Sphere Entertainment Co
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
SPHR$120.02+6.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-10.
0001795250-24-000018
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001795250-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 204 previous paragraphs and 204 current paragraphs.
100 unchanged; 76 reworded; 28 added; 25 removed; 3 previous and 0 current paragraphs rearranged.
Tables are not compared: 17 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (28)
Current report
•our ability to finalize definitive agreements for a Sphere venue in Abu Dhabi with the Department of Culture and Tourism – Abu Dhabi (“DCT Abu Dhabi”);
Current report
Dhabi, United Arab Emirates.
Current report
Income tax benefit
Current report
Adjusted operating loss
Current report
Revenues
Current report
On September 29, 2023, the Company opened Sphere in Las Vegas. As a result, the prior year quarter reflects minimal operations while the current year quarter reflects a full quarter of operations.
Current report
For the three months ended September 30, 2024, the increase in revenues for The Sphere Experience reflects revenues associated with 192 performances of The Sphere Experience featuring Postcard From Earth, and 15 performances of V-U2 An Immersive Concert Film, generating combined average revenues of approximately $345 per performance.
Current report
For the three months ended September 30, 2024, the increase in other revenues primarily reflects the impact of the Company’s acquisition of Holoplot GmbH (“Holoplot”) in April 2024.
Current report
For the three months ended September 30, 2024, the increase in direct operating expenses for The Sphere Experience reflects expenses associated with 192 performances of The Sphere Experience featuring Postcard From Earthand 15 performances of V-U2 An Immersive Concert Film, equating to combined average direct operating expenses of approximately $119 per performance.
Current report
For the three months ended September 30, 2024, the increase in other direct operating expenses primarily reflects the impact of the Company’s acquisition of Holoplot in April 2024.
Current report
For the three months ended September 30, 2024, the Company recognized impairment and other losses of $4,033, as compared to other gains, net of $1,497, in the prior year period. The current year three-month period charge relates to fixed assets at Sphere in Las Vegas that were removed from the venue and were impaired. The Company received insurance proceeds of $1,497 during the three months ended September 30, 2023, related to the Company’s creative studio in Burbank, California.
Current report
Adjusted operating loss
Current report
Revenues
Current report
MSGN L.P. and the Supporting Lenders that hold a majority in principal amount of term loans held by all Supporting Lenders under the MSGN Term Loan Facility and (b) the date on which any Termination Event (as defined in the Forbearance Agreement) occurs. See Note 10. Credit Facilities and Convertible Notes to the condensed consolidated financial statements. MSG Networks will be unable to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities prior to the expiration of the Forbearance Period absent action taken by management to refinance the outstanding borrowings.
Current report
As of the issuance date, MSG Networks continues to pursue a work-out of the MSG Networks Credit Facilities with its syndicate of lenders. The Company has been advised that a cash equity contribution from Sphere Entertainment Group, LLC (“Sphere Entertainment Group”) to MSG Networks will be required in connection with a work-out. If a contribution is made, it is not expected to adversely impact Sphere Entertainment Co.’s ability to fund its operations.
Current report
Sphere
Current report
In October 2024, the Company and DCT Abu Dhabi announced that they will work together to bring the world’s second Sphere to Abu Dhabi, United Arab Emirates. Under the terms of the partnership, which is subject to finalization of definitive agreements, DCT Abu Dhabi will pay the Company a franchise initiation fee for the right to build the venue, utilizing the Company’s proprietary designs, technology, and intellectual property. Construction will be funded by DCT Abu Dhabi, with the Company’s team of experts providing services related to development, construction, and pre-opening of the venue. Following the venue’s opening, the Company plans to maintain ongoing arrangements with DCT Abu Dhabi that are expected to include annual fees for creative and artistic content licensed by the Company, such as Sphere Experiences; use of Sphere’s brand, patents, proprietary technology, and intellectual property; and operational services related to venue operations and technology, as well as commercial and strategic advisory support.
Current report
The MSGN Credit Agreement matured on October 11, 2024. On the Maturity Date, MSGN L.P. failed to repay the principal amount of $829,125 outstanding under the MSGN Term Loan Facility and an event of default occurred pursuant to the MSGN Credit Agreement. On the Maturity Date, all revolving credit commitments under the MSGN Revolving Credit Facility terminated.
