Earnings Call Transcript - MSGS Q1 2020

Operator, Operator

Good morning. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to The Madison Square Garden Company Fiscal 2020 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Ari Danes, Senior Vice President of Investor Relations for The Madison Square Garden Company. Please go ahead, sir.

Ari Danes, Senior Vice President of Investor Relations

Thank you, Carmen. Good morning and welcome to The Madison Square Garden Company's fiscal 2020 first quarter earnings conference call. Our President, Andy Lustgarten, will provide an update on the company's operations. After which, Victoria Mink, our EVP and Chief Financial Officer, will review our financial results. But before they do so, Gregg Seibert, our Vice Chairman, will begin today's call by discussing the update to our proposed spin-off transaction. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments, and events may differ materially from those in the forward-looking statements as a result of various factors. These include financial community perceptions of the company and its business, operations, financial condition, and the industry in which it operates; as well as the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled Risk Factors and Management's Discussion and Analysis of Financial Condition and results of operations contained therein. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. Lastly, on pages four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, a non-GAAP financial measure. And with that, I'll now turn the call over to Gregg.

Gregg Seibert, Vice Chairman

Thank you, Ari, and good morning, everyone. Yesterday afternoon we announced a revised plan for the proposed separation of our sports and entertainment businesses, a plan that simplifies the overall structure and narrative for our investors while still positioning both companies for long-term success. We're now planning on pursuing a full spin-off of our entertainment business from our sports business. As a result of this new structure, the entertainment company will not retain any equity interest in the sports company. As a reminder, our prior plan was to spin-off approximately two-thirds of the equity interest in MSG Sports businesses and have the entertainment company retain the remaining approximate one-third stake. A key reason for the retained stake was to provide the entertainment company with additional financial flexibility to fund its growth plans. While Andy will have more to say on our MSG Sphere initiative shortly, the timeline for the opening of our London venue is evolving and we believe that the entertainment company will have sufficient financial flexibility to pursue its venue expansion plans without the need for the retained interest. As a result, we think this new structure makes the most sense for our shareholders. It enables all shareholders to maintain their current economic interest in both the entertainment and sports businesses and eliminates any potential tax leakage associated with the sale of the retained interest in the sports company. The change to a spin-off of entertainment from sports rather than sports from entertainment also provides us with additional tax efficiencies. In terms of timing, without the retained interest in sports, we no longer need to obtain a prior private letter ruling from the IRS. However, our revised structure will require us to file a new Form 10 with the SEC. Even with the changes to the structure, we believe we can still complete the transaction during the first quarter of calendar 2020. And of course, I'll just note that the spin-off remains subject to final Board and other approvals. Let me conclude by saying that we continue to believe this transaction would better highlight the unique value of our entertainment and sports assets while enabling the two companies to pursue their own distinct business plans and growth strategies, and that this opportunity will ultimately set the stage for continued growth and long-term value creation for our shareholders. With that, let me turn the call over to Andy.

