of an Other Entity, and that the Company may engage in material business transactions with such Other Entities. The Company has renounced its rights to certain business opportunities and the Company’s amended and restated certificate of incorporation provides that no Overlap Person 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

 

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(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 Overlap Person in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their respective stockholders. See the section entitled “Description of Capital Stock — Certain Corporate Opportunities and Conflicts” in the Information Statement.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

the level of our expenses, including our corporate expenses;

 

   

the level of our revenues, which depends in part on the popularity of the Christmas Spectacular, the sports teams whose games are played at The Garden, and other events which are presented in our venues;

 

   

lack of operating history as a stand-alone public company and costs associated with being an independent public company;

 

   

the on-ice and on-court performance of the professional sports teams whose games we host in our venues;

 

   

the level of our capital expenditures and other investments;

 

   

general economic conditions, especially in the New York City and Chicago metropolitan areas where we have business activities;

 

   

the demand for sponsorship and suite arrangements;

 

   

competition, for example, from other venues and sports and entertainment options, including of new competing venues;

 

   

our ability to effectively manage any impacts of a pandemic or other public health emergency (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable;

 

   

the effect of any postponements or cancellations by third-parties or the Company as a result of a pandemic or other public health emergency due to operational challenges and other health and safety concerns (such as the partial cancellation of the 2021 production of the Christmas Spectacular);

 

   

the extent to which attendance at our venues may be impacted by government actions, renewed health concerns by potential attendees and reduced tourism;

 

   

the impact on the payments we receive under the Arena License Agreements as a result of government-mandated capacity restrictions, league restrictions and/or social-distancing or vaccination requirements, if any, at Knicks and Rangers games;

 

   

changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate;

 

   

any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage;

 

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

 

   

enhancements or changes to existing productions and the investments associated with such enhancements or changes;

 

   

business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, or disclosure of confidential information or other breaches of our information security;

 

   

activities or other developments (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues;

 

   

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

 

   

our ability to successfully integrate acquisitions, new venues or new businesses into our operations;

 

   

our internal control environment and our ability to identify and remedy any future material weaknesses;

 

   

the costs associated with, and the outcome of, litigation, including any negative publicity, and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire;

 

   

the impact of governmental regulations or laws, changes in how those regulations and laws are interpreted, as well as the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;

 

   

the impact of any government plans to redesign New York City’s Penn Station;

 

   

the impact of sports league rules, regulations and/or agreements and changes thereto;

 

   

the substantial amount of debt incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under the National Properties Credit Agreement and our ability to obtain additional financing, to the extent required;

 

   

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

 

   

the performance by MSG Sports of its obligations under various agreements with the Company and ongoing commercial arrangements, including the Arena License Agreements;

 

   

the tax-free treatment of the MSGE Distribution;

 

   

our ability to achieve the intended benefits of the MSGE Distribution;

 

   

failure of the Company or Sphere Entertainment to satisfy its obligations under transition services agreements or other agreements entered into in connection with the MSGE Distribution;

 

   

our status as an emerging growth company; and

 

   

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

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

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You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

 

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USE OF PROCEEDS

All of the shares of Class A common stock offered by the selling stockholder pursuant to this prospectus will be sold by the selling stockholder for its account. We are not selling any shares of Class A common stock and will not receive any of the proceeds from the sale of shares of Class A common stock pursuant to this prospectus. The selling stockholder will pay the underwriting discounts and certain of its legal expenses, and we will bear all other costs, fees and expenses incurred in connection with the offering.

 

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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 from time to time in accordance with applicable law.

 

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CAPITALIZATION

The following table sets forth our Cash, cash equivalents and restricted cash and our capitalization as of June 30, 2023, on:

 

   

a historical basis; and

 

   

a pro forma basis after giving effect to (i) the draw down and repayment of the DDTL Facility, (ii) MSG National Properties’ borrowing of $50 million under the National Properties Revolving Credit Facility and (iii) the Share Repurchase, as if these transactions had occurred on June 30, 2023, including the pro forma adjustments as outlined in the unaudited pro forma condensed consolidated and combined financial statements and the notes thereto included elsewhere in this prospectus.

You should review the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited consolidated and combined financial statements and the notes thereto and our unaudited pro forma condensed consolidated and combined financial statements and the notes thereto included elsewhere in this prospectus. See “Unaudited Pro Forma Condensed Consolidated and Combined Financial Information” for more information on our unaudited pro forma condensed consolidated and combined financial statements.

 

     As of June 30, 2023  
(in thousands)    Historical      Pro Forma  

Assets

     

Cash, cash equivalents, and restricted cash

   $ 84,355      $ 19,355  
  

 

 

    

 

 

 

Liabilities

     

Total debt

     646,434        696,434  

Stockholders’ equity

     

Class A common stock

     450        450  

Class B common stock

     69        69  

Additional paid-in capital

     17,727        17,727  

Treasury stock, at cost

     (25,000      (140,512

Accumulated Deficit

     (28,697      (28,185

Accumulated other comprehensive loss — net

     (34,021      (34,021
  

 

 

    

 

 

 

Total capitalization

     576,962        511,962  
  

 

 

    

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED FINANCIAL INFORMATION

All amounts included in the Unaudited Pro Forma Condensed Consolidated and Combined Financial Information are presented in thousands, except per share data or as otherwise noted.

On the MSGE Distribution Date, Sphere Entertainment distributed approximately 67% of the shares of outstanding common stock of the Company to its stockholders, with Sphere Entertainment retaining approximately 33% of the outstanding shares of common stock of MSG Entertainment (in the form of Class A common stock) immediately following the MSGE Distribution. As a result, the Company became an independent publicly traded company on April 21, 2023 through the MSGE Distribution. As of September 15, 2023, Sphere Entertainment owned approximately 16.6% of the outstanding common stock of the Company (in the form of Class A common stock).

Also, on the MSGE Distribution Date, a subsidiary of the Company, MSG Entertainment Holdings, entered into a delayed draw term loan facility with Sphere Entertainment. Pursuant to the DDTL Facility, MSG Entertainment Holdings committed to lend up to $65,000 in delayed draw term loans to Sphere Entertainment on an unsecured basis until October 20, 2024. On July 14, 2023, Sphere Entertainment drew down on the full amount of $65,000 under the DDTL Facility. On August 9, 2023, Sphere Entertainment repaid the full principal amount of the DDTL Facility and accrued interest and commitment fees by delivering to MSG Entertainment Holdings 1,923 shares of MSG Entertainment Class A common stock.

In addition, on September 15, 2023, MSG National Properties entered into the National Properties Amendment pursuant to which, among other things, the commitments under the National Properties Revolving Credit Facility were increased by an aggregate amount of $50,000 to $150,000. The Company expects to borrow approximately $50,000 under the National Properties Revolving Credit Facility prior to the closing of the offering to fund the Share Repurchase. Upon completion of the Share Repurchase, MSG Entertainment estimates that the outstanding balance under the National Properties Revolving Credit Facility will be approximately $67,000. See “Summary — Recent Developments.”

The following unaudited pro forma condensed consolidated and combined balance sheet as of June 30, 2023 and the unaudited pro forma condensed consolidated and combined statements of operations for the year ended June 30, 2023 have been derived from the historical annual consolidated and combined financial statements of the Company, including the audited consolidated balance sheet as of June 30, 2023 and the audited consolidated and combined statement of operations for the year ended June 30, 2023, elsewhere in this prospectus. The unaudited pro forma condensed consolidated and combined financial information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical annual consolidated and combined financial statements and corresponding notes thereto included elsewhere in this prospectus. The unaudited pro forma condensed consolidated and combined financial information reflects certain known impacts as a result of the MSGE Distribution to separate the Company from Sphere Entertainment as well as Sphere Entertainment’s draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50,000 under the National Properties Revolving Credit Facility and the Share Repurchase described under “Summary — Share Repurchase.”

The following unaudited pro forma condensed consolidated and combined financial information gives effect to the MSGE Distribution, the draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50,000 under the National Properties Revolving Credit Facility, the Share Repurchase and related adjustments in accordance with Article 11 of Regulation S-X under the Exchange Act. There are no other pro forma adjustments required related to the sale of the MSGE Retained Interest by Sphere Entertainment as the Company will not receive any proceeds from the sale of the MSGE Retained Interest.

The unaudited pro forma condensed consolidated and combined balance sheet has been prepared giving effect to Sphere Entertainment’s draw down and repayment of the DDTL Facility, MSG National Properties’

 

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borrowing of $50,000 under the National Properties Revolving Credit Facility and the Share Repurchase, as if these transactions had occurred as of June 30, 2023. Note that the MSGE Distribution is fully reflected in the audited consolidated balance sheet as of June 30, 2023. The unaudited pro forma condensed consolidated and combined statement of operations has been prepared giving effect to the MSGE Distribution, Sphere Entertainment’s draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50 million under the National Properties Revolving Credit Facility and the Share Repurchase as if these transactions had occurred on July 1, 2022. The unaudited pro forma condensed consolidated and combined financial information also reflects certain assumptions that we believe are reasonable given the information currently available.