Current report
On October 11, 2024, MSGN L.P. entered into the Forbearance Agreement by and among MSGN L.P., the guarantors identified therein, JPMorgan Chase Bank, N.A., as administrative agent, and the Supporting Lenders under the MSGN Credit Agreement. Subject to the terms of the Forbearance Agreement, the Supporting Lenders agreed to forbear, during the Forbearance Period, from exercising certain of their available remedies under the MSGN Credit Agreement with respect to or arising out of MSGN L.P.’s failure to make payment on the outstanding principal amount under the MSGN Term Loan Facility on the Maturity Date.
Current report
The Forbearance Period under the Forbearance Agreement was initially scheduled to expire on November 8, 2024 and has been extended to expire on the earlier to occur of (a) November 26, 2024, or such later date agreed to by MSGN L.P. and the Supporting Lenders that hold a majority in principal amount of term loans held by all Supporting Lenders under the MSGN Term Loan Facility and (b) the date on which any Termination Event (as defined in the Forbearance Agreement) occurs.
Current report
Interest Rates. Borrowings under the MSGN Credit Agreement bear interest at a floating rate, which at the option of MSGN L.P. may be either (i) a base rate plus an additional rate ranging from 0.25% to 1.25% per annum (determined based on a total net leverage ratio), or (ii) adjusted Term SOFR (i.e., Term SOFR plus 0.10%) plus an additional rate ranging from 1.25% to 2.25% per annum (determined based on a total leverage ratio). Upon a payment default in respect of principal, interest or other amounts due and payable under the MSGN Credit Agreement or related loan documents, default interest will accrue on all overdue amounts at an additional rate of 2.00% per annum. During the Forbearance Period, interest on all outstanding obligations under the MSGN Credit Agreement, including the unpaid principal amount of the term loan, accrue at the default rate.The interest rate on the MSGN Term Loan Facility as of September 30, 2024 was 9.00%.
Current report
In addition to the financial covenants discussed above, the MSGN Credit Agreement and the related security agreement (as modified in certain cases by the Forbearance Agreement) contain certain representations and warranties, affirmative covenants, and events of default. The MSGN Credit Agreement (as modified in certain cases by the Forbearance Agreement) contains significant restrictions (and in some cases prohibitions) on the ability of MSGN L.P. and its restricted subsidiaries to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the MSGN Credit Agreement (as amended by the Forbearance Agreement), including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making investments, loans or advances in or to other persons; (iv) paying dividends and distributions or repurchasing capital stock; (v)
Current report
changing their lines of business; (vi) engaging in certain transactions with affiliates; (vii) amending specified material agreements; (viii) merging or consolidating; (ix) making certain dispositions; and (x) entering into agreements that restrict the granting of liens. The MSGN Holdings Entities are also subject to customary passive holding company covenants.
Current report
Guarantors and Collateral. All obligations under the MSGN Credit Agreement are guaranteed by the MSGN Holdings Entities and MSGN L.P.’s existing and future direct and indirect domestic subsidiaries that are not designated as excluded subsidiaries or unrestricted subsidiaries (the “MSGN Subsidiary Guarantors” and, together with the MSGN Holdings Entities, the “MSGN Guarantors”). All obligations under the MSGN Credit Agreement, including the guarantees of those obligations, are secured by certain assets of MSGN L.P. and each MSGN Guarantor (collectively, “MSGN Collateral”), including, but not limited to, a pledge of the equity interests in MSGN L.P. held directly by the MSGN Holdings Entities and the equity interests in each MSGN Subsidiary Guarantor held directly or indirectly by MSGN L.P.
Current report
Interest Rates. Borrowings under the LV Sphere Term Loan Facility bear interest at a floating rate, which at the option of MSG LV may be either (i) a base rate plus a margin of 3.375% per annum or (ii) adjusted Term SOFR (i.e., Term SOFR plus 0.10%) plus a margin of 4.375% per annum. The interest rate on the LV Sphere Term Loan Facilityas of September 30, 2024 was 9.57%.
