Madison Square Garden Sports Corp 10-Q for FY2022 Q3
Madison Square Garden Sports Corp. (MSGS)
10-Q
2022-05-05
For: 2022-03-31
View Original
Added on
April 10, 2026
About this 10-Q
Madison Square Garden Sports Corp filed this 10-Q on May 5, 2022, covering the quarter ended March 31, 2022 (FY2022 Q3).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $337.77M
- up 84.6% from $183.01M a year earlier
- Net income
- $24.5M
- up 348.1% from net income of $5.47M a year earlier
- Diluted EPS
- $1.00
- up 354.5% from $0.22 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended March 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission File Number: 1-36900
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| , | , | |||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
Registrant’s telephone number, including area code: (212 ) 465-4111
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Number of shares of common stock outstanding as of April 29, 2022:
| Class A Common Stock par value $0.01 per share | — | |||||||
| Class B Common Stock par value $0.01 per share | — | |||||||
MADISON SQUARE GARDEN SPORTS CORP.
INDEX TO FORM 10-Q
| Page | |||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| March 31, 2022 | June 30, 2021 | |||||||||||||
| (Unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||||||||
| Net related party receivables | ||||||||||||||
| Prepaid expenses | ||||||||||||||
| Other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $ | ||||||||||||||
| Right-of-use lease assets | ||||||||||||||
| Amortizable intangible assets, net | ||||||||||||||
| Indefinite-lived intangible assets | ||||||||||||||
| Goodwill | ||||||||||||||
| Deferred income tax assets, net | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||
1
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except per share data)
| March 31, 2022 | June 30, 2021 | |||||||||||||
| (Unaudited) | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current Liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Net related party payables | ||||||||||||||
| Debt | ||||||||||||||
| Accrued liabilities: | ||||||||||||||
| Employee related costs | ||||||||||||||
| League-related accruals | ||||||||||||||
| Other accrued liabilities | ||||||||||||||
| Operating lease liabilities, current | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Operating lease liabilities, noncurrent | ||||||||||||||
| Defined benefit obligations | ||||||||||||||
| Other employee related costs | ||||||||||||||
| Deferred tax liabilities, net | ||||||||||||||
| Deferred revenue, noncurrent | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (see Note 10) | ||||||||||||||
| Madison Square Garden Sports Corp. Stockholders’ Equity: | ||||||||||||||
Class A Common stock, par value $ | ||||||||||||||
Class B Common stock, par value $ | ||||||||||||||
Preferred stock, par value $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
Treasury stock, at cost, | ( | ( | ||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total Madison Square Garden Sports Corp. stockholders’ equity | ( | ( | ||||||||||||
| Nonredeemable noncontrolling interests | ||||||||||||||
| Total equity | ( | ( | ||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
2
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Revenues (a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
Direct operating expenses (b) | ||||||||||||||||||||||||||
Selling, general and administrative expenses (c) | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Miscellaneous expense, net | ( | ( | ( | ( | ||||||||||||||||||||||
| ( | ( | ( | ( | |||||||||||||||||||||||
| Income (loss) from operations before income taxes | ( | |||||||||||||||||||||||||
| Income tax (expense) benefit | ( | ( | ( | |||||||||||||||||||||||
| Net income (loss) | ( | |||||||||||||||||||||||||
| Less: Net loss attributable to nonredeemable noncontrolling interests | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Basic earnings (loss) per common share attributable to Madison Square Garden Sports Corp.’s stockholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Diluted earnings (loss) per common share attributable to Madison Square Garden Sports Corp.’s stockholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
_________________
(a)Includes revenues from related parties of $75,851 and $80,322 for the three months ended March 31, 2022 and 2021, respectively, and $153,229 and $103,752 for the nine months ended March 31, 2022 and 2021, respectively.
(b)Includes net charges from related parties of $40,796 and $24,855 for the three months ended March 31, 2022 and 2021, respectively, and $80,828 and $28,119 for the nine months ended March 31, 2022 and 2021, respectively.
(c)Includes net charges from related parties of $20,493 and $14,957 for the three months ended March 31, 2022 and 2021, respectively, and $51,620 and $39,214 for the nine months ended March 31, 2022 and 2021, respectively.
See accompanying notes to consolidated financial statements.
3
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Other comprehensive income, before income taxes: | ||||||||||||||||||||||||||
| Pension plans: | ||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss: | ||||||||||||||||||||||||||
Amortization of actuarial loss included in net periodic benefit cost | ||||||||||||||||||||||||||
| Other comprehensive income, before income taxes | ||||||||||||||||||||||||||
| Income tax expense related to items of other comprehensive income | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income, net of income taxes | ||||||||||||||||||||||||||
| Comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Less: Comprehensive loss attributable to nonredeemable noncontrolling interests | ( | ( | ( | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income (loss) | $ | $ | ( | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Provision for (benefit from) deferred income taxes | ( | |||||||||||||
| Share-based compensation expense | ||||||||||||||
| Recovery of doubtful accounts | ( | |||||||||||||
| Other non-cash adjustments | ||||||||||||||
| Change in assets and liabilities: | ||||||||||||||
| Accounts receivable, net | ( | ( | ||||||||||||
| Net related party receivables | ( | ( | ||||||||||||
| Prepaid expenses and other assets | ( | ( | ||||||||||||
| Accounts payable | ( | |||||||||||||
| Net related party payables | ||||||||||||||
| Accrued and other liabilities | ||||||||||||||
| Deferred revenue | ( | |||||||||||||
| Operating lease right-of-use assets and lease liabilities | ||||||||||||||
| Net cash provided by (used in) operating activities | ( | |||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Other investing activities | ( | |||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Taxes paid in lieu of shares issued for equity-based compensation | ( | ( | ||||||||||||
| Proceeds from share issuance | ||||||||||||||
| Proceeds from revolving credit facilities | ||||||||||||||
| Proceeds from NHL advance | ||||||||||||||
| Repayment of revolving credit facility | ( | |||||||||||||
| Payment of contingent consideration | ( | |||||||||||||
| Payments for financing costs | ( | ( | ||||||||||||
| Net cash (used in) provided by financing activities | ( | |||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | ||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||
| Capital expenditures incurred but not yet paid | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
5
MADISON SQUARE GARDEN SPORTS CORP.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(in thousands)
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Madison Square Garden Sports Corp. Stockholders’ Equity | Non - redeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Common stock issued under stock incentive plans | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||
6
MADISON SQUARE GARDEN SPORTS CORP. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF EQUITY (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Madison Square Garden Sports Corp. Stockholders’ Equity | Non - redeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued under stock incentive plans | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to noncontrolling interests | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7
MADISON SQUARE GARDEN SPORTS CORP. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF EQUITY (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Madison Square Garden Sports Corp. Stockholders’ Equity | Non - redeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Tax withholding associated with shares issued for equity-based compensation | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Common stock issued under stock incentive plans | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to noncontrolling interests | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||
8
MADISON SQUARE GARDEN SPORTS CORP. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF EQUITY (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Madison Square Garden Sports Corp. Stockholders’ Equity | Non - redeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Tax withholding associated with shares issued for equity-based compensation | — | ( | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued under stock incentive plans | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to noncontrolling interests | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Description of Business
Madison Square Garden Sports Corp. (together with its subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”) owns and operates a portfolio of assets featuring some of the most recognized teams in all of sports, including the New York Knickerbockers (“Knicks”) of the National Basketball Association (“NBA”) and the New York Rangers (“Rangers”) of the National Hockey League (“NHL”). Both the Knicks and the Rangers play their home games in Madison Square Garden Arena (“The Garden”). The Company’s other professional sports franchises include two development league teams — the Hartford Wolf Pack of the American Hockey League (“AHL”) and the Westchester Knicks of the NBA G League (“NBAGL”). These professional sports franchises are collectively referred to herein as the “sports teams.” In addition, the Company owns Knicks Gaming, an esports franchise that competes in the NBA 2K League, as well as a controlling interest in Counter Logic Gaming (“CLG”), a North American esports organization. The Company also operates two professional sports team performance centers — the Madison Square Garden Training Center in Greenburgh, NY and the CLG Performance Center in Los Angeles, CA. CLG and Knicks Gaming are collectively referred to herein as the “esports teams,” and together with the sports teams, the “teams.”
The Company operates and reports financial information in one segment. The Company’s decision to organize as one operating segment and report in one segment is based upon its internal organizational structure; the manner in which its operations are managed; the criteria used by the Company’s Executive Chairman, its Chief Operating Decision Maker (“CODM”), to evaluate segment performance. The Company’s CODM reviews total company operating results to assess overall performance and allocate resources.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“MSG Networks”). All the outstanding common stock of the Company was distributed to MSG Networks shareholders (the “MSGS Distribution”) on September 30, 2015.
On April 17, 2020 (the “MSGE Distribution Date”), the Company distributed all of the outstanding common stock of Madison Square Garden Entertainment Corp. (formerly MSG Entertainment Spinco, Inc. and referred to herein as “MSG Entertainment”) to its stockholders (the “MSGE Distribution”). MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. In the MSGE Distribution, (a) each holder of the Company’s Class A common stock received one share of MSG Entertainment Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on April 13, 2020 (the “Record Date”), and (b) each holder of the Company’s Class B common stock received one share of MSG Entertainment Class B common stock, par value $0.01 per share, for every share of the Registrant’s Class B common stock held of record as of the close of business, New York City time, on the Record Date.
Basis of Presentation
The accompanying unaudited consolidated interim financial statements (referred to as the “Financial Statements” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and Article 10 of Regulation S-X of the SEC for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 (“fiscal year 2021”). The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The dependence of MSG Sports on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. However, on March 11 and 12, 2020, the NBA and NHL, respectively, suspended their 2019-20 seasons due to COVID-19. In July and August 2020, the NBA and NHL, respectively, resumed their seasons. As a result, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarter of fiscal year 2020 during the first quarter of fiscal year 2021.
Reclassifications
Certain reclassifications have been made in order to conform to the current period’s presentation and relate to the separation of League-related accruals, which was previously reported in Other accrued liabilities in the consolidated balance sheet as of June 30, 2021.
10
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Impact of COVID-19
COVID-19 disruptions have materially impacted the Company’s operations and operating results, with the Company recognizing materially less revenues, or in some cases no revenues, across a number of areas during fiscal years 2020 and 2021. The Company’s operations and operating results were also impacted by temporary declines in attendance in fiscal year 2022, due to ongoing reduced tourism levels as well as an increase in cases during certain months of the fiscal year due to a COVID-19 variant.
In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. As a result of the suspension of the 2019-20 NBA and NHL seasons and subsequent resumption of play in July and August 2020, respectively, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.
In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed, and the Knicks and the Rangers played fewer games, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule. These compare to traditional 82-game regular season schedules for both the NBA and NHL.
On December 16, 2020, and January 14, 2021, respectively, the Knicks and the Rangers resumed playing their homes games at The Garden as part of their 2020-21 seasons. However, fans were initially prohibited from attending games due to government-mandated assembly restrictions. Effective February 23, 2021, New York venues with at least a 10,000-person capacity were permitted to operate at 10% capacity, and the Knicks and the Rangers began playing games at The Garden with a limited number of fans in attendance on February 23 and 26, respectively.
Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests. As a result, the Knicks played three home playoff games with ticket sales of approximately 15,000-16,500 per game during the fiscal year ended June 30, 2021.
These disruptions materially impacted the Company’s revenues across a number of areas, including, ticket sales; the Company’s share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; local media rights fees; and food, beverage and merchandise sales.
In connection with the MSGE Distribution, we entered into the Arena License Agreements with MSG Entertainment. The Garden was not available for use between April 17, 2020 (the date of the MSGE Distribution) and the start of the NBA and NHL 2020-21 seasons in December 2020 and January 2021, respectively, due to the government-mandated suspension of events in response to COVID-19, and was available at reduced capacity through May 2021. As a result, the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, and the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts.
During fiscal year 2021, as a result of COVID-19, the Company implemented cost-reduction measures that included workforce reductions and limits on discretionary spending. In addition, as a result of the disruptions caused by COVID-19, certain operating expenses were reduced, including, in addition to the reduced payments to MSG Entertainment under the Arena License Agreements described above, (i) NBA league assessments and day-of-game expenses for Knicks and Rangers games, and (ii) league revenue sharing, net of escrow and team personnel expense. These expense reductions did not fully offset revenue losses.