Andrew Lustgarten, President

Thank you, Gregg. We expect fiscal 2020 to be a defining year as we move forward with the spin-off as well as our plans for MSG Sphere in Las Vegas. There are several reasons why we expect to be highly successful in Las Vegas. First, as a leader in live entertainment, we've directly experienced the growing demand for immersive shared experiences. Unlike any other venue that exists today, MSG Sphere will be uniquely situated to deliver on this trend. Second, we believe Las Vegas, as one of the world's top entertainment destinations with over 40 million visitors annually, is the ideal market to introduce the first MSG Sphere. Third, we have a valuable partner in Las Vegas Sands, a leader in convention-based resorts. Our venue will be directly connected to their Expo Center and Venetian Resort and we see this as an extremely beneficial relationship for both companies as we help drive each other's business. And fourth, we've assembled the expertise to bring this venue to life. From venue design and construction to immersive content creation to ticketing, sponsorship, and suite sales; we've brought together an extremely talented team to execute our plans. Regarding expected returns, let me be very clear. We expect a robust after-tax return on our investment and let me tell you why. We have a strong track record of delivering significant returns on large-scale venue projects. We successfully renovated The Madison Square Garden Arena and the Forum in Los Angeles and in both cases, we've delivered robust returns on our investments. We have been developing our strategy for MSG Sphere for a number of years. We have a business plan that includes a wide variety of revenue streams and takes into account the unique aspects of MSG Sphere, which make the opportunity around residencies, attractions, corporate events, and sponsorships especially significant. We expect MSG Sphere to change how we think about the entertainment experience, which is why we anticipate the Las Vegas Sphere becoming the most highly utilized venue in our portfolio. With respect to our timeline, in Las Vegas we are full speed ahead on construction as we work towards our goal of opening the venue in calendar 2021. Turning to London, we continue to move forward with our planning application process, which will now run into calendar 2020. In addition, we are taking the time to apply what we are learning in Las Vegas to our design and construction plans for London. So while we have previously planned to open our London venue approximately one year after Las Vegas, that timeframe is no longer realistic. And as we work through the planning application and design process, our timeline will continue to evolve, and therefore, we do not have a target opening date at this time. In terms of costs for our Las Vegas venue, we shared last quarter that our contractor had provided us with an initial estimate as part of the contractual process for setting the incentive benchmark. The incentive benchmark is meant to encourage our contractor to bring the cost in lower. To the extent actual costs come in higher than that benchmark, the contractor receives lower fees on that portion of the work. Therefore, it's in our contractor's interest to set the benchmark as high as possible to ensure that the actual costs do not exceed that number. On the other hand, it is in our interest to set the benchmark lower so that there is more risk on the contractor if costs exceed the agreed target. As we said on our last call, we believe our contractor's initial benchmark proposal was too high. That should not be a surprise, given the competing goals. We are now deep in the process of reviewing every estimate and assumption and are working closely with our design team and with our contractor towards reaching an agreed incentive benchmark. We are making good progress and continue to believe this process will result in significant cost savings. Turning to our operations, for the fiscal 2020 first quarter, our bookings business again benefited from growth in the overall number of concerts held at our venues. However, we hosted the MTV Video Music Awards at Radio City last year and did not have a comparable special event this first quarter, which creates a difficult year-over-year comparison. In addition, as you think about our second quarter on a year-over-year basis, keep in mind we had a record-breaking quarter last year that included one of the busiest Octobers in the company's history. That said, we expect to make up this ground by the end of the fiscal year. We would also like to note that we are honored The Garden was recently named Billboard's Arena of the Year for the second year in a row. We have also been encouraged by the continued improvement in TAO Group's results. After a challenging first half last fiscal year, TAO Group's results have steadily improved, including solid year-over-year results this past quarter. New venue openings continue to be a positive story for TAO Group. Since September of last year, TAO Group has successfully debuted several new restaurants and nightclubs, including the popular TAO Chicago as well as additional venues in Singapore and New York. Building on this momentum, TAO Group has launched another great restaurant brand, Cathedrale, which we believe has the potential for expansion into other locations. Cathedrale opened in September as part of the new Moxy East Village Hotel, which also includes other dining and nightlife offerings managed by TAO Group. With regards to the Christmas Spectacular, last year's run was record-setting in terms of revenue and profitability, a reflection of the show's enduring popularity. The 87th season is set to debut today, and despite nine fewer scheduled shows this year primarily due to the holiday calendar, we're off to a terrific start in ticket sales and anticipate another successful year. Turning to our sports segment, while our first quarter did not include any regular season games, we were able to head into the season with strong full season ticket renewal rates for both the Knicks and Rangers. With the season now underway, an important focus for us is on delivering the best in-venue experience and continuing to establish a more direct connection with our fans. With regard to media rights; in addition to our local media rights deal with MSG Networks, which have 16 years remaining, we also expect national media revenue from the NHL and NBA to continue to grow. We also expect to continue benefiting from the strength of our suite offerings where the significant majority are contracted for a multi-year period. With respect to sponsorships, in September we announced a renewed expanded multi-year agreement with the Hospital for Special Surgery, which provides this long-term partner with significant brand exposure across the Knicks, Westchester Knicks, and our NBA 2K18 Knicks Gaming. In addition, as you may recall, last year we entered into a new marketing partnership with Verizon Wireless across a number of entertainment assets. We recently expanded this important relationship to include integration opportunities across the Knicks and Rangers. We are pleased with our ongoing success in partnering with blue-chip brands, which reflects both the strength of our assets and the unique value we provide our partners. Looking ahead, we are optimistic about our sports business. The underlying fundamentals remain strong and we believe there's meaningful upside when team performance improves. We're also bullish on the potential impact of legalized gaming if approved in our market. We have seen how transformative it's been in Europe and in various states where it's been legalized in terms of driving fan engagement and sponsorship opportunities and we believe it would have a notable impact on our in-venue business and on the value of sports media rights in the U.S. In summary, we're focused on growing our core business. We're also pushing forward with our plans for both our spin-off and MSG Sphere. We are executing on a strategy that positions our company for long-term growth and continued value creation for our shareholders. And with that, I'll turn the call over to Victoria.