Current report
In addition to the covenants described above, the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements contain certain customary representations and warranties, affirmative and negative covenants and events of default. The LV Sphere Term Loan Facility contains certain restrictions on the ability of MSG LV and Sphere Entertainment Group to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements, including the following: (i) incur additional indebtedness; (ii) make investments, loans or advances in or to other persons; (iii) pay dividends and distributions (which will restrict the ability of MSG LV to make cash distributions to the Company); (iv) change its lines of business; (v) engage in certain transactions with affiliates; (vi) amend organizational documents; (vii) merge or consolidate; and (viii) make certain dispositions.
Current report
Guarantors and Collateral. All obligations under the LV Sphere Term Loan Facility are guaranteed by Sphere Entertainment Group. All obligations under the LV Sphere Term Loan Facility, including the guarantees of those obligations, are secured by all of the assets of MSG LV and certain assets of Sphere Entertainment Group including, but not limited to, MSG LV’s leasehold interest in the land on which Sphere in Las Vegas is located, and a pledge of all of the equity interests held directly by Sphere Entertainment Group in MSG LV.
Current report
Net cash from financing activities for the three months ended September 30, 2024 decreased by $86,476 as compared to the prior year period, primarily due to the absence of proceeds of $65,000 from the Delayed Draw Term Loan Facility received in the corresponding prior year period, as well as principal repayments of debt of $20,625 in the current year period.
Removed paragraphs (25)
Previous report
•our ability to achieve the intended benefits of the MSGE Distribution; and
Previous report
MSG Entertainment Distribution
Previous report
On April 20, 2023 (the “MSGE Distribution Date”), the Company distributed approximately 67% of the outstanding common stock of Madison Square Garden Entertainment Corp. (“MSG Entertainment”, formerly MSGE Spinco, Inc.) to its stockholders (the “MSGE Distribution”), with the Company retaining approximately 33% of the outstanding common stock of MSG Entertainment (in the form of MSG Entertainment Class A common stock) immediately following the MSGE Distribution (the “MSGE Retained Interest”). Following the MSGE Distribution Date, the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment, excluding the Sphere business. In the MSGE Distribution, stockholders of the Company received (a) one share of MSG Entertainment’s Class A common stock, par value $0.01 per share, for every share of the Company’s Class A common stock, par value $0.01 per share (“Class A Common Stock”), held of record as of the close of business, New York City time, on April 14, 2023 (the “Record Date”), and (b) one share of MSG Entertainment’s Class B common stock, par value $0.01 per share, for every share of the Company’s Class B common stock, par value $0.01 per share (“Class B Common Stock”), held of record as of the close of business, New York City time, on the Record Date. See Note 1. Description of Business and Basis of Presentation, to the Audited Consolidated Annual Financial Statements included in the 2023 Form 10-K for more information about the MSGE Distribution. As of March 31, 2024, following the sales of portions of the MSGE Retained Interest and the repayment of the delayed draw term loan with MSG Entertainment using a portion of the MSGE Retained Interest, the Company no longer holds any of the outstanding common stock of MSG Entertainment.
Previous report
As of April 20, 2023, the MSG Entertainment business met the criteria for discontinued operations and was classified as a discontinued operation.
Previous report
Tao Group Hospitality Disposition
Previous report
On May 3, 2023, the Company completed the sale of its 66.9% majority interest in TAO Group Sub-Holdings LLC (“Tao Group Hospitality”) to a subsidiary of Mohari Hospitality Limited, a global investment company focused on the luxury lifestyle and hospitality sectors (the “Tao Group Hospitality Disposition”). See Note 3. Discontinued Operations, to the Audited Consolidated Annual Financial Statements, included in the 2023 Form 10-K for more information about the Tao Group Hospitality Disposition.
Previous report
Since March 31, 2023, the Tao Group Hospitality segment met the criteria for discontinued operations and was classified as a discontinued operation.
Previous report
Income tax benefit (expense)
Previous report
Income tax expense for the three months ended March 31, 2023 of $11,284 reflects an effective tax rate of 11%. The effective tax rate was lower than the statutory federal tax rate of 21% primarily due to state and local taxes.