As a result of New York City regulations effective August 17, 2021, indoor entertainment venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including that all guests 12 years of age and older show proof of at least one dose of a COVID-19 vaccine. Following updated New York City regulations, effective January 29, 2022, all guests five years of age and older and all employees were required to provide proof that they have received either two doses of a two-shot COVID-19 vaccination, or one dose of a single-shot vaccine. Children under age five could attend events with a vaccinated adult, but children ages two to four were required to wear a mask while inside venues such as The Garden. Effective March 7, 2022, New York City lifted all COVID-19 vaccination requirements pertaining to guests in attendance at indoor entertainment venues, followed by a lifting of vaccination requirements applicable to professional athletes competing in such venues effective March 24, 2022. Also, in April 2022, New York State terminated the last of its mandatory COVID-19 rules for indoor venues. As a result, there are no capacity restrictions or vaccination requirements applicable to fan attendance at games at The Garden as of the date of this filing.
The Knicks and the Rangers each completed their full 82-game regular season schedules for the 2021-22 season in April 2022 and the Rangers are currently competing in the playoffs. Fan attendance during the regular season was impacted by the COVID-19 pandemic including the emergence of certain variants and ongoing reduced tourism levels.
11
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 2. Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Madison Square Garden Sports Corp. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In addition, the consolidated financial statements of the Company include the accounts from CLG, in which the Company has a controlling voting interest. The Company’s consolidation criteria are based on authoritative accounting guidance for voting interest, controlling interest or variable interest entities. CLG is consolidated with the equity owned by other shareholders shown as nonredeemable noncontrolling interests in the accompanying consolidated balance sheets, and the other shareholders’ portion of net earnings (loss) and other comprehensive income (loss) shown as net income (loss) or comprehensive income (loss) attributable to nonredeemable noncontrolling interests in the accompanying consolidated statements of operations and consolidated statements of comprehensive income (loss), respectively.
Use of Estimates
The preparation of the accompanying Financial Statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, other current assets, goodwill, intangible assets, other long-lived assets, deferred tax valuation allowance, and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax expense, income tax expense, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the Financial Statements to be reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time and, as such, these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions to the general approach in Accounting Standards Codification (“ASC”) Topic 740 and includes methods of simplification to the existing guidance. The Company adopted this standard as of the beginning of fiscal year 2022, and the adoption did not have a material impact on its consolidated financial statements.
12
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 3. Revenue Recognition
Contracts with Customers
All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers. For the three and nine months ended March 31, 2022 and 2021, the Company did not have any material impairment losses on receivables or contract assets arising from contracts with customers.
Disaggregation of Revenue
The following table disaggregates the Company’s revenues by type of goods or services in accordance with the required entity-wide disclosure requirements set forth in ASC Subtopic 280-10-50-38 to 40 and the disaggregation of revenue required disclosures in accordance with ASC Subtopic 606-10-50-5 for the three and nine months ended March 31, 2022 and 2021:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Event-related (a) | $ | $ | $ | $ | ||||||||||||||||||||||
Media rights (b) | ||||||||||||||||||||||||||
| Sponsorship, signage and suite licenses | ||||||||||||||||||||||||||
| League distributions and other | ||||||||||||||||||||||||||
| Total revenues from contracts with customers | $ | $ | $ | $ | ||||||||||||||||||||||
_________________
(a)Consists of (i) ticket sales and other ticket-related revenues, and (ii) food, beverage and merchandise sales at The Garden.
(b)Consists of (i) local media rights fees, (ii) revenue from the distribution through league-wide national and international television contracts, and (iii) other local radio rights fees.
13
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet. The following table provides information about contract balances from the Company’s contracts with customers as of March 31, 2022 and June 30, 2021.
| March 31, | June 30, | |||||||||||||
| 2022 | 2021 | |||||||||||||
Receivables from contracts with customers, net (a) | $ | $ | ||||||||||||
Contract assets, current (b) | ||||||||||||||
Deferred revenue, including non-current portion (c), (d) | ||||||||||||||
_________________
(a)Receivables from contracts with customers, net, which are reported in Accounts receivable, net and Net related party receivables in the Company’s accompanying consolidated balance sheets, represent the Company’s unconditional rights to consideration under its contracts with customers. As of March 31, 2022 and June 30, 2021, the Company’s receivables reported above included $9,344 and $213 , respectively, related to various related parties associated with contracts with customers. See Note 15 for further details on related party arrangements. Receivables from contracts with customers, net, excludes amounts recorded in Accounts receivable, net, associated with amounts due from the NBA and NHL related to escrow and player compensation recoveries and luxury tax payments. As of March 31, 2022, the Company had receivable balances related to escrow and player compensation recoveries of $23,790 and $7,511 , recorded in Accounts receivable, net and Other assets, respectively. As of June 30, 2021, the Company had receivable balances related to escrow and player compensation recoveries of $36,525 and $10,700 , recorded in Accounts receivable, net and Other assets, respectively.
(b)Contract assets, current, which are reported as Other current assets in the Company’s accompanying consolidated balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to the customer, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable once the Company’s right to consideration becomes unconditional. The Company had contract asset balances related to local media rights of $21,238 and $0 as of March 31, 2022 and June 30, 2021, respectively. See Note 15 for further details on these related party arrangements.
(c)Deferred revenue, including non-current portion primarily relates to the Company’s receipt of consideration from customers or billing customers in advance of the Company’s transfer of goods or services to those customers. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to a customer. The non-current portion of deferred revenue primarily consists of a $30,000 receipt from the NBA in December 2020 of league distributions in advance of the Company’s recognition. The Company’s deferred revenue related to local media rights was $0 and $260 as of March 31, 2022 and June 30, 2021, respectively. See Note 15 for further details on these related party arrangements.
14
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Transaction Price Allocated to the Remaining Performance Obligations
The following table depicts the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2022 and is based on current projections. In developing the estimated revenue, the Company applies the allowable practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Additionally, the Company has elected to exclude variable consideration from its disclosure related to the remaining performance obligations under its local media rights arrangements, league-wide national and international television contracts, and certain other arrangements with variable consideration.
| Fiscal Year 2022 (remainder) | $ | |||||||
| Fiscal Year 2023 | ||||||||
| Fiscal Year 2024 | ||||||||
| Fiscal Year 2025 | ||||||||
| Fiscal Year 2026 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Note 4. Computation of Earnings (Loss) per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings (loss) per common share attributable to the Company’s stockholders (“EPS”) and the number of shares excluded from diluted earnings (loss) per common share, as they were anti-dilutive.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Weighted-average shares (denominator): | ||||||||||||||||||||||||||
Weighted-average shares for basic EPS | ||||||||||||||||||||||||||
Dilutive effect of shares issuable under share-based compensation plans | ||||||||||||||||||||||||||
Weighted-average shares for diluted EPS | ||||||||||||||||||||||||||
| Weighted-average shares excluded from diluted earnings (loss) per share | ||||||||||||||||||||||||||
Note 5. Team Personnel Transactions
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MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 6. Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of the amounts recorded as cash, cash equivalents and restricted cash.
| As of | ||||||||||||||||||||||||||
| March 31, 2022 | June 30, 2021 | March 31, 2021 | June 30, 2020 | |||||||||||||||||||||||
| Captions on the consolidated balance sheets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
Restricted cash (a) | ||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash on the consolidated statements of cash flows | $ | $ | $ | $ | ||||||||||||||||||||||
_________________
(a)Restricted cash as of March 31, 2022 and June 30, 2020 primarily included cash deposited in an escrow account (see Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for more information). For all other periods, restricted cash relates to the Company’s revolving credit facilities (see Note 11 for more information).
Note 7. Leases
The Company’s leases primarily consist of the lease of the Company’s principal executive offices under the Sublease Agreement with MSG Entertainment (the “Sublease Agreement”) and the lease of CLG Performance Center. In addition, the Company accounts for the rights of use of The Garden pursuant to the Arena License Agreements as leases under the ASC Topic 842, Leases. See Note 8 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for more information regarding the Company’s accounting policies associated with its leases.
In November 2021, MSG Entertainment entered into a new lease for principal executive offices at Two Pennsylvania Plaza in New York (the “New MSGE Lease Agreement”). In accordance with the terms of the Sublease Agreement and the New MSGE Lease Agreement, the lease term of the Sublease Agreement was extended until October 31, 2024 . The Company has accounted for this extension as a lease remeasurement and remeasured the right-of-use asset and operating lease liability utilizing the Company’s incremental borrowing rate as of the date of remeasurement. As a result of the remeasurement, non-cash additions to the right-of-use asset and operating lease liability of $1,244
In accordance with the terms of the Sublease Agreement, the Company has committed to enter into a new sublease agreement with MSG Entertainment for a lease term equivalent to the New MSGE Lease Agreement term, which ends January 31, 2046. In addition, in connection with the New MSGE Lease Agreement, the Company has entered into a commitment whereby if the New MSGE Lease Agreement were terminated under certain circumstances, the Company would be required to enter into a new lease for executive offices in Two Pennsylvania Plaza directly with the landlord, with a consistent lease term through January 31, 2046. As the Company has not yet entered into a new sublease for or taken possession of the new executive office space at Two Pennsylvania Plaza, no additional right-of-use assets or operating lease liabilities have been recorded as of March 31, 2022 related to the commitments discussed above.
The Garden was not available for use between April 17, 2020 and the start of the NBA and NHL 2020-21 seasons in December 2020 and January 2021, respectively, due to the government-mandated suspension of events in response to COVID-19, and as a result the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements.
During the three and nine months ended March 31, 2022 and 2021, the Company recognized operating lease costs associated with the Arena License Agreements with respect to games played at The Garden.
16
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
As of March 31, 2022, the Company’s existing operating leases, which are recorded in the accompanying financial statements, have remaining lease terms ranging from 5 months to 33 years. In certain instances, leases include options to renew, with varying option terms. The exercise of lease renewals, if available under the lease options, is generally at the Company’s discretion and is considered in the Company’s assessment of the respective lease term. The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.
The following table summarizes the ROU assets and lease liabilities recorded on the Company’s accompanying consolidated balance sheets as of March 31, 2022 and June 30, 2021:
| Line Item in the Company’s Consolidated Balance Sheet | March 31, 2022 | June 30, 2021 | ||||||||||||||||||||||||
| Right-of-use assets: | ||||||||||||||||||||||||||
Operating leases | Right-of-use lease assets | $ | $ | |||||||||||||||||||||||
| Lease liabilities: | ||||||||||||||||||||||||||
Operating leases, current (a) | Operating lease liabilities, current | $ | $ | |||||||||||||||||||||||
Operating leases, noncurrent (a) | Operating lease liabilities, noncurrent | |||||||||||||||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||||||||||||||
_________________
(a)As of March 31, 2022, Operating lease liabilities, current and Operating lease liabilities, noncurrent included balances of $42,713 and $703,269 , respectively, that are payable to MSG Entertainment. As of June 30, 2021, Operating lease liabilities, current and Operating lease liabilities, noncurrent included balances of $41,541 and $690,792 , respectively, that are payable to MSG Entertainment.
The following table summarizes the activity recorded within the Company’s accompanying consolidated statements of operations for the three and nine months ended March 31, 2022 and 2021:
| Line Item in the Company’s Consolidated Statement of Operations | Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Operating lease cost | Direct operating expenses | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Operating lease cost | Selling, general and administrative expenses | |||||||||||||||||||||||||||||||
| Short-term lease cost | Direct operating expenses | |||||||||||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Supplemental Information
For the nine months ended March 31, 2022 and 2021, cash paid for amounts included in the measurement of lease liabilities was $32,580 and $2,717 , respectively.
The weighted average remaining lease term for operating leases recorded on the accompanying consolidated balance sheet as of March 31, 2022 was 32.9 years. The weighted average discount rate was 7.13 % as of March 31, 2022 and represented the Company’s estimated incremental borrowing rate, assuming a secured borrowing, based on the remaining lease term at the time of either (i) adoption of the standard or (ii) the period in which the lease term expectation commenced or was modified.
17
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Maturities of operating lease liabilities as of March 31, 2022 are as follows:
| Fiscal Year 2022 (remainder) | $ | |||||||
| Fiscal Year 2023 | ||||||||
| Fiscal Year 2024 | ||||||||
| Fiscal Year 2025 | ||||||||
| Fiscal Year 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | |||||||
| Total lease liabilities | $ | |||||||
Note 8. Goodwill and Intangible Assets
During the first quarter of fiscal year 2022, the Company performed its annual impairment test of goodwill and determined that there were no impairments identified as of the impairment test date. The carrying amount of goodwill as of March 31, 2022 and June 30, 2021 is $226,955
The Company’s indefinite-lived intangible assets as of March 31, 2022 and June 30, 2021 are as follows:
| Sports franchises | $ | |||||||
| Photographic related rights | ||||||||
| $ | ||||||||
During the first quarter of fiscal year 2022, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified as of the impairment test date.