The unaudited pro forma condensed consolidated and combined balance sheet as of June 30, 2023 and the unaudited pro forma condensed consolidated and combined statement of operations for the year ended June 30, 2023 have been prepared to reflect transaction accounting and autonomous entity adjustments to the Company’s historical consolidated and combined financial statements to present the financial condition and results of operations as if we were a separate stand-alone entity for the entire fiscal year. The unaudited pro forma condensed consolidated and combined financial information has been adjusted to give effect to the following items (collectively, the “Pro Forma Adjustments”):

 

   

Adjustments for differences between the historical consolidated and combined statements of operations prepared on a carve-out basis and the impact of and transactions contemplated by other contracts entered into between Sphere Entertainment and the Company at the time of the MSGE Distribution, such as the Transition Services Agreement (the “TSA”) and other agreements;

 

   

Other adjustments, such as the draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50 million under the National Properties Revolving Credit Facility and the Share Repurchase, as described in the notes to this unaudited pro forma condensed consolidated and combined financial information; and

 

   

Income tax impacts of the adjustments described above.

Subsequent to the MSGE Distribution, the Company’s financial statements as of June 30, 2023 and for the period from April 21, 2023 to June 30, 2023 included in the year ended June 30, 2023 are presented on a consolidated basis, as the Company became a standalone public company on April 21, 2023. The Company’s combined financial information from July 1, 2022 through April 20, 2023 that is included in the results of operations for the year ended June 30, 2023 were prepared on a carve-out basis as the Company did not operate as a stand-alone entity for such period.

The financial information from July 1, 2022 through April 20, 2023 that is included in the results of operations for the year ended June 30, 2023 include allocations for certain support functions that are provided on a centralized basis and not historically recorded at the business unit level by Sphere Entertainment, such as expenses related to executive management, finance, legal, human resources, government affairs, information technology, and venue operations, amongst others. As part of the MSGE Distribution, certain corporate and operational support functions were transferred to the Company and therefore, allocations of corporate overhead and shared services expense to Sphere Entertainment from the Company were recorded for corporate and operational functions as a reduction of either direct operating expenses or selling, general and administrative expenses in the historical consolidated and combined financial statements. The allocations and estimates in such historical financial statements are based on assumptions that management believes are reasonable. See Note 1, Description of the Business and Basis of Presentation and Note 17, Related Party Transactions to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information on the allocation of corporate costs.

We expect changes in our ongoing cost structure now that we are an independent, publicly-traded company to impact our future financial results. Our historical consolidated and combined financial statements include allocations of certain corporate expenses to Sphere Entertainment, including certain public company costs

 

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incurred as a combined entity, of $123,725 for the year ended June 30, 2023. Following the MSGE Distribution, the Company bears substantially all corporate overhead and support costs, including amounts previously

allocated to Sphere Entertainment. The Company will continue to provide support services to Sphere Entertainment pursuant to the TSA. Payments received by the Company for transition services provided will be presented as a reduction of selling, general and administrative expenses. Refer to note (f) for further details related to the pro forma impact of these adjustments.

As discussed above, the costs to operate our business as an independent public entity are expected to vary from the historical allocations, including corporate and administrative charges from Sphere Entertainment for the year ended June 30, 2023 reflected in the accompanying historical annual consolidated and combined financial statements included elsewhere in this prospectus. The accompanying unaudited pro forma condensed consolidated and combined statement of operations is not adjusted for these expenses as many of the costs are estimates based on projections and are not quantifiable at this time. Such costs principally relate to areas that include, but are not limited to:

 

   

corporate personnel overhead expenses as a result of the Company operating on a stand-alone basis;

 

   

professional fees associated with internal and external audits including compliance with Sarbanes-Oxley Act, tax, legal and other services;

 

   

anticipated executive compensation costs related to existing and new executive management and excluding future share-based compensation expense; and

 

   

fees for preparing and distributing periodic filings with the SEC.

This unaudited pro forma condensed consolidated and combined financial information reflects other adjustments that, in the opinion of management, are necessary to present fairly the pro forma condensed consolidated and combined results of operations and condensed consolidated and combined financial position of the Company as of and for the periods indicated. The unaudited pro forma condensed consolidated and combined financial information is subject to the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed consolidated and 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 Sphere Entertainment, or if the MSGE Distribution, the draw down and repayment of the DDTL Facility, MSG National Properties’ borrowing of $50,000 under the National Properties Revolving Credit Facility and the Share Repurchase had occurred on the dates indicated. The unaudited pro forma condensed consolidated and combined financial information also should not be considered representative of our future consolidated and combined financial condition or results of operations.

 

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MADISON SQUARE GARDEN ENTERTAINMENT CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEET

As of June 30, 2023 (in thousands)

 

     Historical(a)     Transaction
Accounting
Adjustments
    Notes     Autonomous
Entity
Adjustments
     Notes      Pro Forma  

ASSETS

              

Current Assets:

              

Cash, cash equivalents and restricted cash

   $ 84,355     $ (65,000     (b), (c)     $ —          $ 19,355  

Accounts receivable, net

     63,898       —          —            63,898  

Related party receivables, current

     69,466       —          —            69,466  

Prepaid expenses and other current assets

     77,562       —          —            77,562  
  

 

 

   

 

 

     

 

 

       

 

 

 

Total current assets

     295,281       (65,000       —            230,281  

Non-Current Assets:

              

Property and equipment, net

     628,888       —          —            628,888  

Right-of-use lease assets

     235,790       —          —            235,790  

Goodwill

     69,041       —          —            69,041  

Intangible assets, net

     63,801       —          —            63,801  

Other non-current assets

     108,356       —          —            108,356  
  

 

 

   

 

 

     

 

 

       

 

 

 

Total assets

   $ 1,401,157     $ (65,000     $ —          $ 1,336,157  
  

 

 

   

 

 

     

 

 

       

 

 

 
LIABILITIES AND DEFICIT

 

           

Current Liabilities:

              

Accounts payable, accrued and other current liabilities

   $ 214,725     $ —        $ —          $ 214,725  

Related party payables, current

     47,281       —          —            47,281  

Long-term debt, current

     16,250       —          —            16,250  

Operating lease liabilities, current

     36,529       —          —            36,529  

Deferred revenue

     225,855       —          —            225,855  
  

 

 

   

 

 

     

 

 

       

 

 

 

Total current liabilities

     540,640       —          —            540,640  

Non-Current Liabilities:

              

Long-term debt, net of deferred financing costs

     630,184       50,000       (c)       —            680,184  

Operating lease liabilities, non-current

     219,955       —          —            219,955  

Deferred tax liabilities, net

     23,518       —          —            23,518  

Other non-current liabilities

     56,332       —          —            56,332  
  

 

 

   

 

 

     

 

 

       

 

 

 

Total liabilities

     1,470,629       50,000         —            1,520,629  

Commitments and contingencies

              

Deficit:

              

Class A Common Stock

     450       —          —            450  

Class B Common Stock

     69       —          —            69  

Additional paid-in capital

     17,727       —          —            17,727  

Treasury stock at cost

     (25,000     (115,512     (b), (c)       —            (140,512

Accumulated deficit

     (28,697     512       (b)       —            (28,185

Accumulated other comprehensive loss

     (34,021     —          —            (34,021
  

 

 

   

 

 

     

 

 

       

 

 

 

Total MSG Entertainment stockholders’ deficit

     (69,472     (115,000       —            (184,472
  

 

 

   

 

 

     

 

 

       

 

 

 

Total liabilities and deficit

   $ 1,401,157     $ (65,000     $ —          $ 1,336,157  
  

 

 

   

 

 

     

 

 

       

 

 

 

 

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MADISON SQUARE GARDEN ENTERTAINMENT CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

For the year ended June 30, 2023

(in thousands, except per share data)

 

     Historical(a)     Transaction
Accounting
Adjustments
    Notes     Autonomous
Entity
Adjustments
    Notes     Pro Forma  

Revenues

   $ 851,496     $ —         $ —         $ 851,496  

Direct operating expenses

     (499,929     —           (1,995     (f)       (501,924

Selling, general and administrative expenses

     (180,216     —           (30,382     (f)       (210,598

Depreciation and amortization

     (60,463     —           —           (60,463

Gains, net on dispositions

     4,361       —           —           4,361  

Restructuring charges

     (10,241     —           —           (10,241
  

 

 

   

 

 

     

 

 

     

 

 

 

Operating income (loss)

     105,008       —           (32,377       72,631  

Interest income

     7,244       (2,665     (b), (d)       —           4,579  

Interest expense

     (51,869     (3,850     (c)       —           (55,719

Other income (expense), net

     17,389       —           —           17,389  
  

 

 

   

 

 

     

 

 

     

 

 

 

Income (loss) from operations before income taxes

     77,772       (6,515       (32,377       38,880  

Income tax (expense) benefit

     (1,728     168       (e)       834       (g)       (726
  

 

 

   

 

 

     

 

 

     

 

 

 

Net income (loss)

     76,044       (6,347       (31,543       38,154  

Less: Net loss attributable to nonredeemable noncontrolling interests

     (553     —           —           (553
  

 

 

   

 

 

     

 

 

     

 

 

 

Net income (loss) attributable to MSG Entertainment’s stockholders

   $ 76,597     $ (6,347     $ (31,543     $ 38,707  
  

 

 

   

 

 

     

 

 

     

 

 

 

Earnings per share attributable to MSG Entertainment’s stockholders:

            

Basic

   $ 1.48             (h)     $ 0.80  

Diluted

   $ 1.47             (h)     $ 0.79  

Weighted-average number of shares of common stock:

            

Basic

     51,819             (h)       48,369  

Diluted

     52,278             (h)       48,828  

 

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Notes to Unaudited Pro Forma Condensed Consolidated and Combined Financial Information

(in thousands, except per share data)

 

(a)

Represents MSG Entertainment’s audited consolidated balance sheet as of June 30, 2023 and audited consolidated and combined statement of operations for the year ended June 30, 2023.

