Madison Square Garden Sports Corp

Previous wording

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”) 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:

Current wording

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 increased expenses as a result of higher team personnel compensation and corresponding NBA luxury tax. 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:

Previous wording

•the performance by our affiliates of their obligations under various agreements with the Company, including the potential for financial difficulties that may impact MSG Networks Inc.’s (“MSG Networks”) ability to perform its obligations;

Current wording

•the performance by our affiliates of their obligations under various agreements with the Company;

Previous wording

•a resurgence of the COVID-19 pandemic or another pandemic or public health emergency, and our ability to effectively manage the impacts, including labor market disruptions;

Current wording

•a pandemic or public health emergency and our ability to effectively manage the impacts, including labor market disruptions;

Previous wording

•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;

Current wording

•operational, business, reputational, litigation and other risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security or if third party facilities, systems and/or software upon which we rely are interrupted or unavailable;

Previous wording

•the operating and financial performance of our strategic acquisitions and investments, including those we may not control;

Current wording

•our ability to successfully integrate acquisitions or new businesses into our operations and the operating and financial performance of strategic acquisitions and investments, including those we may not control;

Previous wording

•the tax-free treatment of the distribution of all of the outstanding common stock of Sphere Entertainment Co. (formerly Madison Square Garden Entertainment Corp. and referred herein as “Sphere Entertainment”) to its stockholders, which was completed on April 17, 2020 (the “Sphere Distribution”); and

Current wording

•the tax-free treatment of the distribution of all of the outstanding common stock of Sphere Entertainment Co. (“Sphere Entertainment”) to its stockholders, which was completed on April 17, 2020; and

Previous wording

•the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

Current wording

•the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 and in this Quarterly Report on Form 10-Q.

Previous wording

Results of Operations. This section provides an analysis of our unaudited results of operations for the three and nine months ended March 31, 2024 compared to the three and nine months ended March 31, 2023.

Current wording

Results of Operations. This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Previous wording

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, 2024 compared to the nine months ended March 31, 2023, and (iii) certain contractual obligations.

Current wording

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 three months ended September 30, 2024 compared to the three months ended September 30, 2023, and (iii) certain contractual obligations.

Previous wording

Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, if any, 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 2024. 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, 2023 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.

Current wording

Recent Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, if any, 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 2025. 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, 2024 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.

Previous wording

Comparison of the three and nine months ended March 31, 2024 versus the three and nine months ended March 31, 2023

Current wording

Comparison of the three months ended September 30, 2024 versus the three months ended September 30, 2023

Previous wording

Revenues increased $47,210, or 12%, to $429,954 for the three months ended March 31, 2024 as compared to the prior year period. Revenues increased $39,371, or 5%, to$799,898 for thenine months ended March 31, 2024 as compared to the prior year period. The net increases were attributable to the following:

Current wording

Revenues increased $10,261, or 24%, to $53,307 for the three months ended September 30, 2024 as compared to the prior year period. The net increase was attributable to the following:

Previous wording

The increase in revenues from league distributions for the three months ended March 31, 2024 was primarily due to increased national media rights fees in the current year period, partially offset by lower other league distributions in the current year period and the absence of league distributions related to Counter Logic Gaming (“CLG”) in the current year period following the Company’s sale of its controlling interest in CLG in April 2023. The increase in revenues from league distributions for the nine months ended March 31, 2024 was primarily due to an increase in and the timing of recognition of certain league distributions unrelated to national media rights fees and, to a lesser extent, increased national media rights fees in the current year period, partially offset by lower other league distributions in the current year period and the absence of league distributions related to CLG in the current year period.

Current wording

The increase in revenues from league distributions for the three months ended September 30, 2024 was primarily due to an increase in certain league distributions unrelated to national media rights fees.

Previous wording

Direct operating expenses increased $33,975, or 14%, to $273,026 for the three months ended March 31, 2024 as compared to the prior year period. Direct operating expenses increased $40,337, or 9%, to $508,771 for thenine months ended March 31, 2024 as compared to the prior year period. The net increases were attributable to the following:

Current wording

Direct operating expenses increased $4,691 to $8,211 for the three months ended September 30, 2024 as compared to the prior year period. The net increase was attributable to the following:

Previous wording

The increases in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for thethree and nine months ended March 31, 2024 were primarily related to higher provisions for league revenue sharing expense (net of escrow and excluding playoffs) of $6,600 and $8,875, respectively, and, to a lesser extent, lower estimated recoveries of NBA luxury tax in the current year periods.

Current wording

The increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for thethree months ended September 30, 2024 was due to the net impact of adjustments to prior seasons’ revenue sharing expense (net of escrow).

Previous wording

Net provisions for certain team personnel transactions were as follows:

Current wording

Net provisions for certain team personnel transactionsfor thethree months ended September 30, 2024 reflect provisions recorded for waiver/contract terminations of$833.