The Company’s intangible assets subject to amortization are as follows:
| March 31, 2022 | Gross | Accumulated Amortization | Net | |||||||||||||||||
| Trade names | $ | $ | ( | $ | ||||||||||||||||
| Non-compete agreements | ( | |||||||||||||||||||
| Other intangibles | ( | |||||||||||||||||||
| $ | $ | ( | $ | |||||||||||||||||
| June 30, 2021 | Gross | Accumulated Amortization | Net | |||||||||||||||||
| Trade names | $ | $ | ( | $ | ||||||||||||||||
| Non-compete agreements | ( | |||||||||||||||||||
| Other intangibles | ( | |||||||||||||||||||
| $ | $ | ( | $ | |||||||||||||||||
For the three months ended March 31, 2022 and 2021, amortization expense of intangible assets was $265 and $265 , respectively. For the nine months ended March 31, 2022 and 2021, amortization expense of intangible assets was $795 and $795 , respectively.
18
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 9. Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents:
| Fair Value Hierarchy | March 31, 2022 | June 30, 2021 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Money market account | I | $ | $ | |||||||||||||||||
| Time deposits | I | |||||||||||||||||||
| Total assets measured at fair value | $ | $ | ||||||||||||||||||
Assets listed above are classified within Level I of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amount of the Company’s money market account and time deposits approximate fair value due to their short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
| March 31, 2022 | June 30, 2021 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
Debt, current (a) | $ | $ | $ | $ | ||||||||||||||||||||||
Long-term debt (b) | $ | $ | $ | $ | ||||||||||||||||||||||
(a)The Company’s debt, current is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable. The fair value of the Company’s debt, current is the same as its carrying amount as the debt bears interest at current market conditions. See Note 11 for further details.
(b)The Company’s long-term debt is classified within Level II of the fair value hierarchy as it is valued using quoted indices of similar securities for which the inputs are readily observable. The fair value of the Company’s long-term debt is the same as its carrying amount as the debt bears interest at a variable rate indexed to current market conditions. See Note 11 for further details .
Note 10. Commitments and Contingencies
Commitments
As more fully described in Note 12 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, the Company’s commitments consist primarily of the Company’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination. In addition, see Note 7 for more information on the contractual obligations related to future lease payments. The Company did not have any material changes in its contractual obligations, including off-balance sheet commitments, since the end of fiscal year 2021 other than the lease commitments discussed in Note 7 and activities in the ordinary course of business.
Legal Matters
The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty (including the extent of available insurance), management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Note 11. Debt
Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“Knicks LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “2016 Knicks Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “2016 Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The 2016 Knicks Revolving Credit Facility would have matured and any unused commitments thereunder would have expired on September 30, 2021.
19
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
On November 6, 2020, the Company amended and restated the 2016 Knicks Credit Agreement in its entirety (the “2020 Knicks Credit Agreement”). On December 14, 2021, Knicks LLC entered into Amendment No. 2 to the 2020 Knicks Credit Agreement, which amended and restated the 2020 Knicks Credit Agreement (the “2021 Knicks Credit Agreement”).
The 2021 Knicks Credit Agreement provides for a senior secured revolving credit facility of up to $275,000 (the “2021 Knicks Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The maturity date of the 2021 Knicks Credit Agreement is December 14, 2026 . Amounts borrowed may be distributed to the Company except during an event of default.
All borrowings under the 2021 Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the 2021 Knicks Credit Agreement bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.250 % to 0.500 % per annum or (ii) term Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment of 0.100 % per annum plus a margin ranging from 1.250 % to 1.500 % per annum depending on the credit rating applicable to the NBA’s league-wide credit facility. Knicks LLC is required to pay a commitment fee ranging from 0.250 % to 0.300 % per annum in respect of the average daily unused commitments under the 2021 Knicks Revolving Credit Facility. The outstanding balance under the 2021 Knicks Revolving Credit Facility was $220,000 as of March 31, 2022, which was recorded as Long-term debt in the accompanying consolidated balance sheet. The interest rate on the 2021 Knicks Revolving Credit Facility as of March 31, 2022 was 1.65 %. During the nine months ended March 31, 2022 the Company made interest payments of $2,418 in respect of the 2021 Knicks Revolving Credit Facility (including in respect of obligations under the 2020 Knicks Credit Agreement prior to the amendment and restatement thereof).
All obligations under the 2021 Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA, (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements, and (iii) revenues to be paid to Knicks LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the 2021 Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to SOFR-based loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the 2021 Knicks Revolving Credit Facility is greater than 350 % of qualified revenues.
In addition to the financial covenant described above, the 2021 Knicks Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2021 Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2021 Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2021 Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
The 2021 Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of at least 1.5 four quarter period. As of March 31, 2022, Knicks LLC was in compliance with this financial covenant.
Knicks Holdings Credit Facility
On November 6, 2020, Knicks Holdings, LLC, an indirect, wholly-owned subsidiary of the Company and the direct parent of Knicks LLC (“Knicks Holdings”), entered into a credit agreement with a syndicate of lenders (the “2020 Knicks Holdings Credit Agreement”). The 2020 Knicks Holdings Credit Agreement provided for a revolving credit facility of up to $75,000 (the “2020 Knicks Holdings Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. On December 14, 2021 , the Company terminated the 2020 Knicks Holdings Revolving Credit Facility in its entirety.
Rangers Revolving Credit Facility
On January 25, 2017, New York Rangers, LLC (“Rangers LLC”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “2017 Rangers Credit Agreement”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “2017 Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The 2017 Rangers Revolving Credit Facility would have matured and any unused commitments thereunder would have expired on January 25, 2022.
20
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
On November 6, 2020, the Company amended and restated the 2017 Rangers Credit Agreement in its entirety (the “2020 Rangers Credit Agreement”). On December 14, 2021, Rangers LLC entered into Amendment No. 3 to the 2020 Rangers Credit Agreement, which amended and restated the 2020 Rangers Credit Agreement (the “2021 Rangers Credit Agreement”).
The 2021 Rangers Credit Agreement provides for a senior secured revolving credit facility of up to $250,000 (the “2021 Rangers Revolving Credit Facility”) to fund working capital needs and for general corporate purposes. The maturity date of the 2021 Rangers Credit Agreement is December 14, 2026 . Amounts borrowed may be distributed to the Company except during an event of default.
All borrowings under the 2021 Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the 2021 Rangers Revolving Credit Facility bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.500 % to 1.000 % per annum or (ii) term SOFR plus a credit spread adjustment of 0.100 % per annum plus a margin ranging from 1.500 % to 2.000 % per annum depending on the credit rating applicable to the NHL’s league-wide credit facility. Rangers LLC is required to pay a commitment fee ranging from 0.375 % to 0.625 % per annum in respect of the average daily unused commitments under the 2021 Rangers Revolving Credit Facility. During the nine months ended March 31, 2022, the Company made principal repayments of $70,000 and the outstanding balance under the 2021 Rangers Revolving Credit Facility was $65,000 as of March 31, 2022, which was recorded as Long-term debt in the accompanying consolidated balance sheet. The interest rate on the 2021 Rangers Revolving Credit Facility as of March 31, 2022 was 2.15 %. During the nine months ended March 31, 2022 the Company made interest payments of $1,816 in respect of the 2021 Rangers Revolving Credit Facility (including in respect of obligations under the 2020 Rangers Credit Agreement prior to the amendment and restatement thereof). In addition, on April 27, 2022, the Company made an additional principal repayment of $15,000 under the 2021 Rangers Revolving Credit Facility.
All obligations under the 2021 Rangers Revolving Credit Facility are, subject to the 2021 Rangers NHL Advance Agreement (as defined below), secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the 2021 Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to SOFR-based loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17 % of the maximum available amount under the 2021 Rangers Revolving Credit Facility.
In addition to the financial covenant described above, the 2021 Rangers Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2021 Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2021 Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2021 Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the 2021 Rangers Revolving Credit Facility.
The 2021 Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of at least 1.5 :1.0 over a trailing four quarter period. As of March 31, 2022, Rangers LLC was in compliance with this financial covenant.
2021 Rangers NHL Advance Agreement
On March 19, 2021, Rangers LLC, Rangers Holdings, LLC and MSG NYR Holdings LLC entered into an advance agreement with the NHL (the “2021 Rangers NHL Advance Agreement”) pursuant to which the NHL advanced $30,000 to Rangers LLC. The advance is to be utilized solely and exclusively to pay for Rangers LLC operating expenses.
All obligations under the 2021 Rangers NHL Advance Agreement are senior to and shall have priority over all secured and other indebtedness of Rangers LLC, Rangers Holdings, LLC and MSG NYR Holdings LLC. All borrowings under the 2021 Rangers NHL Advance Agreement were made on a non-revolving basis and bear interest at 3.00 % per annum, ending on the date any such advances are fully repaid. Advances received under the 2021 Rangers NHL Advance Agreement are payable upon demand by the NHL. It is expected that the advanced amount will be set off against funds that would otherwise be paid, distributed or transferred by the NHL to Rangers LLC. The outstanding balance under the 2021 Rangers NHL Advance Agreement was $30,000 as of March 31, 2022 and was recorded as Debt in the accompanying consolidated balance sheet. During the nine months ended March 31, 2022 the Company made interest payments of $675 .
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MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Deferred Financing Costs
The following table summarizes deferred financing costs, net of amortization, related to the Company’s credit facilities as reported on the accompanying consolidated balance sheet:
March 31, 2022 (a) | June 30, 2021 | |||||||||||||
| Other current assets | $ | $ | ||||||||||||
| Other assets | ||||||||||||||
—————
(a) In connection with the 2021 Knicks Revolving Credit Facility and 2021 Rangers Revolving Credit Facility, the Company incurred $2,836 in deferred financing costs during the nine months ended March 31, 2022.
Note 12. Benefit Plans
Defined Benefit Pension Plans
Prior to the MSGE Distribution, the Company sponsored various defined benefit pension plans and a contributory welfare plan. As of the MSGE Distribution Date, the Company and MSG Entertainment entered into an employee matters agreement (the “Employee Matters Agreement”) which determined each company’s obligations after the MSGE Distribution with regard to historical liabilities under the Company’s former pension and postretirement plans. See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for more information with regard to the liabilities retained by the Company from certain plans, which were transferred to the MSG Sports, LLC Excess Cash Balance Plan and MSG Sports, LLC Excess Retirement Plan, which the Company established in connection with the MSGE Distribution and are collectively referred to the “MSGS Pension Plans.”
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Interest cost (credit) | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Recognized actuarial loss | ||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | ||||||||||||||||||||||
Defined Contribution Plans
Prior to the MSGE Distribution, the Company sponsored The Madison Square Garden 401(k) Savings Plan (the “401(k) Plan”), which is a multiple employer plan and the MSG S&E, LLC Excess Savings Plan (collectively referred to as the “Savings Plans”). As a result of the MSGE Distribution, the Savings Plans were transferred to MSG Entertainment. However, MSG Sports employees continue to participate in the 401(k) Plan. In addition, pursuant to the Employee Matters Agreement the Company established the MSG Sports LLC Excess Savings Plan to provide non-qualified retirement benefits to eligible MSG Sports employees. See Note 14 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for more information with regard to the liabilities retained by the Company.
Expenses related to the Savings Plans that are included in the accompanying consolidated statements of operations were $1,238 and $3,076 for the three and nine months ended March 31, 2022, respectively, and $426 and $1,530 for the three and nine months ended March 31, 2021, respectively.
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MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Note 13. Share-based Compensation
See Note 15 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021 for more information regarding the Company’s 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 Stock Plan for Non-Employee Directors.
Share-based compensation expense was recognized in the consolidated statements of operations as a component of selling, general and administrative expenses. Share-based compensation expense was $6,973 and $19,178 for the three and nine months ended March 31, 2022, respectively, and $3,867 and $26,193 for the three and nine months ended March 31, 2021, respectively. There were no
As a result of an agreement to settle an action (the “Settlement”) filed by a purported stockholder of the Company derivatively on behalf of the Company against certain directors of the Company who are members of the Dolan family and against the directors of the Company who were members of the Compensation Committee, Mr. Dolan voluntarily relinquished a one-time equity award granted by the Company in October 2018 pursuant to his 2018 employment agreement, and the related award agreements were canceled. The one-time equity award included: 32 target performance stock units and three grants of stock options to purchase an aggregate of 449 shares of Class A Common Stock, which were to vest over a 4 -year period. The Settlement became effective October 8, 2020 and therefore, upon cancellation, the Company recorded previously unrecognized share-based compensation expense of approximately $7,400 related to this award during the nine months ended March 31, 2021.