Transaction Accounting Adjustments:

 

(b)

In order to reflect the impact of the draw down and repayment of the DDTL Facility, various adjustments were made, including the following: (i) an adjustment to Cash, cash equivalents and restricted cash of $65,000 to reflect the draw down on the full amount under the DDTL Facility by Sphere Entertainment; (ii) an adjustment to Treasury Stock of $65,512 to record the full repayment of the DDTL Facility and accrued interest and commitment fees through 1,923 shares of MSG Entertainment Class A common stock; and (iii) an adjustment to Accumulated Deficit and Interest income of $512 to record the interest income and commitment fees related to the DDTL facility.

 

(c)

MSG National Properties expects to borrow $50,000 under the National Properties Revolving Credit Facility prior to the closing of the offering. At the closing of the offering, MSG Entertainment expects to repurchase $50,000 of shares of MSG Entertainment’s Class A common stock. See “Summary — Share Repurchase.” This will result in no net impact to the Company’s cash balance. In order to reflect the impact of the borrowing under National Properties Revolving Credit Facility and the Share Repurchase, various adjustments were made, including the following: (i) an adjustment to Long-term debt, net of deferred financing costs of $50,000 to record the loan payable for the National Properties Revolving Credit Facility; (ii) an adjustment to Treasury Stock of $50,000 to record the Share Repurchase of 1,527 shares of MSG Entertainment Class A common stock; (iii) and an adjustment to Interest expense of $3,850 to record the interest expense related to the National Properties Revolving Credit Facility assuming the rates in place as of June 30, 2023. A 1% change in the interest rate on the National Properties Revolving Credit Facility would result in approximately $500 of incremental interest expense by the Company. The number of shares repurchased was computed based on the closing price of MSG Entertainment Class A common stock on the NYSE on September 15, 2023 of $32.75.

 

(d)

Adjustment reflects the transfer from Sphere Entertainment to MSG Entertainment of the loan payable to the Company’s wholly-owned captive insurance subsidiary, Eden Insurance Company Inc. (“Eden”), which occurred on the MSGE Distribution Date. This resulted in a reduction of MSG Entertainment’s loan receivable from Sphere Entertainment. Note that the MSGE Distribution is fully reflected in the audited consolidated balance sheet as of June 30, 2023. The unaudited pro forma condensed consolidated and combined statement of operations reflects an adjustment of $3,177 for the removal of interest income through the MSGE Distribution Date related to the aforementioned loan receivable from Sphere Entertainment.

 

(e)

The income tax effects of the pro forma adjustments are recorded at the applicable federal statutory tax rate for the year ended June 30, 2023, net of adjustments to the Company’s valuation allowance and the limitation on the utilization of net operating loss carryforwards. This resulted in an overall tax benefit related to the Transaction Accounting Adjustments of $168 for the year ended June 30, 2023 on the unaudited pro forma condensed consolidated and combined statement of operations.

Autonomous Entity Adjustments:

 

(f)

Reflects the impact of the TSA and related agreements entered into in connection with the MSGE Distribution, which resulted in incremental corporate and administrative costs not included in the Company’s historical consolidated and combined financial statements for the period prior to the MSGE Distribution Date.

Following the MSGE Distribution, the Company bears substantially all corporate overhead and support costs, including amounts previously charged back to Sphere Entertainment. The Company will continue to

 

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provide support services to Sphere Entertainment pursuant to the TSA. Payments received by the Company for transition services provided will be presented as a reduction of selling, general, and administrative expenses. The adjustment was derived by comparing contractual payments required by the TSA and related agreements to amounts historically allocated by the Company to Sphere Entertainment on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of certain measures of the Company or Sphere Entertainment in the Company’s historical consolidated and combined financial statements.

 

(g)

The income tax effects of the pro forma adjustments are recorded at the applicable federal statutory tax rate for the year ended June 30, 2023, net of adjustments to the Company’s valuation allowance and the limitation on the utilization of net operating loss carryforwards. This resulted in an overall tax benefit related to the Autonomous Entity Adjustments of $834 for the year ended June 30, 2023 on the unaudited pro forma condensed consolidated and combined statement of operations.

Earnings Per Share:

 

(h)

Pro forma basic earnings per common share (“EPS”) is based upon net income available to holders of common stock divided by the weighted-average number of shares of common stock outstanding. Diluted EPS reflects the effect of the assumed vesting of restricted stock units and exercise of stock options. The weighted-average number of shares of common stock outstanding for the year ended June 30, 2023 was adjusted for the repayment of the DDTL Facility and the Share Repurchase by 1,923 and 1,527 shares of Class A common stock, respectively, as described in notes (b) and (c).

 

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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 MD&A, there are statements concerning the future operating and future financial performance of the Company. 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, results or events 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 the factors discussed elsewhere in this prospectus, particularly in the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.

Introduction

This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated and combined annual financial statements and footnotes thereto included elsewhere in this prospectus to help provide an understanding of our financial condition, changes in financial condition and results of operations.

Our MD&A is organized as follows:

MSGE Distribution and 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.

Results of Operations. This section provides an analysis of our results of operations for Fiscal Years 2023, 2022 and 2021. The analysis of our results of operations for Fiscal Year 2023 is presented on a consolidated and combined basis and the analysis for Fiscal Years 2022 and 2021 is presented on a combined basis.

Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, as well as an analysis of our cash flows for Fiscal Year 2023 and Fiscal Year 2022. The discussion of our financial condition and liquidity includes summaries of our primary sources of liquidity, our contractual obligations and off-balance sheet arrangements that existed at June 30, 2023.

Seasonality of Our Business. This section discusses the seasonal performance of our business.

Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section cross-references a discussion of critical 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. Our recently issued accounting pronouncements and critical accounting policies are discussed in “—Recently Issued Accounting Pronouncements and Critical Accounting Estimates” and in Note 2. Summary of Significant Accounting Policies to the consolidated and combined financial statements, respectively, included elsewhere in this prospectus.

MSGE Distribution and Business Overview

On April 20, 2023 (the “MSGE Distribution Date”), Sphere Entertainment distributed approximately 67% of the shares of outstanding common stock of MSG Entertainment to its stockholders (the “MSGE Distribution”),

 

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with Sphere Entertainment retaining approximately 33% of the outstanding shares of common stock of MSG Entertainment (in the form of Class A common stock) (the “MSGE Retained Interest”) immediately following the MSGE Distribution. As a result, the Company became an independent publicly traded company on April 21, 2023 through the MSGE Distribution. As of August 9, 2023, Sphere Entertainment owned approximately 17% of the outstanding common stock of the Company (in the form of Class A common stock).

In the MSGE Distribution, stockholders of Sphere Entertainment received (a) one share of MSG Entertainment’s Class A common stock, par value $0.01 per share, for every share of Sphere Entertainment’s Class A common stock, par value $0.01 per share, held of record as of the close of business, New York City time, on the Record Date, and (b) one share of MSG Entertainment’s Class B common stock, par value $0.01 per share, for every share of Sphere Entertainment’s Class B common stock, par value $0.01 per share, held of record as of the close of business, New York City time, on the Record Date.

The Company is a live entertainment company comprised of iconic venues and marquee entertainment content. Utilizing our powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences.

We manage our business through one reportable segment. The Company’s portfolio of venues includes: The Garden, the Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. The Company also includes the original production, the Christmas Spectacular, and our entertainment and sports bookings business, which showcases a broad array of compelling concerts, family shows and special events, as well as a diverse mix of sporting events, for millions of guests annually.

The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns The Garden, the Theater at Madison Square Garden and The Chicago Theatre, and leases Radio City Music Hall and the Beacon Theatre.

All of the Company’s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City metropolitan area.

Description of Our Business

The Company produces, presents and hosts live entertainment events, including (i) concerts, (ii) sports events, and (iii) other live events such as family shows, performing arts events and special events, in our diverse collection of venues. The scope of our collection of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal.

Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows. If we serve as promoters or co-promoters of a show, we have economic risk relating to the event.

The Company also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes the Christmas Spectacular production, which features the world-famous Rockettes and which has been performed at Radio City Music Hall for 89 years.

The Company also historically owned a controlling interest in Boston Calling Events, LLC (“BCE”), the entertainment production company that owns and operates the Boston Calling Music Festival. The Company disposed of its controlling interest in BCE on December 2, 2022.

Revenue Sources

The Company earns revenue from several primary sources: ticket sales to our audiences for live events that we produce or promote/co-promote, license fees for our venues paid by third-party promoters or licensees in connection with events that we do not produce or promote/co-promote, facility and ticketing fees, concessions,

 

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sponsorships and signage, suite license fees at The Garden, merchandising and tours at certain of our venues. The amount of revenue and expense recorded by the Company for a given event depends to a significant extent on whether the Company is promoting or co-promoting the event or is licensing a venue to a third party or MSG Sports. See “— Description of Our Business — Revenue Sources — Venue License Fees” below for further discussion of our venue licensing arrangements with MSG Sports.

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 websites 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 capacity of the venue used, the extent to which we can sell to fully utilize the capacity, and our ticket prices.