Previous wording

Selling, general and administrative expenses for the nine months ended March 31, 2024 increased $3,001, or 2%, to $195,020 as compared to the prior year period primarily due to higher operating lease costs of $5,121 and higher employee compensation and related benefits of $1,417, partially offset by lower other general and administrative expenses.

Current wording

Selling, general and administrative expenses for the three months ended September 30, 2024 decreased $969, or 2%, to $52,587 as compared to the prior year period driven by (i) lower sales and marketing costs of $744, (ii) lower employee compensation and related benefits of $617, and (iii) lower other general and administrative expenses, partially offset by higher professional fees of $1,181.

Previous wording

Net interest expense for the nine months ended March 31, 2024 increased $4,952, or 34%, to $19,720 as compared to the prior year period primarily due to increased interest expense caused by higher average interest rates in the current year period and higher average borrowings under the Knicks Revolving Credit Facility in the current year period. The increase was partially offset by lower average borrowings under the Rangers Revolving Credit Facility in the current year period.

Current wording

Interest expense for the three months ended September 30, 2024 decreased $874, or 13%, to $6,055 as compared to the prior year period primarily due to lower average borrowings under the Rangers Revolving Credit Facility in the current year period, partially offset by higher average borrowings under the Knicks Revolving Credit Facility in the current year period.

Previous wording

Miscellaneous (expense) income, net for thethree months ended March 31, 2024 decreased $20,727 to a net expense of $1,403 as compared to the prior year period primarily due to the recognition of unrealized losses in the current year period related to the Company’s investments in Xtract One common stock and warrants as compared to unrecognized gains in the prior year period related to the Company’s investments in Xtract One common stock, warrants and forward contracts. Miscellaneous (expense) income, net for thenine months ended March 31, 2024 decreased $30,620 to a net expense of $11,077 as compared to the prior year period primarily due to the recognition of unrealized losses in the current year period related to the Company’s investments in Xtract One common stock and warrants as compared to unrecognized gains in the prior year period related to the Company’s investments in Xtract One common stock and warrants.

Current wording

Miscellaneous expense, net for thethree months ended September 30, 2024 decreased $11,539, or 91%, to $1,126 as compared to the prior year period primarily due to lower unrealized losses in the current year period related to the Company’s investments in Xtract One common stock and warrants.

Previous wording

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 the exclusion of gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating income (loss) whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income

Current wording

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 the exclusion of gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating income (loss) whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss).

Previous wording

The following are the reconciliations of operating income to adjusted operating income for the three and nine months ended March 31, 2024 and 2023:

Current wording

The following are the reconciliations of operating loss to adjusted operating loss for the three months ended September 30, 2024 and 2023:

Previous wording

(a)During the fourth quarter of fiscal year 2023, the Company amended the definition of adjusted operating income so that the impact of the non-cash portion of operating lease costs related to the Company’s Arena License Agreements with MSG Entertainment is no longer excluded. Pursuant to GAAP, recognition of operating lease costs is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. As a result, operating lease costs is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Adjusted operating income includes operating lease costs of (i) $22,372 and $38,610 of expense paid in cash for thethree and nine months ended March 31, 2024, respectively, and $19,013 and $39,234 of expense paid in cash for the three and nine months ended March 31, 2023, respectively, and (ii) a non-cash expense of $12,998 and $22,433, for thethree and nine months ended March 31, 2024, respectively, and $11,949 and $24,657 for the three and nine months ended March 31, 2023, respectively.

Current wording

(a)Adjusted operating loss includes operating lease costs which is comprised of a contractual cash component plus or minus a non-cash component for each period presented. Pursuant to GAAP, recognition of operating lease costs is recorded on a straight-line basis over the term of the agreement based upon the value of total future payments under the arrangement. Adjusted operating loss includes operating lease costs of (i) $854 and $829 of expense paid in cash for the three months ended September 30, 2024 and 2023, respectively, and (ii) a non-cash expense of $457 and $482, for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

For the nine months ended March 31, 2024, adjusted operating income decreased $7,115, or 6%, to $115,732 as compared to the prior year period. The decrease in adjusted operating income was primarily due to higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, partially offset by higher revenues.

Current wording

For the three months ended September 30, 2024, adjusted operating loss decreased $7,727, or 77%, to $2,258 as compared to the prior year period. The decrease in adjusted operating loss was primarily due to higher revenues and, to a lesser extent, lower selling, general and administrative expenses, partially offset by higher direct operating expenses.

Previous wording

As of March 31, 2024, we had$40,033 in Cash and cash equivalents. In addition, as of March 31, 2024, the Company’s deferred revenue obligations were $88,452, net of billed, but not yet collected deferred revenue. This balance is primarily comprised of obligations in connection with tickets and suites. In addition, the Company’s deferred revenue obligations included $11,033 from the NBA, which the league provided to each team.