Restricted Stock Units Award Activity
The following table summarizes activity related to the Company’s restricted stock units and performance restricted stock units, collectively referred to as “RSUs,” held by the Company and MSG Entertainment employees, for the nine months ended March 31, 2022:
| Number of | Weighted-Average Fair Value Per Share at Date of Grant (a) | ||||||||||||||||
| Nonperformance Based Vesting RSUs | Performance Based Vesting RSUs | ||||||||||||||||
| Unvested award balance, June 30, 2021 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested | ( | ( | $ | ||||||||||||||
| Forfeited / Cancelled | ( | $ | |||||||||||||||
| Unvested award balance, March 31, 2022 | $ | ||||||||||||||||
_____________________
(a)Weighted-average fair value per share at date of grant does not reflect any adjustments to awards granted prior to the MSGE Distribution.
The fair value of RSUs that vested during the nine months ended March 31, 2022 was $40,490 . Upon delivery, RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations. To fulfill the Company’s and MSG Entertainment’s employees’ required statutory tax withholding obligations for the applicable income and other employment taxes, 105 of these RSUs, with an aggregate value of $18,945 , inclusive of $6,803 related to MSG Entertainment employees (who vested in the Company’s RSUs), were retained by the Company and the taxes paid are reflected as a financing activity in the accompanying consolidated statement of cash flows for the nine months ended March 31, 2022.
The fair value of RSUs that vested during the nine months ended March 31, 2021 was $36,099 . The weighted-average fair value per share at grant date of RSUs granted during the nine months ended March 31, 2021 was $162.22 .
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MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Stock Options Award Activity
The following table summarizes activity related to the Company’s stock options for the nine months ended March 31, 2022:
| Number of Time Vesting Options | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Term (In Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Balance as of June 30, 2021 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Cancelled | $ | ||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | |||||||||||||||||||||
| Exercisable as of March 31, 2022 | $ | $ | |||||||||||||||||||||
Note 14. Stock Repurchase Program
On September 11, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of Class A Common Stock may be purchased from time to time in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors.
During the nine months ended March 31, 2022 and 2021, the Company did no 259,639 of availability remaining under its stock repurchase authorization.
Note 15. Related Party Transactions
On July 9, 2021, MSG Networks merged with a subsidiary of MSG Entertainment and became a wholly-owned subsidiary of MSG Entertainment (the “MSGE-MSGN Merger”). Accordingly, agreements between the Company and MSG Networks are now effectively agreements with MSG Entertainment on a consolidated basis.
As of March 31, 2022, members of the Dolan family including trusts for members of the Dolan family (collectively, the “Dolan Family Group”), for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, collectively beneficially own 100 % of the Company’s outstanding Class B Common Stock and own approximately 3.1 % of the Company’s outstanding Class A Common Stock. Such shares of the Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately 70.6 % of the aggregate voting power of the Company’s outstanding common stock. Members of the Dolan family are also the controlling stockholders of MSG Entertainment and AMC Networks Inc. (“AMC Networks”). Members of the Dolan family were the direct controlling stockholders of MSG Networks prior to the MSGE-MSGN Merger and indirectly control MSG Networks through MSG Entertainment’s ownership of MSG Networks.
The Company is party to the following agreements and/or arrangements with MSG Entertainment and MSG Networks, as applicable:
•Arena License Agreements entered into in April 2020 pursuant to which MSG Entertainment (i) provides the right to use The Garden for games of the Knicks and the Rangers for a 35 -year term in exchange for arena license fees, (ii) shares revenues collected for suite licenses, (iii) operates and manages the sale of the sports teams merchandise at The Garden for a commission, (iv) operates and manages the sales of food and beverage concessions in exchange for 50% of net profits from the sales and catering services during Knicks and Rangers home games, (v) provides day of game services that were historically provided prior to the MSGE Distribution, and (vi) provides other general services within The Garden;
•Media rights agreements that the Company and MSG Networks entered into in July 2015 with stated terms of 20 years, providing MSG Networks with local telecast rights for Knicks and Rangers games in exchange for media rights fees;
•Sponsorship sales and service representation agreements entered into in April 2020 pursuant to which MSG Entertainment has the exclusive right and obligation to sell the Company’s sponsorships for an initial stated term of 10 years for a commission. In addition, under this agreement, the Company is charged by MSG Entertainment for sales and service staff and overhead associated with the sales of sponsorship assets;
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MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
•Team sponsorship allocation agreement with MSG Entertainment, pursuant to which teams continue receiving an allocation of sponsorship and signage revenues associated with the sponsorship agreements that existed at the MSGE Distribution Date;
•Transition Services Agreement (the “TSA”) pursuant to which the Company (i) receives certain services from MSG Entertainment, such as information technology, accounts payable, payroll, human resources, and other corporate functions, as well as the executive support services, in exchange for service fees and (ii) provides certain services to MSG Entertainment, such as certain communications, legal and ticketing services (including the provision of certain legal services the Company provided to MSG Networks prior to the MSGE-MSGN Merger), in exchange for service fees;
•Sublease agreement, pursuant to which the Company leases office space from MSG Entertainment;
•Group ticket sales representation agreement, pursuant to which MSG Entertainment appointed the Company as its sales and service representative to sell group ticket packages related to MSG Entertainment events in exchange for a commission;
•Single night rental commission agreement, pursuant to which the Company may, from time to time, sell (or make referrals for sales of) licenses for the use of suites at The Garden for individual MSG Entertainment events in exchange for a commission and reimbursement for sales and service staff and overhead associated with the ticket sales on behalf of MSG Entertainment;
•Aircraft sharing agreements pursuant to which MSG Entertainment has agreed from time to time to make its aircraft and aircraft it leases from other related parties available to the Company for lease on a “time sharing” basis;
•Other agreements with MSG Entertainment entered into in connection with the MSGE Distribution, including a distribution agreement, a tax disaffiliation agreement, an employee matters agreement, a trademark license agreement and certain other arrangements; and
•Other agreements with MSG Networks entered into in connection with the MSGS Distribution, including a distribution agreement, a tax disaffiliation agreement, an employee matters agreement and certain other arrangements.
In addition, the Company shares certain executive support costs, including office space, executive assistants, security and transportation costs for: (i) the Company’s Executive Chairman with MSG Entertainment; and (ii) the Company’s Vice Chairman with AMC Networks and MSG Entertainment. The Company also previously shared such costs for the Company’s President and Chief Executive Officer with MSG Entertainment through March 31, 2022. Additionally, the Company, MSG Entertainment, and AMC Networks allocate the costs of certain personal aircraft and helicopter use by their shared executives.
From time to time the Company has entered into, and is expected to continue to enter into, arrangements with 605, LLC. Kristin A. Dolan, a former director of the Company and spouse of James L. Dolan, the Company’s Executive Chairman and a director, is the founder and Chief Executive Officer of 605, LLC. James L. Dolan and Kristin A. Dolan own 50 % of 605, LLC. 605, LLC provides audience measurement and data analytics services to the Company and its subsidiaries in the ordinary course of business.
Revenues and Operating Expenses
The following table summarizes the composition and amounts of the transactions with the Company’s affiliates. These amounts are reflected in revenues and operating expenses in the accompanying consolidated statements of operations for the three and nine months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Corporate general and administrative expenses, net | $ | $ | $ | $ | ||||||||||||||||||||||
| Costs associated with the Sponsorship sales and service representation agreements | ||||||||||||||||||||||||||
| Costs associated with the Arena License Agreements | ||||||||||||||||||||||||||
| Other operating expenses, net | ||||||||||||||||||||||||||
25
MADISON SQUARE GARDEN SPORTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Revenues
Revenues from related parties primarily consist of local media rights recognized from the licensing of team-related programming under the media rights agreements covering the Knicks and the Rangers, which provide MSG Networks with exclusive media rights to team games in their local markets.
Corporate general and administrative expenses, net
Corporate general and administrative expenses, net reflects net charges of $9,473 and $29,347 from MSG Entertainment pursuant to the TSA for certain business functions that were previously performed by internal resources for the three and nine months ended March 31, 2022, respectively, and $8,822 and $27,771 for the three and nine months ended March 31, 2021, respectively. These services include information technology, accounting, accounts payable, payroll, tax, legal, human resources, insurance and risk management, investor relations, corporate communications, benefit plan administration and reporting, and internal audit. In addition, Corporate general and administrative expenses, net reflects rent expense associated with the lease of office space from MSG Entertainment of $752 and $2,232 for the three and nine months ended March 31, 2022, respectively, and $678 and $2,047 for the three and nine months ended March 31, 2021, respectively. See Note 7 for more information regarding the lease of office space from MSG Entertainment. Corporate general and administrative expenses, net for the three and nine months ended March 31, 2021 also reflects charges from the Company to MSG Networks for the period prior to the MSGE-MSGN Merger pursuant to a services agreement between the Company and MSG Networks.
Costs associated with the Sponsorship sales and service representation agreements
Pursuant to the Sponsorship sales and service representation agreements, MSG Entertainment charges the Company sales commission fees and sponsorship fulfillment costs, as well as costs of MSG Entertainment sales and service staff and overhead associated with the sales of sponsorship assets.
Costs associated with the Arena License Agreements
Note 16. Income Taxes
In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or expense recognized in an interim period. The estimated annual effective tax rate exceeds the statutory federal tax rate of 21
Income tax expense for the three and nine months ended March 31, 2022 of $34,993 and $30,939 , respectively, reflect an effective tax rate of 59 % and 58 %.
Income tax expense for the three months ended March 31, 2021 of $53 differs from income tax expense derived from applying the statutory federal rate of 21 % to pretax income primarily due to tax benefit of $4,295 related to a decrease in the valuation allowance, partially offset by state income tax expense of $1,507 and tax expense of $561 resulting from nondeductible officers’ compensation.
Income tax benefit for the nine months ended March 31, 2021 of $275 differs from income tax benefit derived from applying the statutory federal rate of 21 % to the pretax loss primarily due to tax expense of $13,168 related to an increase in the valuation allowance, tax expense of $1,954 resulting from nondeductible officers’ compensation, and tax expense of $1,558 resulting from the acceleration of share-based compensation expense in connection with the cancellation of certain awards, partially offset by state income tax benefit of $4,754 .
The Company was notified in April 2020 that the City of New York was commencing an audit of the state income tax returns for the fiscal years ended June 30, 2016 and 2017. The Company does not expect the examination, when finalized, to result in material changes.
26
Item 2. 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 Madison Square Garden Sports Corp. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Sports,” or the “Company”) including the impact of COVID-19 on our future operations. 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, but are not limited to:
•the duration and severity of the COVID-19 pandemic and our ability to effectively manage the impacts, including the availability of The Garden with no or limited fans, league decisions regarding play and other matters, the cancellation of games, the impact of restrictions imposed by New York State, New York City, or otherwise, reduced tourism, and general hesitancy among the public to engage in public activities due to COVID-19;
•the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams;
•costs associated with player injuries, waivers or contract terminations of players and other team personnel;
•changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax;
•general economic conditions, especially in the New York City metropolitan area;
•the demand for sponsorship arrangements and for advertising;
•competition, for example, from other teams, and other sports and entertainment options;
•changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues’ respective collective bargaining agreements with their players’ associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate;
•any NBA, NHL or other work stoppage in addition to those related to COVID-19 impacts;
•any economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;
•seasonal fluctuations and other variation in our operating results and cash flow from period to period;
•the level of our expenses, including our corporate expenses;
•business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security;
•activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and the Rangers are played;
•a default by our subsidiaries under their respective credit facilities;
•the evolution of the esports industry and its potential impact on our esports businesses;
•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 or new businesses into our operations;
•the operating and financial performance of our strategic acquisitions and investments, including those we may not control;
•the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us and MSG Entertainment to maintain necessary permits or licenses;
•the impact of any government plans to redesign New York City’s Pennsylvania Station;
27
•business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings;
•financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
•our ownership of professional sports franchises in the NBA and NHL and certain related transfer restrictions on our common stock;
•the tax-free treatment of the MSGS Distribution and the MSGE Distribution;
•the performance by MSG Entertainment and its subsidiaries of its obligations under various agreements with the Company related to the MSGE Distribution and ongoing commercial arrangements; and
•the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
28
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 unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “MSG Sports,” or the “Company” refer collectively to Madison Square Garden Sports Corp., a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are conducted.
On April 17, 2020, the Company distributed all of the outstanding common stock of MSG Entertainment to its stockholders. MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through its MSG Entertainment business segment and the sports booking business previously owned and operated by the Company through its MSG Sports business segment. In the MSGE Distribution, (a) each holder of the Company’s Class A common stock, received one share of MSG Entertainment Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock held of record as of the close of business, New York City time, on the Record Date, and (b) each holder of the Company’s Class B common stock, received one share of MSG Entertainment Class B common stock, par value $0.01 per share, for every share of the Registrant’s Class B common stock held of record as of the close of business, New York City time, on the Record Date.
After giving effect to the MSGE Distribution, the Company operates and reports financial information in one segment.