The Garden has 21 Event Level suites, 58 Lexus Level suites, 18 Infosys Level suites, the Caesars Sportsbook Lounge, Suite Sixteen and the Hub Loft. Suite licenses at The Garden are generally sold to corporate customers with the majority being multi-year licenses with annual escalators.

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 separately pay for food and beverage service in their suites at The Garden. Revenues from the sale of suite licenses are shared between the Company and MSG Sports. Revenues for the Company’s suite license arrangements are recorded on a gross basis, as the Company is the principal in such transactions and controls the related goods or services until transfer to the customer. MSG Sports’ share of the Company’s suite license revenue is recognized in the combined statements of operations as a component of direct operating expenses. The revenue sharing expense recognized by the Company for MSG Sports’ share of suite license revenue at The Garden is based on a 67.5% allocation to MSG Sports pursuant to the Arena License Agreements.

Venue License Fees

For entertainment events held at our venues that we do not produce, promote or co-promote, we typically earn revenue from venue license fees charged to the third-party promoter or producer 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 utilized, among other factors. Our fees typically include both the cost of renting space in our venues and costs for providing event staff, such as front-of-house and back-of-house staff, including stagehands, electricians, laborers, box office staff, ushers and security as well as production services such as staging, lighting and sound.

The Company is party to Arena License Agreements with MSG Sports that, among other things, require the Knicks and the Rangers to play their home games at The Garden in exchange for fixed annual license fees scheduled to be paid monthly over the term of the agreement. The Company accounts for these license fees as operating lease revenue given that the Company provides MSG Sports with the right to direct the use of and obtain substantially all of the economic benefit from The Garden during Knicks and Rangers home games. Operating lease revenue is recognized on a straight-line basis over the term, adjusted pursuant to the terms of the Arena License Agreements, which is comprised of non-consecutive periods of use when MSG Sports uses The Garden generally for their professional sports teams’ preseason and regular season home games. As such, operating lease revenue is recognized ratably as events occur.

The Arena License Agreements allow for certain reductions in the license fees during periods when The Garden is not available for use due to a force majeure event. As a result of the government-mandated suspension of events at The Garden due to the impact of the COVID-19 pandemic, at the beginning of Fiscal Year 2021, The Garden was not available for use. Capacity restrictions, use limitations and social distancing requirements were

 

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in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements for Fiscal Year 2021. On July 1, 2021, the Knicks and Rangers began paying the full amounts provided for under their respective Arena License Agreements. The Knicks and the Rangers each completed their 2021-2022 82-game regular seasons, with the Rangers advancing to the playoffs.

Facility and Ticketing Fees

For all public and ticketed events held in our venues aside from MSG Sports home games, we also earn additional revenues on substantially all tickets sold, whether we promote/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 fees we charge, and vary by venue.

Concessions

We sell food and beverages during substantially all 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 generate revenue from catering for our suites at The Garden. Pursuant to the Arena License Agreements related to the use of The Garden by MSG Sports, the Company shares with MSG Sports revenues and related expenses associated with sales of food and beverages (including suite catering) during Knicks and Rangers games at The Garden.

Revenue generated from in-venue food and beverage sales at MSG Sports’ events is recognized by the Company on a gross basis, with a corresponding revenue sharing expense for MSG Sports’ share of such sales recorded within direct operating expense. The Arena License Agreements require the Company to pay 50% of the net proceeds generated from in-venue food and beverage sales to MSG Sports.

Merchandise

We earn revenues from the sale of merchandise related 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 sales of our Christmas Spectacular merchandise, such as ornaments and apparel, through traditional retail channels. Revenues associated with Christmas Spectacular merchandise are generally recorded on gross basis (as principal). 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 and are generally recorded on a net basis (as agent).

Pursuant to the Arena License Agreements, the Company receives 30% of revenues, net of taxes and credit card fees, recorded on a net basis (agent), from the sale of MSG Sports teams merchandise sold at The Garden.

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. We also earn our revenues through the sale of outdoor signage around the Madison Square Garden complex and Penn Station.

Sponsorship agreements may require us to use the name, logos and other trademarks of sponsors 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.

Under the Arena License Agreements, the Company shares certain sponsorship and signage revenues with MSG Sports. Pursuant to these agreements, MSG Sports has the rights to sponsorship and signage revenue that is

 

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specific to Knicks and Rangers events. The Company and MSG Sports also entered into sponsorship sales representation agreements, under which the Company has the right and obligation to sell and service sponsorships for the sports teams of MSG Sports, in exchange for a commission.

Expenses

Our principal expenses are payments made to performers of our productions, staging costs and day-of-event costs associated with events, and advertising costs. In addition, our expenses include costs associated with the ownership, lease, maintenance and operation of our venues, along with our corporate and other supporting functions.

Performer Payments

Our proprietary 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 with both their abilities and the demand for their services from other entertainment companies. Our productions typically feature ensemble casts (such as the Rockettes), where most of our performers are paid based on a standard “scale,” pursuant to collective bargaining agreements we negotiate with the performers’ unions. Certain performers, however, have individually negotiated contracts.

Staging Costs

Staging costs for our proprietary events as well as other events 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 Christmas Spectacular. For concerts we promote, the performer usually provides a fully produced show. Along 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 in which the Company 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 staff, 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. Under the Arena License Agreements related to the use of The Garden by MSG Sports, the Company is reimbursed for day-of-event costs (as defined under the Arena License Agreements). The Company records such reimbursements as reductions to direct operating expenses.

Venue Usage

The Company’s consolidated and combined financial statements include expenses associated with the ownership, maintenance and operation of The Garden, which the Company and MSG Sports use in their respective operations.

Revenue Sharing Expenses

As discussed above, MSG Sports’ share of the Company’s suites licenses, venue signage and certain sponsorship and concessions revenue is reflected within direct operating expense as revenue sharing expenses.

Marketing and Advertising Costs

We incur significant costs promoting our productions and other events through various advertising campaigns, including advertising on social and digital platforms, television, outdoor platforms and radio, and in

 

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newspapers. 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.

Other Expenses

The Company’s selling, general and administrative expenses primarily consist of administrative costs, including compensation, professional fees, advertising sales commissions, as well as sales and marketing costs, including non-event related advertising expenses. Operating expenses also include corporate overhead costs and venue operating expenses. 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.

Factors Affecting Results of Operations

In addition to the discussion under the section “Factors Affecting Comparability” below, the operating results of our business are largely dependent on our ability to attract concerts and other events to our venues, revenues under various agreements entered into with MSG Sports, and the continuing popularity of the Christmas Spectacular at Radio City Music Hall. Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we host at The Garden.

As compared to the Company’s Fiscal Year 2023, Fiscal Year 2024 will not include two significant non-recurring events, the NCAA Regional Championships and the League of Legends World Championship. In addition, Fiscal Year 2024 will be impacted by increased rent expenses relative to Fiscal Year 2023 due to our new corporate office lease, which runs through 2046. See Note 9. Leases to the consolidated and combined financial statements included elsewhere in this prospectus for additional information. Our Company’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, and 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 may 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.

Factors Affecting Comparability

MSGE Distribution

The activities from April 21, 2023 to June 30, 2023 included in the statement of operations for the year ended June 30, 2023 are prepared on a consolidated basis, as the Company became a standalone public company on April 21, 2023. The Company’s combined statements of operations for the years ended June 30, 2022 and 2021, as well as the financial information for the period of July 1, 2022 to April 20, 2023 that is included in the results of operations for the year ended June 30, 2023 were prepared on a standalone basis derived from the consolidated financial statements and accounting records of the Company’s former parent, Sphere Entertainment, and are presented as carve-out financial statements as MSG Entertainment was not a standalone public company prior to the MSGE Distribution.

The combined statements of operations for the year ended June 30, 2022 and 2021, as well as the financial information for the period of July 1, 2022 to April 20, 2023 that is included in the results of operations for the year ended June 30, 2023, include allocations for certain support functions that were provided on a centralized basis and not historically recorded at the business unit level by Sphere Entertainment, such as expenses related to

 

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executive management, finance, legal, human resources, government affairs, information technology, and venue operations among others. As part of the MSGE Distribution, certain corporate and operational support functions were transferred to the Company and therefore, charges were reflected in order to burden all business units comprising Sphere Entertainment’s historical operations. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined assets, headcount or other measures of the Company and Sphere Entertainment, which are recorded as a reduction of either direct operating expenses or selling, general and administrative expenses.

Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined financial statements do 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 separate, standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a separate, standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. See Note 1. Description of Business and Basis of Presentation to the consolidated and combined financial statements included elsewhere in this prospectus for additional information.

The costs to operate our business as an independent, publicly-traded company, including pursuant to terms of the transition services agreement, are expected to vary from those historical allocations. Such costs principally relate to areas that include, but are not limited to:

 

   

corporate personnel overhead expenses as a result of the Company operating on a stand-alone basis;

 

   

professional fees associated with internal and external audits including compliance with Sarbanes-Oxley Act, tax, legal and other services;

 

   

anticipated executive compensation costs related to existing and new executive management and excluding future share-based compensation expense; and

 

   

fees for preparing and distributing periodic filings with the SEC.

These costs will not be fully reflected in the Company’s financial statements until the year ending June 30, 2024, because, for periods prior to April 20, 2023, the Company’s financial statements were presented on a carve-out basis.