Current wording

As of September 30, 2024, we had$52,252 in Cash and cash equivalents. In addition, as of September 30, 2024, the Company’s deferred revenue obligations were $272,957, net of billed, but not yet collected deferred revenue. This balance is primarily comprised of obligations in connection with tickets, suites, and local media rights.

Previous wording

We believe we have sufficient liquidity, including approximately $40,033 in Cash and cash equivalents as of March 31, 2024, along with $195,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future. In addition, on April 22, 2024, the Company made an additional principal repayment of $40,000 under the Rangers Revolving Credit Facility.

Current wording

We believe we have sufficient liquidity, including approximately $52,252 in Cash and cash equivalents as of September 30, 2024, along with $250,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future. If MSG Networks were to experience a bankruptcy or insolvency event (as set forth in each of the credit facilities), we would be prevented, absent a cure or waiver, from making borrowings under our revolving credit facilities. The Rangers Credit Agreement also includes an event of default that is implicated by a bankruptcy or insolvency event with respect to a material media rights counterparty, including MSG Networks. There were no borrowings under the Rangers Revolving Credit Facility as of September 30, 2024.

Previous wording

The following table summarizes the Company’s cash flow activities for the nine months ended March 31, 2024 and 2023:

Current wording

The following table summarizes the Company’s cash flow activities for the three months ended September 30, 2024 and 2023:

Previous wording

Net cash used in operating activities for the nine months ended March 31, 2024 was $16,220 as compared to net cash provided by operating activities in the prior period of $114,801. This was primarily due to the decrease in net income adjusted for non-cash items in addition to changes in working capital assets and liabilities. The changes in working capital assets and liabilities were primarily driven by (i) a decrease in deferred revenue of $52,369 primarily due to the timing of collections related to pre/regular season ticket sales and the recognition of certain league distributions unrelated to national media rights fees, (ii) a lower decrease in accrued and other liabilities of $37,191 primarily due to higher payments related to employee compensation and league revenue sharing in the current year period, (iii) a higher increase in prepaid expenses and other assets of $14,114 primarily due to higher contract assets as a result of timing of revenue recognition and lower receipts related to escrow and player compensation recoveries in the current year period, and (iv) an increase in net related party receivables of $8,671 primarily due to the timing of collections related to the Company’s sponsorship sales and service representation agreements. These changes were partially offset by (i) a lower decrease in net related party payables of $11,157 primarily due to the timing of payments related to the Services Agreement, and (ii) a lower increase in investments of $7,669 primarily related to the Company’s Executive Deferred Compensation Plan.

Current wording

Net cash used in operating activities for the three months ended September 30, 2024 decreased by $27,983 to $26,158 as compared to the prior year period. The decrease was primarily due to changes in working capital assets and liabilities and the decrease in net loss adjusted for non-cash items. The changes in working capital assets and liabilities were primarily driven by (i) a higher increase in deferred revenue of $25,806 primarily due to higher collections of ticket, suites, and sponsorship sales in advance of recognition, (ii) a lower decrease in accrued and other liabilities of $10,914 primarily due to lower payments related to employee compensation in the current year period, and (iii) a lower decrease in net related party receivables of $8,552 primarily due to primarily due to the timing of collections related to the Company’s arena license agreements. These changes were partially offset by (i) an increase in accounts receivable, net of $16,851 primarily due to higher receivables related to league distributions in the current year period and (ii) a higher increase in prepaid expenses and other assets of $5,034 primarily due to higher prepayments related to team personnel compensation in the current year period.

Previous wording

Net cash used in investing activities for the nine months ended March 31, 2024 decreased by $4,677 to $5,689 as compared to the prior year period primarily due to lower purchases of investments in the current year period.

Current wording

Net cash used in investing activities for the three months ended September 30, 2024 decreased by $566 to $1,163 as compared to the prior year period primarily due to lower purchases of investments in the current year period.

Previous wording

Net cash provided by financing activities for the nine months ended March 31, 2024 was $26,234 as compared to net cash used in financing activities for the nine months ended March 31, 2023 of $129,618. This was primarily due to the impact of dividends paid and the accelerated share repurchase in the prior year period, lower principal repayments under the Knicks Revolving Credit Facility and the Rangers Revolving Credit Facility in the current year period and, to a lesser extent, lower taxes paid in lieu of shares issued for equity-based compensation in the current year period. These impacts were partially offset by additional borrowings under the Company’s credit facilities in the prior year period.

Current wording

Net cash used in financing activities for the three months ended September 30, 2024 was $9,502 as compared to net cash provided by financing activities for the three months ended September 30, 2023 of $67,830. This was primarily due to additional borrowings under the Company’s credit facilities in the prior year period.

Previous wording

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.

Current wording

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 recent accounting pronouncements.

Previous wording

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.

Current wording

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, quantitative assessment is performed 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, not to exceed the carrying amount of goodwill.