Victoria Mink, EVP and Chief Financial Officer

Thank you, Andy, and good morning, everyone. I'd like to start by discussing results for our fiscal 2020 first quarter. On a total company basis, we generated $214.8 million in revenues, a decrease of 2% year-over-year. In addition, we generated an adjusted operating loss of $41.1 million as compared to a loss of $9.9 million in the year-ago quarter. The increased adjusted operating loss reflects higher employee compensation related to Corporate and our MSG Sphere initiative, additional expenses in MSG Sphere related to content and technology, and a $10.2 million charge related to a player waiver. Turning to our segment results, at MSG Entertainment, revenues of $159 million decreased 2%. As Andy mentioned, last year in the first quarter we hosted the MTV Video Music Awards, but did not have a similar special event in our fiscal 2020 first quarter. In addition, the wind-down of Obscura Digital's third-party business continues to impact the year-over-year comparability of results. As a reminder, we are winding down Obscura's third-party business so we can focus those resources on our MSG Sphere initiative. These revenue decreases were mostly offset by growth in both concert-related and TAO Group revenues. MSG Entertainment's adjusted operating income of $6.2 million decreased by $2.8 million primarily due to the decrease in revenues, partially offset by lower direct operating expenses. At MSG Sports, revenues of $56 million increased 1%. This was primarily driven by higher revenues from other live sporting events, partially offset by lower ticket-related revenue. The increase in revenues from other live sporting events was due to higher average per share revenue. During the quarter, we hosted a number of sporting events, including two WWE events at The Garden and a Bellator MMA event at The Forum. The decrease in ticket-related revenue included the impact of our sale of the New York Liberty basketball team, which occurred in January. MSG Sports adjusted operating income decreased $14.2 million to a loss of $13.7 million. This reflects higher direct operating and SG&A expenses offsetting the 1% increase in revenues. The increase in direct operating expenses reflects a $10.2 million charge related to a player waiver, partially offset by other net cost decreases. Lastly, Corporate and Other adjusted operating loss of $33.7 million increased $14.2 million. The increase reflects higher employee compensation related to Corporate and our MSG Sphere initiative as well as additional expenses for MSG Sphere related content development and technology. Now turning to our balance sheet, as of September 30, total unrestricted cash and cash equivalents and short-term investments were approximately $1.1 billion. In addition, there have been no borrowings made under either our $150 million New York Rangers revolving credit facility or our $215 million New York Knicks credit facilities. With respect to TAO Group, as of September 30th, $52.5 million was outstanding on its five-year bank term loan and revolving credit facility. With that, I will now turn the call back over to Ari.

Ari Danes, Senior Vice President of Investor Relations

Thank you, Victoria. Carmen, can we open up the call for questions?

Operator, Operator

Certainly. Your first question is from the line of Bryan Goldberg with Bank of America.