Previous report
Adjusted operating income (loss)
Previous report
For the three and nine months ended March 31, 2024, the increase in revenues for The Sphere Experience was due to the October 6, 2023 debut of The Sphere Experience featuring Postcard From Earth TM, with 257 and 449 performances taking place during the three and nine months ended March 31, 2024, respectively.
Previous report
For the three and nine months ended March 31, 2024, the increase in direct operating expenses for The Sphere Experience reflects expenses associated with 257 and 449 performances of The Sphere Experience featuring Postcard From Earth taking place during the three and nine months ended March 31, 2024, respectively.
Previous report
The overall increase was partially offset by the absence of certain corporate expenses that were included in the results for the three and nine months ended March 31, 2023. While the Company did not incur these corporate costs after the MSGE Distribution Date (April 20, 2023) and does not expect to incur these corporate costs in future periods, they did not meet the criteria for inclusion in discontinued operations for all periods prior to the MSGE Distribution Date.
Previous report
For the nine months ended March 31, 2024, the Company recognized a loss of $115,738, as compared to a gain of $3,000, in the prior year period. The current year nine-month period includes an impairment loss of $116,541 in connection with the Company’s decision in November 2023 to no longer pursue the development of a Sphere in the United Kingdom. There were no impairment and other (losses) gains, net in the three months ended March 31, 2024 and 2023.
Previous report
Adjusted operating income (loss)
Previous report
For the nine months ended March 31, 2024, distribution revenue decreased $33,299, primarily due to a decrease in total subscribers of approximately 11.9% and the absence of a favorable affiliate adjustment of approximately $2,300 recorded in the prior year period, partially offset by the impact of higher affiliation rates in the current year period.
Previous report
For the three and nine months ended March 31, 2024 advertising revenue decreased $1,466, and $1,438 respectively, primarily due to lower per-game advertising sales related to live professional sports telecasts on the linear networks and lower advertising revenue from branded content, partially offset by higher advertising revenue related to MSG+.
Previous report
For the three months ended March 31, 2024, selling, general and administrative expenses of $14,173 decreased $45,879 as compared to the prior year period, primarily due to lower professional fees of $46,025, mainly reflecting a decrease in litigation-related expenses associated with the Networks Merger.
Previous report
As disclosed in Note 11. Credit Facilities and Convertible Notes, all of the outstanding borrowings under the MSG Networks Credit Facilities are guaranteed by the MSGN Guarantors (as defined under Note 11. Credit Facilities and Convertible Notes) and secured by the MSGN Collateral (as defined under Note 11. Credit Facilities and Convertible Notes). Sphere Entertainment Co., Sphere Entertainment Group and the subsidiaries of Sphere Entertainment Group (collectively, the “Non-Credit Parties”) are not legally obligated to fund the outstanding borrowings under the MSG Networks Credit Facilities, nor are the assets of the Non-Credit Parties pledged as security under the MSG Networks Credit Facilities. Prior to maturity of the MSG Networks Credit Facilities in October 2024, MSG Networks expects to make $41,250 in required quarterly amortization payments on the MSG Networks Credit Facilities. The remaining outstanding borrowings under the MSG Networks Credit Facilities of $829,125 are scheduled to mature in October 2024, which is within one year of the issuance date of the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q. However, MSG Networks will be unable to generate sufficient operating cash flows prior to the maturity to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings.
Previous report
As of the issuance date of the Company’s unaudited condensed consolidated financial statements for the quarter ended March 31, 2024, management is in the advanced stages of negotiating a refinancing of the MSG Networks Credit Facilities with a syndicate of its lenders. In this regard, the Company has had advanced discussions with a number of its lenders to participate in the refinancing and amend and extend the MSG Networks Credit Facilities with agreed upon preliminary terms and provisions. The proposed refinancing is subject to finalization of the syndicate, completion of the loan closing documentation and other closing procedures. The proposed refinancing and amendment to the MSG Networks Credit Facilities would include, among other things, (1) a reduction in the amount of the existing term loan, as a result of a partial repayment of the existing term loan by MSG Networks, a portion of the cash associated with the repayment is expected to be funded through a cash equity contribution from Sphere Entertainment Group to MSG Networks, for which such contribution is not expected to adversely impact Sphere Entertainment’s ability to fund its operations and growth initiatives, (2) a reduction in the size of the existing senior secured revolving credit facility, (3) an extension of the maturity date by one year to October 10, 2025, and (4) amendments to certain terms, including adding MSG Networks Inc. and Rainbow Garden Corp. as guarantors, and including a higher amortization rate, higher interest rates, more restrictive covenants (including prohibiting restricted payments to Sphere Entertainment) and adding additional events of default.