Impact of the COVID-19 Pandemic on Our Business

The Company’s operations and operating results were not materially impacted by the COVID-19 pandemic during Fiscal Year 2023, as compared to Fiscal Years 2022 and 2021, which were materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues. For the majority of Fiscal Year 2021, substantially all of our business operations were suspended. Fiscal Year 2022 was materially impacted by fewer ticketed events at our venues in the first half of Fiscal Year 2022 due to the lead-time required to book touring acts and artists and the postponement or cancellation of select events (including the partial cancellation of the 2021 production of the Christmas Spectacular) during the second and third quarters of the Fiscal Year 2022 as a result of an increase in COVID-19 cases.

As a result of government-mandated assembly limitations and closures, all of our venues were closed beginning in March 2020. Use of The Garden resumed for Knicks and Rangers home games without fans in December 2020 and January 2021, respectively, and was available at 10% seating capacity from February through May 2021, subject to certain safety protocols and social distancing. Beginning in May 2021, all of our New York venues were permitted to host guests at full capacity, subject to certain restrictions, and effective June 2021, The Chicago Theatre was permitted to host events without restrictions. Guests of our Chicago and New York venues were also subject to certain vaccination requirements until February and March 2022, respectively. Our venues no longer require guests to provide proof of COVID-19 vaccination before entering (although specific performers may require enhanced protocols).

 

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For Fiscal Year 2021, the majority of ticketed events at our venues were postponed or cancelled. For Fiscal Year 2022 and as of the date of this filing, live events have been permitted to be held at all of our venues and we are continuing to host and book new events. As a result of an increase in cases of a COVID-19 variant, select bookings were postponed or cancelled at our venues in the second and third quarters of Fiscal Year 2022. Variants of COVID-19 that arise in the future may result in additional postponements or cancellations of bookings at our venues.

The impact of the COVID-19 pandemic on our operations also included the partial cancellation of the 2021 production of the Christmas Spectacular and the cancellation of the 2020 production of the Christmas Spectacular.

The Company has long-term Arena License Agreements with MSG Sports that require the Knicks and Rangers to play their home games at The Garden. As discussed above, capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements for Fiscal Year 2021. On July 1, 2021, the Knicks and Rangers began paying the full amounts provided for under their respective Arena License Agreements. The Knicks and the Rangers each completed their 2021-2022 82-game regular seasons, with the Rangers advancing to the playoffs.

It is unclear to what extent COVID-19, including variants thereof, or another pandemic or public health emergency, could result in new government- or league-mandated capacity or other restrictions, vaccination/mask requirements, or impact the use of and/or demand for our venues and our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations. For more information about the risks to the Company as a result of the COVID-19 pandemic and its impact on our operating results, see “Risk Factors” included elsewhere in this prospectus for further details.

Advertising Sales Representation Agreement Termination

Prior to December 31, 2022, the Company was a party to an advertising sales representation agreement (the “Networks Advertising Sales Representation Agreement”) with Sphere Entertainment’s subsidiary, MSGN Holdings, L.P. (“MSG Networks LP”), pursuant to which the Company had the exclusive right and obligation to sell MSG Networks LP advertising availabilities for a commission. The Networks Advertising Sales Representation Agreement was terminated effective as of December 31, 2022. For Fiscal Years 2023, 2022, and 2021, the Company recognized $8,802, $20,878 and $13,698 of revenues, respectively, under the advertising sales representation agreement with MSG Networks.

The termination of the Networks Advertising Sales Representation Agreement has impacted the operating results of the Company for Fiscal Year 2023 and will impact the operating results of the Company on a go forward basis. As a result, after December 31, 2022, the Company no longer recognizes advertising sales commission revenue or the employee costs related to the MSG Networks LP advertising sales agency.

 

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Results of Operations

Consolidated and Combined Results of Operations

Comparison of Fiscal Year 2023 versus Fiscal Year 2022

The table below sets forth, for the periods presented, certain historical financial information.

 

     Years Ended June 30,      Change  
     2023      2022      Amount      Percentage  

Revenues

   $ 851,496      $ 653,490      $ 198,006        30

Direct operating expenses

     (499,929      (417,301      (82,628      20

Selling, general and administrative expenses

     (180,216      (167,132      (13,084      8

Depreciation and amortization

     (60,463      (69,534      9,071        (13 )% 

Gains, net on dispositions

     4,361        —         4,361        NM  

Restructuring charges

     (10,241      (5,171      (5,070      98
  

 

 

    

 

 

    

 

 

    

Operating income (loss)

     105,008        (5,648      110,656        NM  

Interest expense, net

     (44,625      (45,960      1,335        (3 )% 

Loss on extinguishment of debt

     —         (35,629      35,629        (100 )% 

Other income (expense), net

     17,389        (49,033      66,422        (135 )% 
  

 

 

    

 

 

    

 

 

    

Income (loss) from operations before income taxes

     77,772        (136,270      214,042        157

Income tax (expense) benefit

     (1,728      70        (1,798      NM  
  

 

 

    

 

 

    

 

 

    

Net income (loss)

     76,044        (136,200      212,244        156

Less: Net loss attributable to nonredeemable noncontrolling interests

     (553      (2,864      2,311        (81 )% 
  

 

 

    

 

 

    

 

 

    

Net income (loss) attributable to MSG Entertainment’s stockholders

   $ 76,597      $ (133,336    $ 209,933        157
  

 

 

    

 

 

    

 

 

    

 

NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.

Revenues

Revenues for Fiscal Year 2023 increased $198,006 as compared to Fiscal Year 2022. The net increase in revenue was attributable to the following:

 

Increase in event-related revenues

   $ 95,393  

Increase in revenues from the presentation of the Christmas Spectacular

     74,668  

Increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements

     35,537  

Increase in venue-related sponsorship, signage and suite license fee revenues

     16,998  

Decrease in revenues due to the disposition of Boston Calling Events, LLC during the current fiscal year

     (18,559

Decrease in commissions due to termination of the Networks Advertising Sales Representation Agreement

     (12,076

Other net increases

     6,045  
  

 

 

 
   $ 198,006  
  

 

 

 

 

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The increase in event-related revenues reflects (i) higher revenues from concerts of $92,889 and (ii) higher revenues from other live entertainment and other sporting events of $2,504 during Fiscal Year 2023. The increase in revenue from concerts was primarily due to an increase in the number of concerts held at the Company’s venues, including the impact from the return of live events in the fiscal first quarter as compared to limited live events held in the first quarter of Fiscal Year 2022 (due to the COVID-19 pandemic) and higher per-concert revenue during Fiscal Year 2023.

The Company had 181 Christmas Spectacular performances during the 2022-23’s holiday season as compared to 101 performances in the prior year’s holiday season due to the partial cancellation of the 2021 production. For the 2022-23 holiday season, approximately 930,000 tickets were sold, representing an over 25% increase in attendance on a per-show basis as compared to the prior year.

The increase in revenues from the presentation of the Christmas Spectacular production was primarily due to higher ticket-related revenues, as compared to the prior year period. This reflected the increase in the number of performances and, to a lesser extent, higher per-show paid attendance, both as compared to the prior year period.

The increase in revenues subject to the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects higher suite license fee revenues and to a lesser extent higher food beverage and merchandise at Knicks and Rangers games. The increase in suite license fee revenues also reflects the return of live events at the Company’s venues in the fiscal first quarter as compared to limited live events held during the first quarter of Fiscal Year 2022 (due to the COVID-19 pandemic).

The increase in venue-related sponsorship, signage, and suite license fee revenues was primarily due to the return of live events at the Company’s venues as compared to limited live events held during the first quarter of Fiscal Year 2022 and higher suite sales.

Direct operating expenses

Direct operating expenses for Fiscal Year 2023 increased $82,628 as compared to Fiscal Year 2022. The net increase in direct operating expenses was attributable to the following:

 

Increase in event-related direct operating expenses, as discussed below

   $ 47,883  

Increase in expenses associated with the sharing of economics with MSG Sports pursuant to the Arena License Agreements

     26,945  

Increase in direct operating expenses associated with the Christmas Spectacular

     11,790  

Increase in direct operating expenses associated with the Arena License Agreements

     7,502  

Increase in venue operating costs

     6,242  

Decrease in direct operating expenses due to the disposition of Boston Calling Events, LLC in the current fiscal year

     (19,650

Other net increases

     1,916  
  

 

 

 
   $ 82,628  
  

 

 

 

The increase in event-related direct operating expenses reflects (i) higher direct operating expenses from concerts of $48,373, partially offset by (ii) lower direct operating expenses form other sporting and live entertainment events of $489 during Fiscal Year 2023. The increase in event-related direct operating expenses

 

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primarily reflects an increase in the number of concerts held at the Company’s venues as compared to the prior year period.

The increase in direct operating expenses associated with the sharing of economics with MSG Sports pursuant to the Arena License Agreements primarily reflects the increase in suite license fee revenues related to Knicks’ and Rangers’ games at The Garden.

The increase in direct operating expenses associated with the Christmas Spectacular was primarily due to the increase in the number of performances as compared to the prior year periods.