Factors Affecting Results of Operations
Impact of COVID-19 on Our Business
COVID-19 disruptions have materially impacted the Company’s operations and operating results, with the Company recognizing materially less revenues, or in some cases no revenues, across a number of areas during fiscal years 2020 and 2021. The Company’s operations and operating results were also impacted by temporary declines in attendance in fiscal year 2022, due to ongoing reduced tourism levels as well as an increase in cases during certain months of the fiscal year due to a COVID-19 variant.
In March 2020, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. As a result of the suspension of the 2019-20 NBA and NHL seasons and subsequent resumption of play in July and August 2020, respectively, during the first quarter of fiscal year 2021, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.
In addition, the start of the 2020-21 NBA and NHL regular seasons were delayed, and the Knicks and the Rangers played fewer games, with the NBA playing a 72-game regular season schedule and the NHL playing a 56-game regular season schedule. These compare to traditional 82-game regular season schedules for both the NBA and NHL.
On December 16, 2020, and January 14, 2021, respectively, the Knicks and the Rangers resumed playing their homes games at The Garden as part of their 2020-21 seasons. However, fans were initially prohibited from attending games due to government-mandated assembly restrictions. Effective February 23, 2021, New York venues with at least a 10,000-person capacity were permitted to operate at 10% capacity, and the Knicks and the Rangers began playing games at The Garden with a limited number of fans in attendance on February 23 and 26, respectively.
Effective May 19, 2021, event venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including, for example, restrictions for unvaccinated guests. As a result, the Knicks played three home playoff games with ticket sales of approximately 15,000-16,500 per game during the fiscal year ended June 30, 2021.
These disruptions materially impacted the Company’s revenues across a number of areas, including, ticket sales; the Company’s share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; local media rights fees; and food, beverage and merchandise sales.
In connection with the MSGE Distribution, we entered into the Arena License Agreements with MSG Entertainment. The Garden was not available for use between April 17, 2020 (the date of the MSGE Distribution) and the start of the NBA and NHL 2020-21 seasons in December 2020 and January 2021, respectively, due to the government-mandated suspension of events in response to COVID-19, and was available at reduced capacity through May 2021. As a result, the Company was not required to pay license fees to MSG Entertainment under the Arena License Agreements until games resumed at The Garden, and the Company paid substantially reduced fees while attendance was limited. Effective July 1, 2021, the Company began paying license fees to MSG Entertainment under the Arena License Agreements in their full contractual amounts.
29
During fiscal year 2021, as a result of COVID-19, the Company implemented cost-reduction measures that included workforce reductions and limits on discretionary spending. In addition, as a result of the disruptions caused by COVID-19, certain operating expenses were reduced, including, in addition to the reduced payments to MSG Entertainment under the Arena License Agreements described above, (i) NBA league assessments and day-of-game expenses for Knicks and Rangers games, and (ii) league revenue sharing, net of escrow and team personnel expense. These expense reductions did not fully offset revenue losses.
As a result of New York City regulations effective August 17, 2021, indoor entertainment venues such as The Garden were permitted to host guests at full capacity, subject to certain restrictions, including that all guests 12 years of age and older show proof of at least one dose of a COVID-19 vaccine. Following updated New York City regulations, effective January 29, 2022, all guests five years of age and older and all employees were required to provide proof that they have received either two doses of a two-shot COVID-19 vaccination, or one dose of a single-shot vaccine. Children under age five could attend events with a vaccinated adult, but children ages two to four were required to wear a mask while inside venues such as The Garden. Effective March 7, 2022, New York City lifted all COVID-19 vaccination requirements pertaining to guests in attendance at indoor entertainment venues, followed by a lifting of vaccination requirements applicable to professional athletes competing in such venues effective March 24, 2022. Also, in April 2022, New York State terminated the last of its mandatory COVID-19 rules for indoor venues. As a result, there are no capacity restrictions or vaccination requirements applicable to fan attendance at games at The Garden as of the date of this filing.
The Knicks and the Rangers each completed their full 82-game regular season schedules for the 2021-22 season in April 2022 and the Rangers are currently competing in the playoffs. Fan attendance during the regular season was impacted by the COVID-19 pandemic including the emergence of certain variants and ongoing reduced tourism levels.
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in renewed governmental and league restrictions on attendance or otherwise impact attendance of games at The Garden. The Company’s business is also particularly sensitive to discretionary business and consumer spending. A pandemic such as COVID-19 could impede economic activity in impacted regions or globally over the long-term, causing a global recession and leading to a further decline in discretionary spending on sporting events and other leisure activities, including declines in domestic and international tourism, which could result in long-term effects on the Company’s business.
This MD&A is organized as follows:
Results of Operations. This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2022 compared to the three and nine months ended March 31, 2021.
Liquidity and Capital Resources. This section focuses primarily on (i) the liquidity and capital resources of the Company, (ii) an analysis of the Company’s cash flows for the nine months ended March 31, 2022 compared to the nine months ended March 31, 2021, and (iii) certain contractual obligations.
Seasonality of Our Business. This section discusses the seasonal performance of our business.
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company as well as the results of the Company’s annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2022. This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated financial statements of the Company included therein.
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Results of Operations
Comparison of the three and nine months ended March 31, 2022 versus the three and nine months ended March 31, 2021
The table below sets forth, for the periods presented, certain historical financial information.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, | Change (a) | March 31, | Change (a) | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 337,774 | $ | 183,010 | $ | 154,764 | 85 | % | $ | 646,149 | $ | 268,819 | $ | 377,330 | NM | |||||||||||||||||||||||||||||||||||
| Direct operating expenses | 206,273 | 126,510 | 79,763 | 63 | % | 407,698 | 182,957 | 224,741 | NM | |||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 68,902 | 46,803 | 22,099 | 47 | % | 172,230 | 138,708 | 33,522 | 24 | % | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,206 | 1,573 | (367) | (23) | % | 3,847 | 4,840 | (993) | (21) | % | ||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | 61,393 | 8,124 | 53,269 | NM | 62,374 | (57,686) | 120,060 | NM | ||||||||||||||||||||||||||||||||||||||||||
| Other expense: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (2,418) | (2,930) | 512 | 17 | % | (9,013) | (7,406) | (1,607) | (22) | % | ||||||||||||||||||||||||||||||||||||||||
| Miscellaneous expense, net | (63) | (46) | (17) | (37) | % | (190) | (236) | 46 | 19 | % | ||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before income taxes | 58,912 | 5,148 | 53,764 | NM | 53,171 | (65,328) | 118,499 | NM | ||||||||||||||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (34,993) | (53) | (34,940) | NM | (30,939) | 275 | (31,214) | NM | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | 23,919 | 5,095 | 18,824 | NM | 22,232 | (65,053) | 87,285 | NM | ||||||||||||||||||||||||||||||||||||||||||
| Less: Net loss attributable to nonredeemable noncontrolling interests | (584) | (373) | (211) | (57) | % | (1,711) | (1,479) | (232) | (16) | % | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Madison Square Garden Sports Corp.’s stockholders | $ | 24,503 | $ | 5,468 | $ | 19,035 | NM | $ | 23,943 | $ | (63,574) | $ | 87,517 | NM | ||||||||||||||||||||||||||||||||||||
_________________
NM – Percentage is not meaningful
(a)Operating results in the prior year period were materially impacted by the COVID-19 pandemic. Please see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business” for more information.
Revenues
Revenues increased $154,764, or 85%, to $337,774 for the three months ended March 31, 2022 as compared to the prior year period. Revenues increased $377,330 to $646,149 for the nine months ended March 31, 2022 as compared to the prior year period. The net increases were attributable to the following:
| Three | Nine | |||||||||||||
| Months | Months | |||||||||||||
| Increase in pre/regular season ticket-related revenues | $ | 105,780 | $ | 210,264 | ||||||||||
| Increase in suite license fee revenues | 38,554 | 73,167 | ||||||||||||
| Increase in sponsorship and signage revenues | 12,770 | 32,916 | ||||||||||||
| Increase in pre/regular season food, beverage and merchandise sales | 9,700 | 18,527 | ||||||||||||
| (Decrease) increase in local media rights fees | (9,510) | 39,597 | ||||||||||||
| (Decrease) increase in revenues from league distributions | (3,024) | 551 | ||||||||||||
| Other net increases | 494 | 2,308 | ||||||||||||
| $ | 154,764 | $ | 377,330 | |||||||||||
The increases in pre/regular season ticket-related revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods. In the prior year periods, the Knicks and the Rangers played games at The Garden with no fans in attendance until February 23 and 26, 2021, respectively, and after that, played games with attendance restricted to 10% capacity.
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The increases in suite license fee revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above. In the prior year periods, for Knicks and Rangers games played with a limited number of fans in attendance, access to suites was sold by way of individual tickets, thus minimal suite license fee revenue was recognized for the three and nine months ended March 31, 2021.
The increases in sponsorship and signage revenues for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above. In addition, the increase for the nine months ended March 31, 2022 was also due to the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year period.
The increases in pre/regular season food, beverage and merchandise sales for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.
The decrease in local media rights fees for the three months ended March 31, 2022 was primarily due to the compressed timing of the NBA and NHL 2020-21 seasons resulting in revenue being recognized over a shorter time frame in the prior fiscal year, partially offset by the impact of the shortened NBA and NHL 2020-21 regular season schedules in the prior year period, as well as contractual rate increases. The increase in local media rights fees for the nine months ended March 31, 2022 was primarily due to the delayed start of the 2020-21 NBA and NHL regular seasons and the impact of the shortened NBA and NHL 2020-21 regular season schedules in the prior year period, as well as contractual rate increases. In addition, the increase for the nine months ended March 31, 2022 was slightly offset by the recognition of local media rights fees in the prior year period associated with the Rangers’ participation in the Stanley Cup Qualifiers.
The decrease in revenues from league distributions for the three months ended March 31, 2022 was primarily due to the compressed timing of the NBA and NHL 2020-2021 seasons resulting in revenue being recognized over a shorter time frame in the prior fiscal year, partially offset by increased NBA and NHL national media rights fees and higher other league distributions in the current year period. The increase in revenues from league distributions for the nine months ended March 31, 2022 was primarily due to (i) higher NBA and NHL national media rights fees and other league distributions as a result of the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year period and (ii) increased NBA and NHL national media rights fees and other league distributions in the current year period. In addition, the increase for the nine months ended March 31, 2022 was partially offset by the recognition of the remainder of national media rights fees related to the 2019-20 NBA and NHL seasons during the first quarter of fiscal year 2021 that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020. After suspending the 2019-20 seasons in March 2020 due to the COVID-19 pandemic, the NHL and NBA subsequently restarted their seasons which were completed in September and October 2020, respectively.
Direct operating expenses
Direct operating expenses increased $79,763, or 63%, to $206,273 for the three months ended March 31, 2022 as compared to the prior year period. Direct operating expenses increased $224,741 to $407,698 for the nine months ended March 31, 2022 as compared to the prior year period. The net increases were attributable to the following:
| Three | Nine | |||||||||||||
| Months | Months | |||||||||||||
| Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax | $ | 58,244 | $ | 70,211 | ||||||||||
| Increase in other team operating expenses not discussed elsewhere in this table | 11,121 | 46,874 | ||||||||||||
| Increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden | 9,084 | 35,854 | ||||||||||||
| Increases in pre/regular season expense associated with food, beverage and merchandise sales | 3,790 | 8,276 | ||||||||||||
| Increase in team personnel compensation | 525 | 78,210 | ||||||||||||
| Decrease in net provisions for certain team personnel transactions | (3,001) | (14,684) | ||||||||||||
| $ | 79,763 | $ | 224,741 | |||||||||||
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Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Increase | 2022 | 2021 | Increase | |||||||||||||||||||||||||||||||||
| Net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax | $ | 26,471 | $ | (31,773) | $ | 58,244 | $ | 47,748 | $ | (22,463) | $ | 70,211 | ||||||||||||||||||||||||||
The increases in net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax for the three and nine months ended March 31, 2022 were primarily due to higher provisions for league revenue sharing expense (net of escrow) of $61,787 and $78,019, respectively, as a result of higher escrow recoveries and lower revenue sharing expense in the prior year periods, which reflected the impact of the COVID-19 pandemic, partially offset by higher estimated recoveries of NBA luxury tax in the current year periods. In addition, the increase in league revenue sharing expense (net of escrow) for the nine months ended March 31, 2022 was partially offset by adjustments to revenue sharing expense for the 2019-20 NBA and NHL seasons in the prior year period. Based on the completion of the 2019-20 NBA and NHL seasons during the three months ended September 30, 2020, the Company recognized a portion of revenue sharing expense (net of escrow) related to those seasons during that period that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020.
The Knicks were not a luxury tax payer for the 2020-21 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. The Knicks’ roster as of March 31, 2022 would not result in the team being a luxury tax payer for the 2021-22 season.