Previous report
Spheres
Previous report
In February 2018, we announced the purchase of land in Stratford, London, which we expected would become home to a future Sphere. The Company submitted planning applications to the local planning authority in March 2019. On November 21, 2023, the Company announced it no longer plans to allocate resources towards the development of a Sphere in the United Kingdom. The Company has taken an impairment loss of $116,541 in connection with the Company’s decision to no longer pursue the development of a Sphere in the United Kingdom.
Previous report
The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date of October 11, 2024. MSGN L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including MSGN Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions.
Previous report
Net cash provided by financing activities for the nine months ended months ended March 31, 2024 increased by $32,525 as compared to the prior year period primarily due to proceeds of $251,634 from the issuance of 3.50% Convertible Senior Notes , and $65,000 from the DDTL Facility, as compared to proceeds of $275,168 from the issuance of the LV Sphere Term Loan Facility in the corresponding prior period, and partially offset by principal repayments of long term debt of $61,875 in the current year period, as well as the purchase of the $14,309 capped call related to the 3.50% Convertible Senior Notes.
Previous report
For the Sphere reporting unit, the goodwill balance was determined based upon a relative fair value allocation between Sphere and MSG Entertainment at the time of the MSGE Distribution. Due to the proximity of the annual goodwill impairment test to the MSGE Distribution and the related relative fair value allocation, the Company primarily considered qualitative factors, as noted above, in determining that the Sphere reporting unit goodwill was not impaired.
Reworded paragraphs (76)
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 Sphere Entertainment Co. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “Sphere Entertainment,” or the “Company”), including (i) our plans to refinance MSG Networks’ existing debt, (ii) the success of Sphere and The Sphere Experience, (iii)timing and costs of new venue construction and Sphere immersive productions content, (iv) our ability to reduce or defer certain discretionary capital projects, (v) our plans for possible additional debt financing and (vi) our execution of the strategy for and the success of MSG Networks’ direct-to-consumer (“DTC”) and authenticated streaming product, MSG+. 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 Sphere Entertainment Co. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “Sphere Entertainment,” or the “Company”), including (i) the ability of MSG Networks to successfully pursue a work-out with the lenders of its existing debt, (ii) the success of Sphere and The Sphere Experience, (iii)timing and costs of new venue construction and Sphere immersive productions content, (iv) our plans to bring Sphere to Abu Dhabi, United Arab Emirates under a franchise model, (v) our ability to reduce or defer certain discretionary capital projects, (vi) our plans for possible additional debt financing and (vii) our execution of the strategy for and the success of MSG Networks’ direct-to-consumer (“DTC”) and authenticated streaming product, MSG+ (which is now included in the Gotham Sports streaming product launched as part of MSG Networks’ joint venture with YES Network) . 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 substantial amount of debt we have incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under their respective credit facilities (including refinancing the MSG Networks debt prior to its maturity in October 2024), the implications of a default under those credit facilities, our ability to make payments on or refinance our 3.50% Convertible Senior Notes (as defined below) and our ability to obtain additional financing, to the extent required, on terms favorable to us or at all;
Current wording
•the substantial amount of debt we have incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under their respective credit facilities (including MSG Networks’ ability to successfully pursue a work-out with the lenders of its existing debt, and if successful, the terms of such work-out), the implications of a default under those credit facilities (including the existing event of default under MSG Networks’ debt) and the terms of any forbearance agreements entered into in connection therewith, our ability to make payments on our 3.50% Convertible Senior Notes (as defined below) and our ability to obtain additional financing, to the extent required, on terms favorable to us or at all;
Previous wording
•the popularity of The Sphere Experience, as well as our ability to continue to attract advertisers and marketing partners, and audiences to attend, and artists to perform at, residencies, concerts and other events at Sphere in Las Vegas;
Current wording
•the popularity of The Sphere Experience, as well as our ability to continue to attract advertisers and marketing partners, and audiences to attend, and artists to perform at, residencies, concerts and other events at Sphere in Las Vegas and other future Sphere venues;
Previous wording