Selling, general, and administrative expenses

Selling, general, and administrative expenses for Fiscal Year 2023 increased $13,084, or 8%, to $180,216 as compared to Fiscal Year 2022. Results for Fiscal Year 2022 reflect the allocation of corporate and administrative costs based on the accounting requirements for the preparation of carve-out statements. These results do not include all of the expenses that would have been incurred by MSG Entertainment had it been a standalone public company for Fiscal Year 2022. Fiscal Year 2023 reflects the impact of carve-out accounting through the April 20, 2023 spin-off date and, thereafter, reflects the results of the Company on a fully standalone basis. The increase in selling, general, and administrative expenses were mainly due to additional professional fees and employee compensation and benefits, offset by carve out allocations and the impact of the Company’s transition services agreement with Sphere Entertainment.

Gains (loss), net on dispositions

Gains (loss), net on dispositions for Fiscal Year 2023 was a gain of $4,361 as compared to $0 in Fiscal Year 2022. The gain was due to the gain on sale of the Company’s controlling interest in Boston Calling Events, LLC (the “BCE Disposition”), partially offset by the net loss on the disposal of a corporate aircraft during Fiscal Year 2023.

Depreciation and amortization

Depreciation and amortization for Fiscal Year 2023 decreased $9,071, or 13%, to $60,463 as compared to Fiscal Year 2022 primarily due to certain intangible assets being fully amortized and the disposal of a corporate aircraft during Fiscal Year 2023.

Restructuring charges

Restructuring charges for Fiscal Year 2023 increased $5,070, to $10,241 as compared to the prior year period. The restructuring charges relate to the termination benefits provided due to a workforce reduction of certain executives and employees as part of Sphere Entertainment’s cost reduction program implemented in Fiscal Year 2023.

Operating Income

Operating income for Fiscal Year 2023 improved $110,656 to $105,008 as compared to an operating loss of $5,648 in Fiscal Year 2022. The improvement in operating income was primarily due to the increase in revenues, and, to a lesser extent a decrease in depreciation and amortization, offset by higher direct operating expenses and selling, general and administration expenses.

Interest expense, net

Interest expense, net for Fiscal Year 2023 was $44,625 as compared to $45,960 in Fiscal Year 2022, a decrease of $1,335, as a result of decrease in amortization of deferred financing costs following the refinancing

 

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of MSG National Properties, LLC’s (“MSG National Properties”) prior term loan facility in June 2022 and the absence of notes payable to BCE following the BCE Disposition, partially offset by an increase in interest rates.

Loss on extinguishment of debt

For Fiscal Year 2023, the Company did not incur any losses on the extinguishment of debt as compared to a loss of $35,629 in Fiscal Year 2022 due to the extinguishment of MSG National Properties’ prior term loan facility in June 2022.

Other income (expense), net

For Fiscal Year 2023, other income, net was $17,389 as compared to other expense, net of $49,033 for Fiscal Year 2022, an improvement of $66,422. The change was primarily due to (i) an increase in unrealized gains of $43,619 and $22,273 associated with the investments in DraftKings Inc. (“DraftKings”) and Townsquare Media, Inc. (“Townsquare”), respectively, and (ii) realized gains of $2,608 and $975 associated with the Company’s sale of investments in DraftKings and Townsquare, respectively, in Fiscal Year 2023, partially offset by a $281 increase in other pension costs.

Income taxes

Income tax expense for Fiscal Year 2023 of $1,728 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) a decrease in the valuation allowance of $34,147, offset by (ii) tax expense of $3,861 related to nondeductible officers’ compensation and (iii) state income tax expense of $13,033.

Income tax benefit for Fiscal Year 2022 of $70 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) an increase in the valuation allowance of $31,679 and (ii) tax expense of $8,125 related to nondeductible officers’ compensation, partially offset by (iii) state income tax benefit of $12,141.

See Note 16. Income Taxes to the consolidated and combined financial statements included elsewhere in this prospectus for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate.

Adjusted operating income (loss) (“AOI”)

The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) before the following adjustments, which is referred to as adjusted operating income (loss) (“AOI”), a financial measure not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). We define adjusted operating income (loss) as operating income (loss) excluding:

 

  (i)

the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with MSG Sports,

 

  (ii)

depreciation, amortization and impairments of property and equipment, goodwill and intangible assets,

 

  (iii)

share-based compensation expense,

 

  (iv)

restructuring charges or credits,

 

  (v)

merger and acquisition-related costs, including litigation expenses,

 

  (vi)

gains or losses on sales or dispositions of businesses and associated settlements,

 

  (vii)

the impact of purchase accounting adjustments related to business acquisitions,

 

  (viii)

gains and losses related to the remeasurement of liabilities under MSG Entertainment’s Executive Deferred Compensation Plan (the “EDCP”), and

 

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  (ix)

amortization for capitalized cloud computing arrangement costs.

The Company believes that given the length of the Arena License Agreements and resulting magnitude of the difference in leasing revenue recognized and cash revenue received, the exclusion of non-cash leasing revenue provides investors with a clearer picture of the Company’s operating performance. Management believes that this adjustment is beneficial for other incremental reasons as well. This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement with MSG Sports. In addition, this adjustment is included under the Company’s debt covenant compliance calculations and is a component of the performance measures used to evaluate, and compensate, senior management of the Company. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger and acquisition-related costs, when applicable, because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the EDCP, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the EDCP are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the EDCP, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss).

The Company believes AOI is an appropriate measure for evaluating the operating performance of the Company on a consolidated and combined basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.

AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI.

The following is a reconciliation of operating income to adjusted operating income:

 

     Years Ended June 30,      Change
     2023      2022      Amount      Percentage

Operating income (loss)

   $ 105,008      $ (5,648    $ 110,656      NM

Non-cash portion of arena license fees from MSG Sports (a)

     (26,545      (27,754      1,209     

Share-based compensation expense

     29,521        37,746        (8,225   

Depreciation and amortization

     60,463        69,534        (9,071   

Restructuring charges

     10,241        5,171        5,070     

Gains, net on dispositions

     (4,361      —         (4,361   

Amortization for capitalized cloud computing arrangement costs

     600        39        561     

Remeasurement of deferred compensation plan liabilities

     121        46        75     
  

 

 

    

 

 

    

 

 

    

Adjusted operating income

   $ 175,048      $ 79,134      $ 95,914      121%
  

 

 

    

 

 

    

 

 

    

 

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NM (not meaningful) — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.

 

(a)

This adjustment represents the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports. Pursuant to GAAP, recognition of operating lease revenue is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease revenue is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Operating income on a GAAP basis includes lease income of (i) $41,524 and $40,319 collected in cash for Fiscal Years 2023 and 2022, respectively, and (ii) a non-cash portion of $26,545 and $27,754 for Fiscal Years 2023 and 2022, respectively.

Net loss attributable to nonredeemable noncontrolling interests

For Fiscal Year 2023, the Company posted a net loss attributable to nonredeemable noncontrolling interests of $553 in comparison to a net loss attributable to nonredeemable noncontrolling interests of $2,864 for Fiscal Year 2022. These amounts represent the share of net loss of BCE that is not attributable to the Company, prior to the BCE Disposition on December 2, 2022.

Comparison of Fiscal Year 2022 versus the Fiscal Year 2021

The table below sets forth, for the periods presented, certain historical financial information.

 

     Years Ended June 30,      Change  
     2022      2021      Amount      Percentage  

Revenues

   $ 653,490      $ 81,812      $ 571,678        NM  

Direct operating expenses

     417,301        96,236        321,065        NM  

Selling, general and administrative expenses

     167,132        136,597        30,535        22%  

Depreciation and amortization

     69,534        71,576        (2,042      (3)%  

Restructuring charges

     5,171        14,691        (9,520      (65)%  
  

 

 

    

 

 

    

 

 

    

Operating loss

     (5,648      (237,288      231,640        98%  

Other income (expense):

           

Interest expense, net

     (45,960      (27,293      (18,667      (68)%  

Loss on extinguishment of debt

     (35,629      —         (35,629      NM  

Other income (expense), net

     (49,033      50,622        (99,655      NM  
  

 

 

    

 

 

    

 

 

    

Loss from operations before income taxes

     (136,270      (213,959      77,689        36%  

Income tax (expense) benefit

     70        (5,349      5,419        NM  
  

 

 

    

 

 

    

 

 

    

Net loss

     (136,200      (219,308      83,108        38%  

Less: Net loss attributable to nonredeemable noncontrolling interests

     (2,864      (694      (2,170      NM  
  

 

 

    

 

 

    

 

 

    

Net loss attributable to MSG Entertainment’s stockholders

   $ (133,336    $ (218,614    $ 85,278        39%  
  

 

 

    

 

 

    

 

 

    

 

NM (not meaningful) — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.

The Company’s operating results were materially impacted during Fiscal Years 2022 and 2021 by the COVID-19 pandemic and government actions taken in response. See “— Business — Impact of the COVID-19 Pandemic on Our Business” for more information.