The actual amounts for the 2021-22 seasons may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
The increases in other team operating expenses not discussed elsewhere in this table for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above, and the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year periods. Other team operating expenses not discussed elsewhere in this table primarily consists of league assessments and expenses associated with day-to-day operations, including variable day-of-event costs incurred at The Garden, team travel and player insurance.
The increases in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the three and nine months ended March 31, 2022 were primarily a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above. In addition, the increase in operating lease costs associated with the Knicks and the Rangers playing home games at The Garden for the nine months ended March 31, 2022 was also due to the delayed start of the 2020-21 NBA and NHL regular seasons in the prior year period.
The increases in pre/regular season expense associated with food, beverage and merchandise sales for the three and nine months ended March 31, 2022 were a result of the elimination of government-mandated assembly restrictions at The Garden that were in place during the prior year periods, as discussed above.
The increase in team personnel compensation for the nine months ended March 31, 2022 was primarily due to the net impact of the delayed start and shortened 2020-21 NBA and NHL regular seasons in the prior year period and higher player compensation in the current year period. This increase in team personnel compensation for the nine months ended March 31, 2022 was partially offset by the recognition of player compensation expense during the prior year period that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020 as a result of the NBA completing the 2019-20 season in October 2020.
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Net provisions (credits) for certain team personnel transactions were as follows:
——————————
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Increase (Decrease) | 2022 | 2021 | Increase (Decrease) | |||||||||||||||||||||||||||||||||
| Waivers/contract terminations | $ | 65 | $ | 3,305 | $ | (3,240) | $ | 723 | $ | 14,420 | $ | (13,697) | ||||||||||||||||||||||||||
| Player trades | (1,066) | — | (1,066) | (1,066) | 2,583 | (3,649) | ||||||||||||||||||||||||||||||||
Season-ending player injuries (a) | 1,305 | — | 1,305 | 2,662 | — | 2,662 | ||||||||||||||||||||||||||||||||
| Net provisions for certain team personnel transactions | $ | 304 | $ | 3,305 | $ | (3,001) | $ | 2,319 | $ | 17,003 | $ | (14,684) | ||||||||||||||||||||||||||
(a) Net of insurance recovery of $656 for the three and nine months ended March 31, 2022.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended March 31, 2022 increased $22,099, or 47%, to $68,902 as compared to the prior year period. Selling, general and administrative expenses for the nine months ended March 31, 2022 increased $33,522, or 24%, to $172,230 as compared to the prior year period. For the three and nine months ended March 31, 2022 the increases were primarily due to higher (i) employee compensation and related benefits (including separation-related costs), (ii) marketing costs, (iii) commissions related to the Company’s sponsorship sales and service representation agreements with MSG Entertainment, and (iv) costs related to the Company’s TSA with MSG Entertainment.
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2022 decreased $367, or 23%, to $1,206 as compared to the prior year period. Depreciation and amortization for the nine months ended March 31, 2022 decreased $993, or 21%, to $3,847 as compared to the prior year period.
Operating income (loss)
Operating income for the three months ended March 31, 2022 increased $53,269 to $61,393 as compared to the prior year period. For the nine months ended March 31, 2022, operating income of $62,374 improved $120,060 as compared to the period year period. For the three and nine months ended March 31, 2022 the improvements to operating income were primarily due to increases in revenues, partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses.
Interest expense, net
Net interest expense for the three months ended March 31, 2022 decreased $512, or 17%, to $2,418 as compared to the prior year period. Net interest expense for the nine months ended March 31, 2022 increased $1,607, or 22%, to $9,013 as compared to the prior year period. The decrease in net expense for the three months ended March 31, 2022 was primarily a result of principal repayments made under the Rangers revolving credit facility during the current year period. The increase in net interest expense for the nine months ended March 31, 2022 was primarily driven by (i) commitment fees on unused commitments as a result of principal repayments made under the Rangers revolving credit facility during the current year period, (ii) interest expense related to the advances received in March 2021 under the 2021 Rangers NHL Advance Agreement, and (iii) acceleration of certain previously incurred financing costs when the Company terminated the 2020 Knicks Holdings Revolving Credit Facility in its entirety during December 2021.
Income taxes
See Note 16 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s income taxes.
Adjusted operating income (loss)
The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) excluding (i) deferred rent expense under the Arena License Agreements with MSG Entertainment, (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, and (vi) the impact of purchase accounting adjustments related to business acquisitions, which is referred to as adjusted operating income (loss), a non-
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GAAP measure.
Management 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. In addition, management believes that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance.
The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) 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 adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management’s effectiveness with specific reference to these indicators.
Adjusted operating income (loss) 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 adjusted operating income (loss) 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 adjusted operating income (loss).
The following are the reconciliations of operating income (loss) to adjusted operating income (loss) for the three and nine months ended March 31, 2022 as compared to the prior year period:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, | Change | March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | $ | 61,393 | $ | 8,124 | $ | 53,269 | NM | $ | 62,374 | $ | (57,686) | $ | 120,060 | NM | ||||||||||||||||||||||||||||||||||||
| Deferred rent | 11,882 | 16,478 | 23,590 | 18,280 | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,206 | 1,573 | 3,847 | 4,840 | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 6,973 | 3,867 | 19,178 | 26,193 | ||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | — | — | — | 1,644 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (loss) | $ | 81,454 | $ | 30,042 | $ | 51,412 | NM | $ | 108,989 | $ | (6,729) | $ | 115,718 | NM | ||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2022, adjusted operating income increased $51,412 to $81,454 as compared to the prior year period. For the nine months ended March 31, 2022, adjusted operating income of $108,989 improved $115,718 as compared to the prior year period. For the three and nine months ended March 31, 2022 the improvements were primarily due to increases in revenues partially offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses.
Liquidity and Capital Resources
Overview
Our operations and operating results have been materially impacted by the COVID-19 pandemic and government and league actions taken in response. For more information about the impacts and risks to the Company as a result of COVID-19, see “— Factors Affecting Results of Operations — Impact of COVID-19 on Our Business” and “Item 1A. Risk Factors — Sports Business Risks — Our Operations and Operating Results Have Been, and May Continue to be, Materially Impacted by the COVID-19 Pandemic and Government and League Actions Taken in Response” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. In addition, see also Note 1 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for further information.
Our primary sources of liquidity are cash and cash equivalents and available borrowing capacity under our credit facilities as well as cash flow from our operations. On December 14, 2021, the Company amended and extended the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement. In addition, in March 2021, the NHL advanced the Company $30,000, which the league made available to each team following the completion of the NHL’s approximately $1,000,000 private placement in January 2021, pursuant to the 2021 Rangers NHL Advance Agreement. See Note 11 to the consolidated financial statements included in “Part I - Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of the 2021 Knicks Credit Agreement, 2021 Rangers Credit Agreement, and 2021 Rangers NHL Advance Agreement.
Our principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, and potential repurchases of shares of the Company’s Class A Common Stock.
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As of March 31, 2022, we had approximately $49,200 in Cash and cash equivalents. In addition, as of March 31, 2022, the Company’s deferred revenue obligations were approximately $79,753, net of billed, but not yet collected deferred revenue. The current portion of this balance is primarily comprised of obligations in connection with tickets. In addition, the Company's deferred revenue obligations included $30,000 from the NBA, which the league provided to each team following the completion of the NBA’s $900,000 private placement in December 2020.
We regularly monitor and assess our ability to meet our net funding and investing requirements. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, management’s view of a favorable allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and challenging U.S. and global economic and market conditions could adversely impact its ability to do so at that time.
We believe we have sufficient liquidity, including approximately $49,200 in Cash and cash equivalents as of March 31, 2022, along with $240,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations, including with respect to the return or application of deferred revenue for the foreseeable future. In addition, on April 27, 2022, the Company made an additional principal repayment of $15,000 under the 2021 Rangers Revolving Credit Facility using cash on hand.
Financing Agreements and Stock Repurchases
See Note 11 and Note 14 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s debt obligations and various financing agreements, and the Company’s stock repurchases, respectively.
Contractual Obligations
See Note 7 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussions of the Company’s contractual obligations related to future lease payments. The Company did not have any material changes in its contractual obligations, including off-balance sheet commitments, since the end of fiscal year 2021 other than the lease commitments discussed in Note 7 and activities in the ordinary course of business.
Cash Flow Discussion
The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2022 and 2021:
| Nine Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net income (loss) | $ | 22,232 | $ | (65,053) | ||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | 55,511 | 31,389 | ||||||||||||
Subtotal | 77,743 | (33,664) | ||||||||||||
| Changes in working capital assets and liabilities | (13,510) | (20,703) | ||||||||||||
| Net cash provided by (used in) operating activities | 64,233 | (54,367) | ||||||||||||
| Net cash used in investing activities | (1,136) | (437) | ||||||||||||
| Net cash (used in) provided by financing activities | (84,978) | 42,155 | ||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (21,881) | $ | (12,649) | ||||||||||
Operating Activities
Net cash provided by operating activities for the nine months ended March 31, 2022 was $64,233 as compared to net cash used in operating activities in the prior year period of $54,367. This was primarily due to the increase in net income in the current year period, adjusted for non-cash items and, to a lesser extent, changes in working capital assets and liabilities driven by the COVID-19 pandemic in the prior year period.
Investing Activities
Net cash used in investing activities for the nine months ended March 31, 2022 increased by $699 to $1,136 as compared to the prior year period primarily due to higher capital expenditures and other investing activities in the current year period as compared to prior year period.
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Financing Activities
Net cash used in financing activities for the nine months ended March 31, 2022 was $84,978 as compared to net cash provided by financing activities in the prior year period of $42,155. This was due to (i) partial principal repayments on the 2021 Rangers Credit Agreement in the current year period, (ii) proceeds from the 2021 Rangers NHL Advance Agreement in the prior year period as compared to none in the current year period, and (iii) additional borrowings in the prior year period under the amended and extended 2021 Knicks Credit Agreement and 2021 Rangers Credit Agreement (prior to the amendment and restatement thereof) as compared to no borrowings in the current year period.
Seasonality of Our Business
The Company’s dependence on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. On March 11 and 12, 2020, respectively, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. In July and August 2020, the NBA and NHL, respectively, resumed their seasons and the NHL and NBA subsequently completed their seasons in September and October 2020, respectively. As a result, during the first quarter of fiscal year 2021 the Company recognized certain revenues that otherwise would have typically been recognized during the third and fourth quarter of fiscal year 2020.
Recently Issued Accounting Pronouncements and Critical Accounting Policies
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements.
Critical Accounting Policies
The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2022. There have been no material changes to the Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
Goodwill
The carrying amount of goodwill as of March 31, 2022 is $226,955. Goodwill is tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company has one operating and reportable segment, and one reporting unit for goodwill impairment testing purposes.
The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company’s reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. The amount of an impairment loss is measured as the amount by which a reporting unit’s carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill.
The Company elected to perform the qualitative assessment of impairment for the Company’s reporting unit for the fiscal year 2022 impairment test. These assessments considered factors such as:
•macroeconomic conditions;
•industry and market considerations;
•market capitalization;
•cost factors;
•overall financial performance of the reporting unit;
•other relevant company-specific factors such as changes in management, strategy or customers; and
37
•relevant reporting unit specific events such as changes in the carrying amount of net assets.
The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2022, and there was no impairment of goodwill. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.
Identifiable Indefinite-Lived Intangible Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of March 31, 2022:
| Sports franchises | $ | 111,064 | |||
| Photographic related rights | 1,080 | ||||
| $ | 112,144 | ||||
The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets. These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include:
•cost factors;
•financial performance;
•legal, regulatory, contractual, business or other factors;
•other relevant company-specific factors such as changes in management, strategy or customers;
•industry and market considerations; and
•macroeconomic conditions.
The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2022, and there were no impairments identified. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the indefinite-lived intangible assets was less than their carrying amount.
38
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except for the broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets, there were no material changes to the disclosures regarding market risks in connection with our interest rate risk exposure. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. In addition, see Item 2, “— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations — Impact of COVID-19 on Our Business” of this Quarterly Report on Form 10-Q for discussions of disruptions caused by COVID-19.
Potential interest rate risk exposure:
We have potential interest rate risk exposure related to outstanding borrowings incurred under our credit facilities. Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under the credit facilities.
Borrowings under our credit facilities incur interest, depending on our election, at a floating rate based upon SOFR plus a credit spread adjustment, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. As of March 31, 2022, we had a total of $285 million borrowings outstanding under our credit facilities. The effect of a hypothetical 100 basis point increase in floating interest rates prevailing as of March 31, 2022 and continuing for a full year would increase interest expense by approximately $2.9 million.
Item 4. Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2022 the Company’s disclosure controls and procedures were effective.