Bryan Goldberg, Analyst

Thanks. I've got some questions on the new spin plans. First, since you'll no longer have the retained interest as a financing tool for the entertainment company and given your comments about the financial flexibility of the entertainment company, I was wondering if you could share your latest thinking in terms of how you intend to pay for the Sphere builds in Las Vegas and London. Is there a more definitive financing plan now? And then I have a follow-up.

Gregg Seibert, Vice Chairman

Great. Good morning, Bryan. It's Gregg. I think I'd start by noting that with the timeframe continuing to evolve in London, the first impact of that is that the entertainment company's capital expenditure needs will be spread out over a much longer period than we had previously anticipated. That said, let me walk you through our current thinking regarding financial flexibility for the entertainment company. The entertainment company will start with an extremely strong cash position. This is expected to include the vast majority of our current $1.1 billion in cash on hand and it's also likely that we'll look to the Knicks and Rangers revolvers to make some cash contribution to entertainment prior to the spin-off. As you heard from Victoria earlier, the total availability on those revolvers is $365 million. Further to the entertainment company as an independent public company, it will have additional debt capacity and it will also have the flexibility to add some debt. But one thing I want to make absolutely clear is that we're not planning on collateralizing The Madison Square Garden Arena. Lastly, we anticipate that the cash flow of the entertainment company, both the current cash flow and what we're ultimately going to see out of the Spheres in Las Vegas, are going to provide additional support and financial flexibility. So as you can see between the entertainment company starting liquidity position, current and future financing options, and cash from operations; the company is going to be well-positioned to fund its growth plans. You asked about other financing options for the entertainment company and I'll extend that over to for the London Sphere at the end of the day. We feel that we're going to have the complete playbook of corporate finance options available to the entertainment company for business and any future Spheres. What do I mean by that? Non-recourse debt financing, other types of securitized financings perhaps, maybe even the possibility of having equity partner(s) in future Spheres. So we're very comfortable that we have adequate financial resources at entertainment to be able to make the company's plans a success.

Bryan Goldberg, Analyst

Thanks. That's really helpful. My second question is more of a structural one. In the revised spin plan, the entertainment company is not going to be the spin co versus your previous plan to spin sports. And was just hoping you could provide some perspective as to why this way of separating sports from entertainment is more advantageous for shareholders.

Gregg Seibert, Vice Chairman

Let's revisit the prior structure for a moment. Due to the consideration of a retained interest, it was essential to spin off the partial interest in sports to allow entertainment to maintain the roughly one-third interest we discussed. Since there is no retained interest now, that factor is no longer relevant. When determining which entity to spin, tax implications are mainly influencing the decision to spin entertainment. For example, borrowing a portion of the $365 million in revolvers related to the teams would enable those funds to flow directly to the entertainment company without triggering taxes. Conversely, if we were to spin in the opposite direction and have borrowings through the sports company to support entertainment's growth, that would incur taxes. Therefore, we have built in significant savings through this structure. Additionally, it's important to note that despite the shift in the spin direction, our shareholders will maintain a 100% interest in both companies, which I firmly believe will be advantageous for shareholder value in the long term.

Bryan Goldberg, Analyst

Thank you very much. Very helpful.

Ari Danes, Senior Vice President of Investor Relations

Operator, do we have another question? I would hope.

Operator, Operator

Your next question is from the line of Brandon Ross with LightShed.

Brandon Ross, Analyst

Hi. How are you guys? Just following up on Bryan's first question there, I mean, even with this additional financial flexibility that you talk about, simple math tells us that you're not going to be able to fund a second Sphere for many years. Is it reasonable to assume that you would wait several years to build a Sphere in London or that the scope of that project may change dramatically especially given whatever pushback there has been from the city in London?