 

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Revenues

Revenues increased $571,678 from $81,812 for Fiscal Year 2021 to $653,490 for Fiscal Year 2022. The net increase was attributable to the following:

 

Increase in event-related revenues, as discussed below

   $ 239,574  

Increase in revenues from signage, suite licenses, and sales of food, beverage and merchandise subject to revenue or profit sharing with MSG Sports pursuant to the Arena License Agreements

     130,238  

Increase in revenues from the shortened Christmas Spectacular 2021 holiday season run as compared to the cancellation of the 2020 production in Fiscal Year 2021 as a result of the COVID-19 pandemic

     55,454  

Increase in arena license fees from MSG Sports pursuant to the Arena License Agreements, as discussed below

     46,727  

Increase in suite license fee revenues, due to the return of live events at the Company’s venues during Fiscal Year 2022 as compared to limited live events held in Fiscal Year 2021 due to the COVID-19 pandemic

     34,904  

Increase in venue-related signage and sponsorship revenues primarily due to the return of live events at the Company’s venues during Fiscal Year 2022 as compared to limited live events held in Fiscal Year 2021 due to the COVID-19 pandemic

     29,940  

Increase in revenues from the Boston Calling Music Festival as compared to the cancellation of the festival in Fiscal Year 2021 as a result of the COVID-19 pandemic

     18,313  

Other net increases

     16,528  
  

 

 

 
   $ 571,678  
  

 

 

 

The increase in event-related revenues reflects (i) higher revenues from concerts of $179,892 during Fiscal Year 2022 and (ii) higher revenues from live entertainment and other sporting events of $59,682 during Fiscal Year 2022. These increases were due to the return of live events to the Company’s venues during Fiscal Year 2022 as compared to limited live events held in Fiscal Year 2021 due to the COVID-19 pandemic. See “— Business — Impact of the COVID-19 Pandemic on Our Business” for more information.

In Fiscal Year 2022, the Knicks and Rangers played a combined 98 pre-season, regular season, and post-season games at The Garden without any capacity restrictions. As a result, the Company recorded $68,072 in arena license fees under the Arena License Agreements for Fiscal Year 2022. In Fiscal Year 2021, capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements during Fiscal Year 2021.

 

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Direct operating expenses

Direct operating expenses increased $321,065 from $96,236 for Fiscal Year 2021 to $417,301 for Fiscal Year 2022. The net increase was attributable to the following:

 

Increase in event-related direct operating expenses, as discussed below

   $ 125,931  

Increase in direct operating expenses associated with revenue or profit sharing expense from signage, suite licenses and sales of food, beverage and merchandise with MSG Sports pursuant to the Arena License Agreements

     94,226  

Increase in direct operating expenses from the shortened Christmas Spectacular 2021 holiday season run as compared to the cancellation of the 2020 production in Fiscal Year 2021 as a result of the COVID-19 pandemic

     39,029  

Increase in direct operating expenses associated with the Boston Calling Music Festival as compared to the cancellation of the festival in Fiscal Year 2021 as a result of the COVID-19 pandemic

     19,003  

Increase in direct operating expenses associated with the Arena License Agreements

     17,645  

Increase in direct operating expenses associated with venue operating costs

     15,445  

Other net increases

     9,786  
  

 

 

 
   $ 321,065  
  

 

 

 

For Fiscal Year 2022, the increase in event-related direct operating expenses reflects (i) higher direct operating expenses from concerts of $91,938, and (ii) higher direct operating expenses from live entertainment and other sporting events of $33,993, primarily due to the return of events to the Company’s venues during Fiscal Year 2022 as compared to limited live events in Fiscal Year 2021 due to the COVID-19 pandemic.

Selling, general and administrative expenses

SG&A expenses for Fiscal Year 2022 increased $30,535, or 22%, to $167,132 as compared to Fiscal Year 2021 primarily due to a net increase in employee compensation and related benefits, which included the impact of severance-related costs attributable to separation agreements in Fiscal Year 2022.

Depreciation and amortization

Depreciation and amortization for Fiscal Year 2022 decreased $2,042, or 3%, to $69,534 as compared to Fiscal Year 2021 primarily due to certain assets in The Garden being fully depreciated and amortized.

Restructuring charges

Restructuring charges for Fiscal Year 2022 were $5,171 as compared to $14,691 in Fiscal Year 2021, a decrease of $9,520, or 65%. In Fiscal Year 2021, the Company implemented cost savings initiatives to reduce labor costs in direct response to the disruption in operations resulting from the COVID-19 pandemic, which began in March 2020. In connection with these initiatives, the Company recorded total restructuring charges of $14,691 related to termination benefits provided to employees associated with a full-time workforce reduction in August 2020 and November 2020. For Fiscal Year 2022, the Company underwent additional organizational

 

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changes to further streamline operations related to the elimination of certain executive and management level functions, resulting in additional restructuring charges but of a lesser amount compared to Fiscal Year 2021.

Operating loss

Operating loss for Fiscal Year 2022 improved $231,640 to $5,648 as compared to an operating loss of $237,288 in Fiscal Year 2021. The improvement in operating loss was primarily due to the increase in revenues, and, to a lesser extent, the decrease in restructuring charges, offset by higher direct operating expenses and SG&A expenses.

Interest expense, net

Interest expense, net for Fiscal Year 2022 was $45,960 as compared to $27,293 in Fiscal Year 2021, an increase of $18,667, or 68%. The increase in net interest expense in Fiscal Year 2022 was primarily due to an increase in interest expense of $18,787 on the MSG National Properties, LLC facilities as a result of the balance of MSG National Properties’ prior term loan facility being outstanding for almost the full year of Fiscal Year 2022 (refinanced on June 30, 2022) compared to a partial year for Fiscal Year 2021, given the Company entered into the prior term loan facility on November 12, 2020. The increase in interest expense was partially offset by an increase in interest income from a related party.

Loss on extinguishment of debt

For Fiscal Year 2022, the Company incurred a loss on extinguishment of debt of $35,629 in connection with the extinguishment of MSG National Properties’ prior term loan facility.

Other income (expense), net

For Fiscal Year 2022, net other expense was $49,033 as compared to net other income of $50,622 for Fiscal Year 2021, a decrease of $99,655. The decrease was primarily due to an increase in unrealized losses of $62,155 and $41,192 associated with the investments in DraftKings Inc. (“DraftKings”) and Townsquare Media, Inc. (“Townsquare”), respectively, partially offset by (i) the absence of a $2,327 realized loss on the Company’s sale of investments in DraftKings in Fiscal Year 2021 and (ii) a $1,073 decrease in other pension costs.

Income taxes

Income tax benefit for Fiscal Year 2022 of $70 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) an increase in the valuation allowance of $31,679 and (ii) tax expense of $8,125 related to nondeductible officers’ compensation, partially offset by state income tax benefit of $12,141.

Income tax expense for Fiscal Year 2021 of $5,349 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) an increase in the valuation allowance of $70,501 and (ii) tax expense of $5,209 related to nondeductible officers’ compensation, partially offset by (i) state income tax benefit of $22,882 and (ii) tax benefit of $2,545 related to a change in the estimated applicable tax rate used to determine deferred taxes.

See Note 16, Income Taxes to the consolidated and combined financial statements included elsewhere in this prospectus for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate.

 

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

 

     Years Ended June 30,      Change  
     2022      2021      Amount      Percentage  

Operating loss

   $ (5,648    $ (237,288    $ 231,640        98%  

Non-cash portion of arena license fees from MSG Sports (a)

     (27,754      (13,026      (14,728   

Share-based compensation expense

     37,746        40,663        (2,917   

Depreciation and amortization

     69,534        71,576        (2,042   

Restructuring charges

     5,171        14,691        (9,520   

Remeasurement of deferred compensation plan liabilities

     46        —         46     
  

 

 

    

 

 

    

 

 

    

Adjusted operating income (loss)

   $ 79,095      $ (123,384    $ 202,479        NM  
  

 

 

    

 

 

    

 

 

    

 

 

NM (not meaningful) — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful.

 

(a)

This adjustment represents the non-cash portion of operating lease revenue related to the Company’s Arena License Agreements with MSG Sports. Pursuant to GAAP, recognition of operating lease revenue is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease revenue is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Operating income on a GAAP basis includes lease income of (i) $40,319 and $8,319 collected in cash for Fiscal Years 2022 and 2021, respectively, and (ii) a non-cash portion of $27,754 and $13,026 for Fiscal Years 2022 and 2021, respectively.

Net loss attributable to nonredeemable noncontrolling interests

For Fiscal Year 2022, the Company posted a net loss attributable to nonredeemable noncontrolling interests of $2,864 in comparison to a net loss attributable to nonredeemable noncontrolling interests of $694 for Fiscal Year 2021. These amounts represent the share of net loss of BCE that is not attributable to the Company.

Liquidity and Capital Resources

Overview

Sources of Liquidity

Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our businesses and available borrowing capacity under the National Properties Revolving Credit Facility (as defined below). Our principal uses of cash include working capital-related items (including funding our operations), capital spending, share repurchases, debt service, investments and related loans and advances to affiliates that we may fund from time to time. The Company estimates that its capital expenditure requirements in the near to intermediate term are primarily maintenance related. The Company expects to pay minimal cash taxes through Fiscal Year 2026. Our decisions as to the use of our 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. To the extent that we desire to access alternative sources of funding through the capital and credit markets, market conditions could adversely impact our ability to do so at that time.

We regularly monitor and assess our ability to meet our net funding and investing requirements. As of June 30, 2023, the Company’s unrestricted cash and cash equivalents balance was $76,089. The principal balance of the Company’s total debt outstanding as of June 30, 2023 was $659,279 and the Company had $74,518 of available borrowing capacity under its revolving credit facility. We believe we have sufficient liquidity from cash and cash equivalents available borrowing capacity under our credit facilities and cash flows from operations to fund our operations, and satisfy any obligations for the foreseeable future. See Note 12. Credit Facilities to the consolidated and combined financial statements included elsewhere in this prospectus for a discussion of the National Properties Facilities.