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
39
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in various lawsuits. Although the outcome of these lawsuits cannot be predicted with certainty (including the extent of available insurance, if any), management does not believe that resolution of these lawsuits will have a material adverse effect on the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
40
Item 6. Exhibits
(a)Index to Exhibits
| EXHIBIT NO. | DESCRIPTION | |||||||
| 101 | The following materials from Madison Square Garden Sports Corp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to Consolidated Financial Statements. | |||||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline XBRL and contained in Exhibit 101. | |||||||
_________________
† This exhibit is a management contract or a compensatory plan or arrangement.
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 5th day of May 2022.
| Madison Square Garden Sports Corp. | ||||||||
| By: | /S/ VICTORIA M. MINK | |||||||
| Name: | Victoria M. Mink | |||||||
| Title: | Executive Vice President, Chief Financial Officer and Treasurer | |||||||
42
Exhibit 10.1 | ||
March 17, 2022
Mr. Jamaal Lesane
c/o Madison Square Garden Sports Corp.
Two Pennsylvania Plaza
New York, NY 10121
Dear Jamaal:
This letter agreement (the “Agreement”), effective as of March 21, 2022 (the “Effective Date”), will confirm the terms of your employment with Madison Square Garden Sports Corp. (the “Company”) following the Effective Date.
1. Your title will be Executive Vice President and General Counsel and you will report to the President & Chief Executive Officer of the Company. You agree to devote all of your business time and attention to the business and affairs of the Company and to perform your duties in a diligent, competent, professional and skillful manner and in accordance with applicable law. You shall not undertake any outside business commitments without the Company’s consent.
2. Your annual base salary will be not less than $550,000 annually, paid bi-weekly, subject to annual review and potential increase by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) in its discretion. The Compensation Committee will review your compensation package on an annual basis to ensure that you are paid consistently with other similarly situated executives as well as external peers.
3. You will also participate in our discretionary annual bonus program with an annual target bonus opportunity equal to not less than 75% of your annual base salary. Bonus payments depend on a number of factors including Company, unit and individual performance. However, the decision of whether or not to pay a bonus, and the amount of that bonus, if any, is made by the Compensation Committee in its sole discretion. Annual bonuses are typically paid early in the subsequent fiscal year. Except as otherwise provided herein, in order to receive a bonus, you must be employed by the Company at the time bonuses are being paid.
4. You will also, subject to your continued employment by the Company and actual grant by the Compensation Committee, participate in such equity and other long-term incentive programs that are made available in the future to similarly situated executives at the Company. It is expected that such awards will consist of annual grants of cash and/or equity awards with an annual target value of not less than $550,000, all as determined by the Compensation Committee in its discretion. With respect to the Company’s current fiscal year (ending June 30, 2022), you will
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 2
be entitled to a mid-year long-term incentive grant representing the increase to your annual target pro-rated for the final three months of the fiscal year. All awards described in this Paragraph, in addition to being subject to actual grant by the Compensation Committee, would be pursuant to the applicable plan document and would be subject to any terms and conditions established by the Compensation Committee in its sole discretion that would be detailed in separate agreements you would receive after any award is actually made; provided, however, that such terms and conditions shall be consistent with those in awards granted to similarly situated executives. Long-term incentive awards are currently expected to be subject to three-year vesting.
5. You will also be eligible to participate in our standard benefits program, subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. We currently offer medical, dental, vision, life, and accidental death and dismemberment insurance; short- and long- term disability insurance; a savings and retirement program; and ten paid holidays. You will also to be eligible for flexible time off in accordance with Company policy.
6. If your employment with the Company is terminated on or prior to March 20, 2025 (the “Scheduled Expiration Date”) (i) by the Company (other than for “Cause”); or (ii) by you for “Good Reason” (other than if “Cause” then exists); then, subject to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement (as defined below), the Company will provide you with the following:
(a) Severance in an amount to be determined by the Company (the “Severance Amount”), but in no event less than two (2) times the sum of your annual base salary and your annual target bonus as in effect at the time your employment terminates. Sixty percent (60%) of the Severance Amount will be payable to you on the six-month anniversary of the date your employment so terminates (the “Termination Date”) and the remaining forty percent (40%) of the Severance Amount will be payable to you on the twelve-month anniversary of the Termination Date;
(b) Any unpaid annual bonus for the Company’s fiscal year prior to the fiscal year which includes your Termination Date, and a pro rated bonus based on the amount of your base salary actually earned by you during the Company’s fiscal year through the Termination Date, each of which will be paid to you when such bonuses are generally paid to similarly situated active executives and will be based on your then current annual target bonus as well as Company and your business unit performance for the applicable fiscal year as determined by the Company in its sole discretion, but without adjustment for your individual performance;
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 3
(c) Each of your outstanding long-term cash awards, if any, granted under the plans of the Company shall immediately vest in full and shall be payable to you at the same time as such awards are paid to active executives of the Company and the payment amount of such award shall be to the same extent that other similarly situated active executives receive payment as determined by the Compensation Committee (subject to satisfaction of any applicable performance criteria but without adjustment for your individual performance);
(d) (i) All of the time-based restrictions on each of your outstanding restricted stock or restricted stock unit awards granted to you under the plans of the Company shall immediately be eliminated, (ii) deliveries with respect to your restricted stock that are not subject to performance criteria or are subject to performance criteria that have previously been satisfied (as certified by the Compensation Committee) shall be made immediately after the effective date of the Separation Agreement, (iii) payment and deliveries with respect to your restricted stock units that are not subject to performance criteria or are subject to performance criteria that have previously been satisfied (as certified by the Compensation Committee) shall be made on the 90th day after the termination of your employment and (iv) payments or deliveries with respect to your restricted stock and restricted stock units that are subject to performance criteria that have not yet been satisfied shall be made on the 90th day after the applicable performance criteria is certified by the Compensation Committee as having been satisfied; and
(e) Each of your outstanding stock options and stock appreciation awards, if any, under the plans of the Company shall immediately vest and become exercisable, and you shall have the right to exercise each of those options and stock appreciation awards for the remainder of the term of such option or award.
If you die after a termination of your employment that is subject to this Paragraph 6, your estate or beneficiaries will be provided with any remaining benefits and rights under this Paragraph 6.
7. If you cease to be an employee of the Company prior to the Scheduled Expiration Date as a result of your death or your Disability (as defined in the Company’s Long Term Disability Plan), and at such time Cause does not exist then, subject (other than in the case of death) to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement, you or your estate or beneficiary shall be provided with the benefits and rights set forth in Paragraphs 6(b), (d) and (e) above, and each of your outstanding long-term cash awards, if any, granted under the plans of the Company shall immediately vest in full, whether or not subject to performance criteria and shall be payable on the 90th day after the termination of your employment; provided, that if any such award is subject to any performance criteria, then (i) if
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 4
the measurement period for such performance criteria has not yet been fully completed, then the payment amount shall be at the target amount for such award and (ii) if the measurement period for such performance criteria has already been fully completed, then the payment of such award shall be at the same time and to the extent that other similarly situated executives receive payment as determined by the Compensation Committee (subject to satisfaction of the applicable performance criteria).
8. For purposes hereof, “Separation Agreement” shall mean the Company’s standard severance agreement (modified to reflect the terms of this Agreement) which will include, without limitation, the provisions set forth in Paragraphs 6, 7 and 9 hereof and Annex A hereto regarding non-compete (limited to one year), non-disparagement, non-hire/non-solicitation, confidentiality (including, without limitation, the last paragraph of Section 3 of Annex A), and further cooperation obligations and restrictions on you (with Company reimbursement of your associated expenses and payment for your services as described in Annex A in connection with any required post-employment cooperation) as well as a general release by you of the Company and its affiliates (and their respective directors and officers), but shall otherwise contain no post-employment covenants unless agreed to by you. The Company shall provide you with the form of Separation Agreement within seven days of your termination of employment. For avoidance of doubt, your rights of indemnification under the Company’s Amended and Restated Certificate of Incorporation, under your indemnification agreement with the Company and under any insurance policy, or under any other resolution of the Board of Directors of the Company shall not be released, diminished or affected by any Separation Agreement or release or any termination of your employment.
9. Except as otherwise set forth in Paragraphs 6 and 7 hereof, in connection with any termination of your employment, your then outstanding equity and cash incentive awards shall be treated in accordance with their terms and, other than as provided in this Agreement, you shall not be eligible for severance benefits under any other plan, program or policy of the Company. Nothing in this Agreement is intended to limit any more favorable rights that you may be entitled to under your equity and/or cash incentive award agreements, including, without limitation, your rights in the event of a termination of your employment, a “Going Private Transaction” or a “Change of Control” (as those terms are defined in the applicable award agreement).
10. For purposes of this Agreement, “Cause” means your (i) commission of an act of fraud, embezzlement, misappropriation, willful misconduct, gross negligence or breach of fiduciary duty against the Company or an affiliate thereof, or (ii) commission of any act or omission that results in a conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any crime involving moral turpitude or any felony.
For purposes of this Agreement, “Good Reason” means that (1) without your written consent, (A) your annual base salary or annual target bonus (as each may be increased from time to time in the Compensation Committee’s sole discretion) is reduced, (B) your title (as in effect from
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 5
time to time) is diminished, (C) you report to someone other than to the President & Chief Executive Officer of the Company, (D) you are no longer the Company’s most senior legal officer, (E) the Company requires that your principal office be located outside of the Borough of Manhattan, or (F) the Company materially breaches its obligations to you under this Agreement, (2) you have given the Company written notice, referring specifically to this Agreement and definition, that you do not consent to such action, (3) the Company has not corrected such action within 15 days of receiving such notice, and (4) you voluntarily terminate your employment with the Company within 90 days following the happening of the action described in subsection (1) above.
11. This Agreement does not constitute a guarantee of employment for any definite period. Your employment is at will and may be terminated by you or the Company at any time, with or without notice or reason.
12. The Company may withhold from any payment due to you any taxes required to be withheld under any law, rule or regulation. If any payment otherwise due to you hereunder would result in the imposition of the excise tax imposed by Section 4999 of the Code, the Company will instead pay you either (i) such amount or (ii) the maximum amount that could be paid to you without the imposition of the excise tax, depending on whichever amount results in your receiving the greater amount of after-tax proceeds. In the event that the payments and benefits payable to you would be reduced as provided in the previous sentence, then such reduction will be determined in a manner which has the least economic cost to you and, to the extent the economic cost is equivalent, such payments or benefits will be reduced in the inverse order of when the payments or benefits would have been made to you (i.e. later payments will be reduced first) until the reduction specified is achieved. If the Company elects to retain any accounting or similar firm to provide assistance in calculating any such amounts, the Company shall be responsible for the costs of any such firm.
13. It is intended that this Agreement will comply with Section 409A to the extent this Agreement is subject thereto, and that this Agreement shall be interpreted on a basis consistent with such intent. If and to the extent that any payment or benefit under this Agreement, or any plan, award or arrangement of the Company or its affiliates, constitutes “non-qualified deferred compensation” subject to Section 409A and is payable to you by reason of your termination of employment, then (a) such payment or benefit shall be made or provided to you only upon a “separation from service” as defined for purposes of Section 409A under applicable regulations and (b) if you are a “specified employee” (within the meaning of Section 409A as determined by the Company), such payment or benefit shall not be made or provided before the date that is six months after the date of your separation from service (or your earlier death). Any amount not paid or benefit not provided in respect of the six month period specified in the preceding sentence will be paid to you, together with interest on such delayed amount at a rate equal to the average of the one-year LIBOR fixed rate equivalent for the ten business days prior to the date of your employment termination, in a lump sum or provided to you as soon as practicable after the
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 6
expiration of such six month period. Each payment or benefit provided under this Agreement shall be treated as a separate payment for purposes of Section 409A to the extent Section 409A applies to such payment.
14. To the extent you are entitled to any expense reimbursement from the Company that is subject to Section 409A, (i) the amount of any such expenses eligible for reimbursement in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except under any lifetime limit applicable to expenses for medical care), (ii) in no event shall any such expense be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expense, and (iii) in no event shall any right to reimbursement be subject to liquidation or exchange for another benefit.
15. The Company will not take any action, or omit to take any action, that would expose any payment or benefit to you to the additional tax of Section 409A, unless (i) the Company is obligated to take the action under an agreement, plan or arrangement to which you are a party, (ii) you request the action, (iii) the Company advises you in writing that the action may result in the imposition of the additional tax and (iv) you subsequently request the action in a writing that acknowledges you will be responsible for any effect of the action under Section 409A. The Company will hold you harmless for any action it may take or omission in violation of this Paragraph 15, including any attorney’s fees you may incur in enforcing your rights.