Gregg Seibert, Vice Chairman

Okay. For starters, Brandon, good morning. As we mentioned before, we don't have clarity on our opening timing. We're still in the planning application and design process, and our timeline will continue to evolve, but we don't know how it will change. One thing I can tell you is that regarding the venue itself, Sphere is what's planned for London, as detailed in the planning applications, and it's the company’s intent to build in London. Andy had previously mentioned that we plan to open London a year after Vegas, but it won't be a year following Vegas. I can't say whether it will be two or three years after Vegas. We will continue navigating the process there, which will determine our capital expenditure profile. As I mentioned in response to Bryan's question, I believe we have complete corporate finance options available to us. If we wanted to, we could likely obtain non-recourse financing against the Sphere in Las Vegas right now, but we won't pursue that because we have sufficient cash to fund the initial stages. We might easily look to the Sphere in Vegas as a source of financing going forward. We have significant sponsorship and other revenue opportunities in our business plan, which should be relatively easy to monetize. I believe we have numerous options here, and I am confident that the company will have the financial flexibility needed to build in London.

Brandon Ross, Analyst

And I guess related, in limiting your very near-term financial flexibility at entertainment co., should we read into it that you have increased confidence that you can keep the Vegas CapEx far below your contractor's estimate?

Victoria Mink, EVP and Chief Financial Officer

Hey, Brandon. It's Victoria. Good morning. So as Andy said, we feel good about where we are in the process. And as we've said previously, we thought our contractor's initial fee-setting benchmark estimate was too high. So, we are deep in a very detailed process of reviewing and challenging the estimates and assumptions. We're also very carefully reviewing our plans with an eye towards ensuring we're efficiently and effectively achieving our design objectives for the Las Vegas Sphere. And just as a reminder, one of the reasons that we entered into a cost-plus contract was so we could negotiate more and play a much more vigilant role in the process. We're part of the negotiations; we are selecting the subcontractors, the materials, the labor rates; and we believe that this will maximize not only the quality of the work, but helps manage the project's costs overall. So this is all part of that process. But what I can tell you is that we continue to believe we'll be successful in achieving significant cost reductions.

Brandon Ross, Analyst

Okay. And then I guess just lastly for Gregg, you spoke recently about introducing sports to the right like quote backdrop, which presumably meant with a mark on the sports team. Now there is no mark. So what is the new right backdrop for sports as it becomes a separately traded entity?

Gregg Seibert, Vice Chairman

Thanks, Brandon. Let me go back to a scenario where the entertainment company would have maintained or retained interest in sports and under that scenario, I could see how a sale of some portion of the retained interest would have made sense or could have made sense for both the company and the investors. It may have benefited valuation. It certainly would have helped to reduce any potential stock overhang from the approximately 33% retention to some amount smaller than that. But if you look at it at the same time, the valuation mark would have been for a minority stake, which an investor could purchase over time in the market after the spin. So I'm not sure what type of premium would have been associated with that type of a stake sale. And I think it's more important that as we move forward with the new structure, we're going to have a fully distributed very liquid sports stock and what we need to do is get out and tell the story about MSG Sports, which we will do prior to the spin taking place. But as I've said in the past, our teams are clearly extremely valuable assets. There are 30 NBA teams, a limited number of which are located in major metropolitan areas. They do have maybe two in the New York area, only one in Manhattan. And if you take a look at the NHL, there are 31 teams with the addition of the Las Vegas Golden Knights a couple of years ago and that's it. So these are incredibly scarce assets. And as you've seen from private market transactions, they are incredibly valuable. So I think as we look at things other than the scarcity value, we also want to look at strong underlying fundamentals. Legalized gaming; Andy said if approved in our market, I would like to say when approved in our market; represents a very attractive growth opportunity for us. We've got upside potential should the performance of the teams improve over time. And our sports businesses generate significant recurring revenue, a substantial portion of which is contractual; suites, sponsorships, media rights. So, we anticipate that as a pure play as this company is not expected to be an active acquirer of other assets and arguably either a delevering initially or ultimately a return of capital story, we think the future for the sports business is bright. And we're looking forward to meeting with our investor base to communicate that story as we get closer to the spin.

Brandon Ross, Analyst

Thanks so much.

Operator, Operator

Your next question is from the line of Michael Morris with Guggenheim Securities.