•our ability to successfully design, construct, finance and operate new Sphere venues, and the investments, costs and timing associated with those efforts, including obtaining financing, the impact of inflation and any construction delays and/or cost overruns;
Current wording
•our ability to successfully provide design, construction and pre- and post-opening services to Sphere partners, including DCT Abu Dhabi, as well as our ability to construct, finance and operate new Sphere venues, and the investments, costs and timing associated with those efforts, including obtaining financing, the impact of inflation and any construction delays and/or cost overruns;
Previous wording
•the demand for MSG Networks programming among cable, satellite, fiber-optic and other platforms that distribute its networks (“Distributors”) and the number of subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, or to do so on favorable terms, as well as the impact of consolidation among Distributors;
Current wording
•the demand for MSG Networks programming among cable, satellite, fiber-optic and other platforms that distribute its networks (“Distributors”) and the number of subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, including the terms of any such renewals, as well as the impact of consolidation among Distributors;
Previous wording
•our ability to successfully execute MSG Networks’ strategy for its DTC and authenticated streaming product, MSG+, the success of such offering and our ability to adapt to new content distribution platforms or changes in consumer behavior resulting from emerging technologies;
Current wording
•our ability to successfully execute MSG Networks’ strategy for its DTC and authenticated streaming offering, MSG+, and its streaming joint venture with YES Network, the success of such offerings and our ability to adapt to new content distribution platforms or changes in consumer behavior resulting from emerging technologies;
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•the impact of subscribers selecting Distributors’ packages that do not include our networks or distributors that do not carry our networks at all;
Current wording
•any adverse changes in the distribution of our networks or the impact of subscribers selecting Distributors’ packages that do not include our networks or distributors that do not carry our networks at all;
Previous wording
•MSG Networks’ ability to renew or replace its media rights agreements with professional sports teams and its ability to perform its obligations thereunder;
Current wording
•MSG Networks’ ability to renew, renegotiate or replace its media rights agreements with professional sports teams and its ability to perform its obligations thereunder;
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•the extent to which attendance at Sphere in Las Vegas may be impacted by government actions, health concerns of potential attendees or reduced tourism;
Current wording
•the extent to which attendance at Sphere in Las Vegas or future Sphere venues may be impacted by government actions, health concerns of potential attendees or reduced tourism;
Previous wording
•the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
Current wording
•the operating and financial performance of our strategic acquisitions and investments, including those we do not control, and the impact of goodwill and other impairments with respect to businesses;
Previous wording
•the tax-free treatment of the MSGE Distribution (as defined below) and the distribution from Madison Square Garden Sports Corp. (“MSG Sports”) in 2020;
Current wording
•the tax-free treatment of the distribution of Madison Square Garden Entertainment Corp. (“MSG Entertainment”) from the Company in 2023 and the distribution from Madison Square Garden Sports Corp. (“MSG Sports”) in 2020; and
Previous wording
The Company is a premier live entertainment and media company comprised of two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a direct-to-consumer (“DTC”) and authenticated streaming product.
Current wording
The Company is a premier live entertainment and media company comprised of two reportable segments, Sphere and MSG Networks. Sphere is a next-generation entertainment medium, and MSG Networks operates two regional sports and entertainment networks, as well as a DTC and authenticated streaming offering (which is now included in the Gotham Sports streaming product launched as part of its joint venture with YES Network.
Previous wording
Sphere: This segment reflects Sphere TM, a next-generation entertainment medium powered by cutting-edge technologies that enable multi-sensory storytelling at an unparalleled scale. The Company’s first Sphere opened in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests and can host a wide variety of events year-round, including The Sphere Experience TM, which features original immersive productions, as well as concerts and residencies from renowned artists, and marquee sporting and corporate events. Supporting this strategy is Sphere Studios TM, which is home to a team of creative, production, technology and software experts who provide full in-house creative and production services. The studio campus in Burbank includes a 68,000-square-foot development facility, as well as Big Dome, a 28,000-square-foot, 100-foot high custom dome, with a quarter-sized version of the interior display plane at Sphere in Las Vegas, that serves as a specialized screening, production facility, and lab for content at Sphere.