 

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On March 29, 2023, our Board authorized a share repurchase program to repurchase up to $250,000 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 (including through repayment by Sphere Entertainment of the DDTL Facility (as defined below) with shares of the Company’s Class A common stock) in accordance with applicable insider trading and other securities laws and regulations. On June 27, 2023, the Company repurchased 840 shares of Class A common stock from the Sphere Entertainment for $25,000 in a private transaction, pursuant to a Stock Purchase Agreement, dated June 21, 2023, between the Company and the Sphere Entertainment.

On April 20, 2023, a subsidiary of the Company, MSG Entertainment Holdings, LLC (“MSG Entertainment Holdings”), entered into a delayed draw term loan facility (the “DDTL Facility”) with Sphere Entertainment. Pursuant to the DDTL Facility, MSG Entertainment Holdings committed to lend up to $65,000 in delayed draw term loans to Sphere Entertainment on an unsecured basis until October 20, 2024. On July 14, 2023, Sphere Entertainment drew down on the full amount of $65,000 under the DDTL Facility. On August 9, 2023, Sphere Entertainment repaid the full principal amount of the DDTL Facility and accrued interest and commitment fees by delivering to MSG Entertainment Holdings 1,923 shares of MSG Entertainment Class A common stock.

Financing Agreements

On June 30, 2022, MSG National Properties, MSG Entertainment Group, LLC and certain subsidiaries of MSG National Properties entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and letter of credit issuers party thereto (the “National Properties Credit Agreement”), providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $100,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Facilities”). In connection with the MSGE Distribution, the National Properties Credit Agreement was amended to replace MSG Entertainment Group, LLC with MSG Entertainment Holdings as the parent guarantor. As of June 30, 2023, outstanding letters of credit were $8,382 and the remaining balance available under the National Properties Revolving Credit Facility was $74,518. On September 15, 2023, MSG National Properties entered into the National Properties Amendment, pursuant to which, among other things, the commitments under the National Properties Revolving Credit Facility were increased by an aggregate amount of $50,000 to $150,000. See “Summary — Recent Developments.”

Borrowings under the current National Properties Facilities bear interest at a floating rate, which at the option of MSG National Properties may be either (a) a base rate plus an applicable margin ranging from 1.50% to 2.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties Base Rate”), or (b) Term SOFR plus an applicable margin ranging from 2.50% to 3.50% per annum, determined based on the total leverage ratio of MSG National Properties and its restricted subsidiaries (the “National Properties SOFR Rate”). The National Properties Credit Agreement requires MSG National Properties to pay a commitment fee ranging from 0.30% to 0.50% in respect of the daily unused commitments under the National Properties Revolving Credit Facility. MSG National Properties is also required to pay customary letter of credit fees, as well as fronting fees, to banks that issue letters of credit pursuant to the National Properties Credit Agreement. The interest rate on the National Properties Facilities as of June 30, 2023 was 7.70%.

Subject to customary notice and minimum amount conditions, the Company may voluntarily repay outstanding loans under the National Properties Facilities and terminate commitments under the National Properties Revolving Credit Facility, at any time, in whole or in part, subject only to customary breakage costs in the case of prepayment of Term SOFR loans. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ended March 31, 2023, in an aggregate amount equal to 2.50% per annum (0.625% per quarter), stepping up to 5% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility on June 30, 2027.

 

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The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ending March 31, 2023, in an aggregate amount equal to 2.50% per annum (0.625% per quarter), stepping up to 5.0% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facility. Under certain circumstances, MSG National Properties is required to make mandatory prepayments on loans outstanding, including prepayments in an amount equal to the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions.

The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Facilities. The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31, 2022, and is set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ending September 30, 2024. The leverage ratio covenant began testing in the fiscal quarter ended June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, stepping down to 5.5:1 in the fiscal quarter ending June 30, 2024 and 4.5:1 in the fiscal quarter ending June 30, 2026. As of June 30, 2023, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement.

In addition to the financial covenants discussed above, the National Properties Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative and negative covenants and events of default. The National Properties Credit Agreement contains certain restrictions on the ability of MSG National Properties and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the National Properties Credit Agreement, including the following: (i) incur additional indebtedness; (ii) create liens on certain assets; (iii) make investments, loans or advances in or to other persons; (iv) pay dividends and distributions or repurchase capital stock (which will restrict the ability of MSG National Properties to make cash distributions to the Company); (v) repay, redeem or repurchase certain indebtedness; (vi) change its lines of business; (vii) engage in certain transactions with affiliates; (viii) amend their respective organizational documents; (ix) merge or consolidate; and (x) make certain dispositions.

All obligations under the National Properties Facilities are guaranteed by MSG Entertainment Holdings and MSG National Properties’ existing and future direct and indirect domestic subsidiaries, other than the subsidiaries that own The Garden and certain other excluded subsidiaries (the “Subsidiary Guarantors”).

All obligations under the National Properties Facilities, including the guarantees of those obligations, are secured by certain of the assets of MSG National Properties and the Subsidiary Guarantors (collectively, “Collateral”) including, but not limited to, a pledge of some or all of the equity interests held directly or indirectly by MSG National Properties in each Subsidiary Guarantor. The Collateral does not include, among other things, any interests in The Garden or the leasehold interests in Radio City Music Hall and the Beacon Theatre.

See Note 12. Credit Facilities to the consolidated and combined financial statements included elsewhere in this prospectus for additional information regarding the National Properties Credit Agreement, such as the scheduled repayment requirement of $16,250 in Fiscal Year 2024 and $16,250 in Fiscal Year 2025.

 

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Letters of Credit

The Company uses letters of credit to support its business operations. As of June 30, 2023, the Company had letters of credit outstanding for an aggregate of $8,382 issued under the National Properties Revolving Credit Facility.

Cash Flow Discussion

As of June 30, 2023, cash, cash equivalents and restricted cash totaled $84,355, as compared to $62,573 as of June 30, 2022. The following table summarizes the Company’s cash flow activities for Fiscal Years 2023 and 2022:

 

     Years Ended June 30,  
     2023      2022  

Net cash provided by operating activities

   $ 135,694      $ 95,351  

Net cash provided by investing activities

     30,305        45,440  

Net cash used in financing activities

     (144,217      (396,287
  

 

 

    

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 21,782      $ (255,496
  

 

 

    

 

 

 

Operating Activities

Net cash provided by operating activities for Fiscal Year 2023 improved by $40,343 to $135,694 as compared to Fiscal Year 2022, primarily due to (i) the increase in net income and (ii) net changes in working capital assets and liabilities, which included an increase in accounts receivable and deferred revenue, a decrease in accounts payable, accrued and other current and non-current liabilities, a decrease in related party receivables, net of payables, and a decrease on operating lease right-of-use assets and lease liabilities, partially offset by higher non-cash add backs mainly for net unrealized gain on equity investments with readily determinable fair value and gains, net on dispositions recognized in Fiscal Year 2023.

Investing Activities

Net cash provided by investing activities for Fiscal Year 2023 declined by $15,135 to $30,305 as compared to Fiscal Year 2022 primarily due to (i) the absence of proceeds received from a related party loan receivable in the current year period, offset by (ii) proceeds received from the dispositions of BCE and the corporate aircraft.

Financing Activities

Net cash used in financing activities for Fiscal Year 2023 declined by $252,070 to $144,217 as compared to Fiscal Year 2022 primarily due to (i) lower net transfers to Sphere Entertainment and Sphere Entertainment’s subsidiaries in the current year period as compared to Fiscal Year 2022, (ii) the absence of debt extinguishment costs and deft financing fees in Fiscal Year 2023, offset by (iii) stock repurchases in Fiscal Year 2023.

Contractual Obligations

As of June 30, 2023, the approximate future payments under our contractual obligations were as follows:

 

     Payments Due by Period (c)  
     Total      Year 1      Years 2-3      Years 4-5      More Than
5 Years
 

Leases (a)

   $ 354,237      $ 38,324      $ 39,426      $ 45,715      $ 230,772  

Debt repayments (b)

     659,279        16,250        49,054        593,975        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total future contractual obligation payments

   $ 1,013,516      $ 54,574      $ 88,480      $ 639,690      $ 230,772  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(a)

Includes contractually obligated minimum lease payments for operating leases having an initial noncancellable term in excess of one year for the Company’s venues, including various corporate offices. These commitments are presented exclusive of the imputed interest used to reflect the payment’s present value. See Note 9. Leases to the consolidated and combined financial statements included elsewhere in this prospectus for more information.

(b)

See Note 12. Credit Facilities to the consolidated and combined financial statements included elsewhere in this prospectus for more information regarding the principal repayments required under the National Properties Credit Agreement.

(c)

Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See Note 13. Pension Plans and Other Postretirement Benefit Plans to the consolidated and combined financial statements included elsewhere in this prospectus for more information on the future funding requirements under our pension obligations.

Off Balance Sheet Arrangements

As of June 30, 2023, the Company had the following off balance sheet arrangements:

 

     Commitments  
     June 30,
2024
     June 30,
2025
     June 30,
2026
     June 30,
2027
     June 30,
2028
     Thereafter      Total  

Contractual obligations

   $ 11,225      $ 12,588      $ 16,276      $ 39,207      $ 39,563      $ 799,225      $ 918,084  

Letters of credit

     8,382        —         —         —