Michael Morris, Analyst

Thank you. Good morning. Two topics, one on the London Sphere and then one on sports gaming. First on the Sphere, can you share any more detail on what's happening there with the planning application process and what the sort of delay is relative to what your expectations were? And maybe as that progresses or doesn't progress, are there any other geographies that perhaps would make sense to be a second destination for Spheres? And then on the gaming side, Andy and Gregg, you both brought the topic up. One of your peer companies, Monumental Sports, announced opening a sports book inside the Capital One Arena in DC. So, I realize it's pending legalization in New York, but how are you thinking about in-venue gaming from either a sports book perspective, online; and kind of what would it take from where you are now to take advantage of that opportunity? Thanks.

Andrew Lustgarten, President

Thank you. I appreciate it. Let's begin with London. The site is advantageous because of its connectivity, though it is complex, situated with rail yards on three sides and a bridge. We are collaborating with multiple stakeholders, including the local planning authority, local government, and two rail companies due to the three rail sites. We are currently deep in the planning application process, which is expected to extend into 2020. This is a standard procedure for a project of this scale in London. Much work lies ahead, and we are making good progress. We are also looking to developments in Las Vegas to enhance our construction and design plans for London, aiming to make it the best project possible. We look forward to collaborating with all stakeholders to bring this to fruition; it’s just a matter of timing. Now, regarding gaming, let's discuss sports betting in D.C. While I mentioned that sports gaming is legal in our market, it's specifically legal in New York at the four upstate casinos. We firmly believe there should be an option for downstate mobile or venue-based betting. At the Capital One Arena in D.C., they have obtained a license for in-venue sports betting, allowing them to offer this service. We would be interested in both venue-based and mobile options. However, I should note that the regulatory landscape for sports gaming is changing rapidly, and there are many uncertainties regarding its future and timing. We feel optimistic about the potential and believe it will happen; it's just a matter of when. We've seen significant transformations in Europe and other locations, such as New Jersey, where gaming has flourished alongside increased fan engagement and sponsorship prospects. We are very optimistic about what this could mean for our sports business.

Michael Morris, Analyst

Great. Thank you, Andy.

Operator, Operator

Your next question is from the line of Ben Swinburne with Morgan Stanley.

Ben Swinburne, Analyst

Thanks. Good morning. I wanted to ask about the process for the spin, specifically regarding league approval and other requirements outside of the SEC process. Do you have any updates on that? I understand that lease terms between the teams and the Arena are part of what you’re working on. Also, do you need approval for increasing the teams' leverage, or does that add any complexity? Any insights on what needs to happen before Q1 to make this execution successful would be appreciated.

Gregg Seibert, Vice Chairman

I'm going to turn it over to our General Counsel, Lawrence Burian, to talk about the league approval process. But I don't think that there's anything at all involved in our borrowing against the existing revolvers. They are there to provide availability for The Madison Square Garden Company and for the sports teams and we're not proposing changing anything at this point in time. Lawrence, let me turn it over to you for sort of a more detailed perspective.

Lawrence Burian, General Counsel

First of all, let me just confirm what Gregg said, which is the revolvers are in place, we're free to borrow against them. That does not require any further league approval and so what Gregg said is 100% accurate. In terms of the rest of the league approval process, we have a wonderful relationship with each of the NBA and the NHL. They could not be more collaborative with us as we've been working through the process. The change of spinning entertainment from sports rather than sports from entertainment actually makes that approval process simpler because there's no longer any transfer in any ownership interest even technically in the team. So, it actually optimizes the approval process. We are very far along in terms of putting in place the inter-company arena license and a couple of other key operational inter-company agreements. The leagues have been fully engaged in that process and we are close to finalizing them.

Ben Swinburne, Analyst

That's helpful. And then, Gregg, are there any other tax benefits to the new structure beyond what you talked about being able to send the revolver cash over tax free? I don't know if you get any kind of basis benefit on the entertainment assets or does it allow RemainCo to be monetized more efficiently should something like that play out given it's not being spun? I don't know if there's anything else you would add beyond what you've already highlighted.