Current wording
Sphere: This segment reflects Sphere TM, a next-generation entertainment medium powered by cutting-edge technologies to create multi-sensory experiences at an unparalleled scale. The Company’s first Sphere opened in Las Vegas in September 2023. The venue can accommodate up to 20,000 guests and can host a wide variety of events year-round, including The Sphere Experience TM, which features original immersive productions, as well as concerts and residencies from renowned artists, and marquee sports and corporate events. Production efforts are supported by Sphere Studios TM, an immersive content studio dedicated to creating multi-sensory live and recorded entertainment experiences exclusively for Sphere. Sphere Studios is home to a team of creative, production, technology and software experts who provide full in-house creative and production services. The studio campus in Burbank includes a 68,000-square-foot development facility, as well as Big Dome, a 28,000-square-foot, 100-foot high custom dome, with a quarter-sized version of the interior display plane at Sphere in Las Vegas, that serves as a specialized screening, production facility, and lab for content at Sphere. The entire exterior surface of Sphere, referred to as the Exosphere TM, is covered with nearly 580,000 square feet of fully programmable LED paneling, creating the largest LED screen in the world — and an impactful display for artists, brands and partners. In October 2024, Sphere Entertainment and DCT Abu Dhabi announced that they will work together to bring the world’s second Sphere to Abu
Previous wording
MSG Networks: This segment is comprised of the Company’s regional sports and entertainment networks, MSG Network and MSG Sportsnet, as well as its DTC and authenticated streaming product, MSG+. MSG Networks serves the New York designated market area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including exclusive live local games and other programming of the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”) and the New York Rangers (the “Rangers”), New York Islanders (the “Islanders”), New Jersey Devils (the “Devils”) and Buffalo Sabres (the “Sabres”) of the National Hockey League (the “NHL”), as well as significant coverage of the New York Giants (the “Giants”) and the Buffalo Bills (the “Bills”) of the National Football League (the “NFL”).
Current wording
MSG Networks: This segment is comprised of the Company’s regional sports and entertainment networks, MSG Network and MSG Sportsnet, as well as its DTC and authenticated streaming offering, MSG+ (which is now included in the Gotham Sports streaming product launched as part of MSG Networks’ joint venture with YES Network). MSG Networks serves the New York designated market area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including exclusive live local games and other programming of the New York Knicks (the “Knicks”) of the NBA and the New York Rangers (the “Rangers”), New York Islanders, New Jersey Devils and Buffalo Sabres of the NHL, as well as significant coverage of the New York Giants and the Buffalo Bills of the National Football League.
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 and 2023 on both a (i) consolidated basis and (ii) segment basis.
Current wording
Results of Operations. This section provides an analysis of our unaudited results of operations for the three months ended September 30, 2024 and 2023 on both a (i) consolidated basis and (ii) segment basis.
Previous wording
Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the nine months ended March 31, 2024 and 2023, as well as certain contractual obligations and off-balance sheet arrangements.
Current wording
Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the three months ended September 30, 2024 and 2023, as well as certain contractual obligations and off-balance sheet arrangements.
Previous wording
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, recently issued accounting pronouncements not yet 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 2024. This section should be read together with our critical accounting policies, which are discussed in the 2023 Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Estimates” and in the notes to the Audited Consolidated Annual Financial Statements included therein.
Current wording
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, recently issued accounting pronouncements not yet adopted by the Company, as well as the results of the Company’s annual impairment testing of goodwill performed during the quarterly period ended September 30, 2024. This section should be read together with our critical accounting policies, which are discussed in the 2024 Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Estimates” and in the notes to the Audited Consolidated Annual Financial Statements 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
The following is a summary of changes in our segments’ operating results for the three and nine months ended March 31, 2024, as compared to the prior year period, which are discussed below under “Business Segment Results.”
Current wording
The following is a summary of changes in our segments’ operating results for the three months ended September 30, 2024, as compared to the prior year period, which are discussed below under “Business Segment Results.”