16. It is our intention that the benefits and rights to which you could become entitled in connection with termination of employment be exempt from or comply with Section 409A. If you or the Company believes, at any time, that any of such benefit or right is not exempt or does not comply, it will promptly advise the other and will negotiate reasonably and in good faith to amend the terms of such arrangement such that it complies (with the most limited possible economic effect on you and on the Company).
17. This Agreement is personal to you and without the prior written consent of the Company shall not be assignable by you. This Agreement shall inure to the benefit of and be enforceable by your legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The rights or obligations of the Company under this Agreement may only be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of Company; provided, however, that the assignee or transferee is the successor to all or substantially all of the assets of Company and such assignee or transferee assumes the liabilities and duties of Company, as contained in this Agreement, either contractually or as a matter of law.
18. To the extent permitted by law, you and the Company waive any and all rights to a jury trial with respect to any matter relating to this Agreement (including the covenants set forth in Annex A hereof). This Agreement will be governed by and construed in accordance
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 7
with the law of the State of New York applicable to contracts made and to be performed entirely within that State.
19. Both the Company and you hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the federal courts of the United States of America in each case located in the City of New York, Borough of Manhattan, solely in respect of the interpretation and enforcement of the provisions of this Agreement, and each party hereby waives, and agrees not to assert, as a defense that either party, as appropriate, is not subject thereto or that the venue thereof may not be appropriate. You and the Company each agree that mailing of process or other papers in connection with any such action or proceeding in any manner as may be permitted by law shall be valid and sufficient service thereof.
20. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. It is the parties’ intention that this Agreement not be construed more strictly with regard to you or the Company.
21. This Agreement reflects the entire understanding and agreement of you and the Company with respect to the subject matter hereof and supersedes all prior understandings or agreements relating thereto.
22. This Agreement will automatically terminate, and be of no further force or effect, on the Scheduled Expiration Date; provided, however, that the provisions of Paragraphs 6 through 9, 12 through 22 and Annex A, and any amounts earned but not yet paid to you pursuant to the terms of this Agreement as of the Scheduled Expiration Date shall survive the termination of the Agreement and remain binding on you and the Company in accordance with their terms.
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 8
Sincerely,
MADISON SQUARE GARDEN SPORTS CORP.
/s/ Andrew Lustgarten
By: Andrew Lustgarten
Title: President & Chief Executive Officer
Accepted and Agreed:
/s/ Jamaal Lesane
Jamaal Lesane
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 9
ANNEX A
ADDITIONAL COVENANTS
(This Annex constitutes part of the Agreement)
ADDITIONAL COVENANTS
(This Annex constitutes part of the Agreement)
You agree to comply with the following covenants in addition to those set forth in the Agreement.
1. CONFIDENTIALITY
You agree to retain in strict confidence and not divulge, disseminate, copy or disclose to any third party any Confidential Information, other than for legitimate business purposes of the Company and its subsidiaries. As used herein, “Confidential Information” means any non-public information that is material or of a confidential, proprietary, commercially sensitive or personal nature of, or regarding, the Company or any of its subsidiaries or any current or former director, officer or member of senior management of any of the foregoing (collectively “Covered Parties”). The term Confidential Information includes information in written, digital, oral or any other format and includes, but is not limited to (i) information designated or treated as confidential; (ii) budgets, plans, forecasts or other financial or accounting data; (iii) customer, guest, fan, vendor, sponsor, marketing affiliate or shareholder lists or data; (iv) technical or strategic information regarding the Covered Parties’ advertising, sports, entertainment, theatrical, or other businesses; (v) advertising, sponsorship, business, sales or marketing tactics, strategies or information; (vi) policies, practices, procedures or techniques; (vii) trade secrets or other intellectual property; (viii) information, theories or strategies relating to litigation, arbitration, mediation, investigations or matters relating to governmental authorities; (ix) terms of agreements with third parties and third party trade secrets; (x) information regarding employees, talent, players, coaches, agents, consultants, advisors or representatives, including their compensation or other human resources policies and procedures; (xi) information or strategies relating to any potential or actual business development transactions and/or any potential or actual business acquisition, divestiture or joint venture, and (xii) any other information the disclosure of which may have an adverse effect on the Covered Parties’ business reputation, operations or competitive position, reputation or standing in the community.
If disclosed, Confidential Information or Other Information could have an adverse effect on the Company’s standing in the community, its business reputation, operations or competitive position or the standing, reputation, operations or competitive position of any of its affiliates, subsidiaries, officers, directors, employees, coaches, consultants or agents or any of the Covered Parties.
Notwithstanding the foregoing, the obligations of this section, other than with respect to subscriber information, shall not apply to Confidential Information which is:
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 10
a) already in the public domain or which enters the public domain other than by your breach of this Paragraph 1;
b) disclosed to you by a third party with the right to disclose it in good faith; or
c) specifically exempted in writing by the Company from the applicability of this Agreement.
Notwithstanding anything elsewhere in this Agreement, including this Paragraph 1 and Paragraph 3 below, you are authorized to make any disclosure required of you by any federal, state and local laws or judicial, arbitral or governmental agency proceedings (including making truthful statements in connection with a judicial or arbitral proceeding to enforce your rights under this Agreement, to the extent reasonably required and made in good faith), after, to the extent legal and practicable, providing the Company with prior written notice and an opportunity to respond prior to such disclosure. In addition, this Agreement in no way restricts or prevents you from providing truthful testimony concerning the Company to judicial, administrative, regulatory or other governmental authorities.
2. NON-COMPETE
You acknowledge that due to your executive position in the Company and the knowledge of the Company’s and its affiliates’ confidential and proprietary information which you will obtain during the term of your employment hereunder, your employment by certain businesses would be irreparably harmful to the Company and/or its affiliates. During your employment with the Company and thereafter through the first anniversary of the date on which your employment with the Company has terminated for any reason, you agree, to the extent permissible under applicable rules of professional responsibility, not to (other than with the prior written consent of the Company), become employed by any Competitive Entity (as defined below). A “Competitive Entity” shall mean any NHL or NBA team located in New York, New Jersey or Connecticut. The ownership by you of not more than 1% of the outstanding equity of any publicly traded company shall not, by itself, be a violation of this Paragraph.
3. ADDITIONAL UNDERSTANDINGS
You agree, for yourself and others acting on your behalf, that you (and they) have not disparaged and will not disparage, make negative statements about (either “on the record” or “off the record”) or act in any manner which is intended to or does damage to the good will of, or the business or personal reputations of the Company or any of its incumbent or former officers, directors, agents, consultants, employees, successors and assigns or any of the Covered Parties.
The Company agrees that, except as necessary to comply with applicable law or the rules of the New York Stock Exchange or any other stock exchange on which the Company’s stock may be
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 11
traded (and any public statements made in good faith by the Company in connection therewith), it and its corporate officers and directors, employees in its public relations department or third party public relations representatives retained by the Company will not disparage you or make negative statements in the press or other media which are damaging to your business or personal reputation. In the event that the Company so disparages you or makes such negative statements, then notwithstanding the “Additional Understandings” provision to the contrary, you may make a proportional response thereto.
In addition, you agree that the Company is the owner of all rights, title and interest in and to all documents, tapes, videos, designs, plans, formulas, models, processes, computer programs,
inventions (whether patentable or not), schematics, music, lyrics and other technical, business, financial, advertising, sales, marketing, customer or product development plans, forecasts, strategies, information and materials (in any medium whatsoever) developed or prepared by you or with your cooperation in connection with your employment by the Company (the “Materials”). The Company will have the sole and exclusive authority to use the Materials in any manner that it deems appropriate, in perpetuity, without additional payment to you.
If requested by the Company, you agree to deliver to the Company upon the termination of your employment, or at any earlier time the Company may request, all memoranda, notes, plans, files, records, reports, and software and other documents and data (and copies thereof regardless of the form thereof (including electronic copies)) containing, reflecting or derived from Confidential Information or the Materials of the Company or any of its affiliates which you may then possess or have under your control. If so requested, you shall provide to the Company a signed statement confirming that you have fully complied with this Paragraph. Notwithstanding the foregoing, you shall be entitled to retain your contacts, calendars and personal diaries and any materials needed for your tax return preparation or related to your compensation.
In addition, you agree for yourself and others acting on your behalf, that you (and they) shall not, at any time, participate in any way in the writing or scripting (including, without limitation, any “as told to” publications) of any book, periodical story, movie, play, or other similar written or theatrical work or video that (i) relates to your services to the Company or any of its affiliates or (ii) otherwise refers to the Company or its respective businesses, activities, directors, officers, employees or representatives (other than identifying your biographical information), without the prior written consent of the Company.
4. FURTHER COOPERATION
Following the date of termination of your employment with the Company (the “Expiration Date”), you will no longer provide any regular services to the Company or represent yourself as a Company agent. If, however, the Company so requests, you agree to cooperate fully with the Company in connection with any matter with which you were involved prior to the Expiration Date, or in any litigation or administrative proceedings or appeals (including any preparation
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 12
therefore) where the Company believes that your personal knowledge, attendance and participation could be beneficial to the Company. This cooperation includes, without limitation, participation on behalf of the Company in any litigation or administrative proceeding brought by any former or existing Company employees, representatives, agents or vendors. The Company will pay you for your services rendered under this provision at the rate of $5,000 per day for each day or part thereof, within 30 days of the approval of the invoice therefor.
The Company will provide you with reasonable notice in connection with any cooperation it requires in accordance with this section and will take reasonable steps to schedule your cooperation in any such matters so as not to materially interfere with your other professional and personal commitments. The Company will reimburse you for any reasonable out-of-pocket expenses you reasonably incur in connection with the cooperation you provide hereunder as soon as practicable after you present appropriate documentation evidencing such expenses. You agree to provide the Company with an estimate of such expense before you incur the same.
5. NON-HIRE OR SOLICIT
You agree not to hire, seek to hire, or cause any person or entity to hire or seek to hire (without the prior written consent of the Company), directly or indirectly (whether for your own interest or any other person or entity’s interest) any person who is or was in the prior six months an employee of the Company, or any of its subsidiaries, until the first anniversary of the date of your termination of employment with the Company. This restriction does not apply to any former employee who was discharged by the Company or any of its affiliates. In addition, this restriction will not prevent you from providing references. If you remain continuously employed with the Company through the Scheduled Expiration Date, then this agreement not to hire or solicit will expire on the Scheduled Expiration Date.
6. ACKNOWLEDGMENTS
You acknowledge that the restrictions contained in this Annex A, in light of the nature of the Company’s business and your position and responsibilities, are reasonable and necessary to protect the legitimate interests of the Company. You acknowledge that the Company has no adequate remedy at law and would be irreparably harmed if you breach or threaten to breach the provisions of this Annex A, and therefore agree that the Company shall be entitled to injunctive relief, to prevent any breach or threatened breach of any of those provisions and to specific performance of the terms of each of such provisions in addition to any other legal or equitable remedy it may have. You further agree that you will not, in any equity proceeding relating to the enforcement of the provisions of this Annex A, raise the defense that the Company has an adequate remedy at law. Nothing in this Annex A shall be construed as prohibiting the Company from pursuing any other remedies at law or in equity that it may have or any other rights that it may have under any other agreement. If it is determined that any of the provisions of this Annex A or any part thereof, is unenforceable because of the duration or scope (geographic or
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Mr. Jamaal Lesane
Page 13
otherwise) of such provision or because of applicable rules of professional responsibility, it is the intention of the parties that the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
7. SURVIVAL
The provisions of this Annex A shall survive any termination of your employment by the Company or the expiration of the Agreement except as otherwise provided herein.
MADISON SQUARE GARDEN SPORTS CORP.
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
TEL 212-465-6000
Exhibit 31.1
Certification
I, Andrew Lustgarten, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Madison Square Garden Sports Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 5, 2022
| /s/ Andrew Lustgarten | ||
| Andrew Lustgarten | ||
| President and Chief Executive Officer | ||
Exhibit 31.2
Certification
I, Victoria M. Mink, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Madison Square Garden Sports Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 5, 2022
| /s/ Victoria M. Mink | ||
| Victoria M. Mink | ||
| Executive Vice President, Chief Financial Officer and Treasurer | ||
Exhibit 32.1
Certification
Pursuant to 18 U.S.C. §1350, the undersigned officer of Madison Square Garden Sports Corp. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022 (the “Report”) fully complies with the requirements of §13(a) or §15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 5, 2022
| /s/ Andrew Lustgarten | ||
| Andrew Lustgarten | ||
| President and Chief Executive Officer | ||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
Certification
Pursuant to 18 U.S.C. §1350, the undersigned officer of Madison Square Garden Sports Corp. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022 (the “Report”) fully complies with the requirements of §13(a) or §15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 5, 2022
| /s/ Victoria M. Mink | ||
| Victoria M. Mink | ||
| Executive Vice President, Chief Financial Officer and Treasurer | ||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.