Gregg Seibert, Vice Chairman

No, I believe the only additional tax saving we have here is that if we had sold a position in the retained interest under the previous structure, it’s likely that part of that transaction would have been subject to taxes. Therefore, we have avoided tax leakage in that scenario. Phil D'Ambrosio, is there anything else on the tax side that you think we should emphasize?

Philip D'Ambrosio, Tax Advisor

No. That's all, Gregg.

Gregg Seibert, Vice Chairman

Okay. Thank you.

Ben Swinburne, Analyst

Thank you. Lastly, Andy, could you provide an update on the booking side of the business? Specifically, what does the pipeline look like for fiscal '20 as we sit here in early November compared to last year? I'm trying to gauge the growth of the underlying booking business as we progress through the fiscal year.

Andrew Lustgarten, President

Sure, happy to. Let me take a macro view. We are very bullish. I've said this before and I'll say it again. We are very bullish about live entertainment and live entertainment experiences. So in the long-term view, we are very bullish about the booking business. However, as I mentioned earlier, we had a record-breaking second quarter last year, which included our busiest October in the company's history. This obviously impacts our year-over-year comparison. But as I said also earlier, we expect to make up this ground this fiscal year. In addition, we've had pretty strong success with our sports booking business. The UFC just played here on Saturday night, it was a massive success and we have the NCAA East Regionals coming in March along with a number of other events. So, we feel good.

Ben Swinburne, Analyst

Great. Thank you. Thanks, everyone.

Ari Danes, Senior Vice President of Investor Relations

Thanks, Ben. Carmen, we have time for one last caller.

Operator, Operator

And your final question will come from the line of David Joyce with Evercore ISI. Please go ahead.

David Joyce, Analyst

Thank you. In thinking about the entertainment business, there are some elevated costs at TAO because you've had some openings. What's the outlook there for the cadence of further openings? Are they all going to be relatively the same size as what you've been opening? And then on the new entertainment offerings, there are some elevated expenses for that. Was that more one-time or is that ongoing and is there any Sphere costs other than in the Corporate line that's helping or that's in the AOI for entertainment? Thank you.

Andrew Lustgarten, President

Victoria, you want to take that?

Victoria Mink, EVP and Chief Financial Officer

Certainly. Hi, David. First, I want to clarify that the pre-opening costs you mentioned are actually from our TAO Chicago venture. In the first quarter of the previous year, we had some of those costs, so there's actually a decrease year-over-year in pre-opening expenses. Regarding TAO overall, we saw an increase in Group revenues of $2.4 million year-over-year in the first quarter, with expenses only slightly up. We are pleased with the success of TAO Chicago. Our results also reflect the closure of one venue in New York after a successful 15-year operation. Overall, we believe TAO showed solid growth in the first quarter. As we've discussed in past calls, we are collaborating with TAO management to identify cost efficiencies, and we've noticed a positive effect on TAO expenses. Concerning our pipeline and pre-opening costs for new venues, TAO Group assesses each opportunity individually in terms of optimal structure. We expect to keep doing this over the coming years, deciding between managed or leased venues depending on whether they're domestic or international, always aiming to find the most efficient use of our capital.

Andrew Lustgarten, President

It's Andy. I want to provide some additional insight regarding the point about leased versus managed venues. In leased venues, we typically invest our own capital and retain all the benefits. In managed venues, someone else usually finances the capital, which results in us receiving a smaller share of the profits. The workload is generally comparable in both cases. Therefore, the consideration revolves around capital and the agreement with our partner. We expect to explore both types of deals; at times, we will invest our own money, while at other times, we will utilize funds from others. Both options are on the table, and the TAO Group will continue to pursue both models.

Victoria Mink, EVP and Chief Financial Officer

Yes. So David, all of the costs associated with our Sphere initiatives related to content development and technology, all of that is within our Corporate and Other segment.

David Joyce, Analyst

Okay, great. Thank you.

Ari Danes, Senior Vice President of Investor Relations

Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

Operator, Operator

Thank you. Thank you again for joining today's call. You may now disconnect.