Previous wording
For the three and nine months ended March 31, 2024, depreciation and amortization increased $71,195 and $151,352, respectively, as compared to the prior year periods primarily due to an increase in depreciation of assets relating to Sphere in Las Vegas that were placed in service during the first quarter of Fiscal Year 2024.
Current wording
For the three months ended September 30, 2024, depreciation and amortization increased $67,654, as compared to the prior year period primarily due to an increase in depreciation of assets related to Sphere in Las Vegas that were placed in service at the end of the first quarter of Fiscal Year 2024.
Previous wording
For the nine months ended March 31, 2024, the Company recognized impairment and other losses, net of $115,738, as compared to other gains of $3,000, in the prior year period. The current year nine-month period includes an impairment charge of $116,541 in connection with the Company’s decision in November 2023 to no longer pursue the development of a Sphere in the United Kingdom. There were no impairment and other (losses) gains, net in the three months ended March 31, 2024 and 2023.
Current wording
For the three months ended September 30, 2024, the Company recognized impairment and other losses, net of $4,033, as compared to other gains, net of $1,497, in the prior year period. The current year three-month period charge relates to fixed assets at Sphere Las Vegas that were removed from the venue and were impaired. The Company received insurance proceeds of $1,497 during the three months ended September 30, 2023.
Previous wording
For the three and nine months ended March 31, 2024, the Company recorded restructuring charges of $4,667 and $9,345, respectively, related to termination benefits provided for certain executives and employees, as compared to restructuring charges of $18,670 and $26,745 in the three and nine months ended March 31, 2023, respectively, as a result of the Company’s cost reduction program implemented during Fiscal Year 2023.
Current wording
For the three months ended September 30, 2024, the Company recorded restructuring charges of $913 related to termination benefits provided for certain executives and employees, as compared to restructuring charges of $3,391 related to termination benefits provided for certain executives and employees in the three months ended September 30, 2023.
Previous wording
For the three and nine months ended March 31, 2024, interest income increased $4,280 and $8,582, respectively, as compared to the prior year periods, primarily due to higher interest rates and higher average cash and cash equivalent balances.
Current wording
For the three months ended September 30, 2024, interest income increased $2,661, as compared to the prior year period, primarily due to higher average cash and cash equivalent balances.
Previous wording
For the three and nine months ended March 31, 2024, interest expense increased $27,119 and $52,947, respectively, as compared to the prior year periods, primarily due to (i) the Company discontinuing the capitalization of interest expense during the second quarter of Fiscal Year 2024 as assets were placed into service following the opening of the Sphere in Las Vegas and (ii) interest expense on the 3.50% Convertible Senior Notes due 2028 (the “3.50% Convertible Senior Notes”), which were issued in December 2023.
Current wording
For the three months ended September 30, 2024, interest expense increased $26,974 as compared to the prior year period, primarily due to (i) the Company discontinuing the capitalization of interest expense during the second quarter of Fiscal Year 2024 as assets were placed in service following the opening of Sphere in Las Vegas and (ii) interest expense on the 3.50% Convertible Senior Notes due 2028 (the “3.50% Convertible Senior Notes”), which were issued in December 2023.
Previous wording
For the three months ended March 31, 2024, other expense, net decreased $926 as compared to the prior year period, primarily due to smaller losses on equity method investments. For the nine months ended March 31, 2024 other income (expense), net increased $43,762, as compared to the prior year period, primarily due to a realized gain of $62,647 related to the settlement of litigation related to the merger between a subsidiary of the Company and MSG Networks Inc. (the “Networks Merger”), partially offset by a realized loss of $19,027 related to the sale of a portion of the MSGE Retained Interest during the first quarter of Fiscal Year 2024.
Current wording
For the three months ended September 30, 2024, the Company recorded other expense, net of $695, compared to other income, net of $42,196 in the prior period, which included a realized gain of $62,647 related to the settlement of litigation related to the merger between a subsidiary of the Company and MSG Networks Inc. (the “Networks Merger”), partially offset by a realized loss of $19,027 related to the sale of a portion of the MSGE Retained Interest in the corresponding prior year period.
Previous wording
Income tax benefit for the nine months ended March 31, 2023 of $11,663 reflects an effective tax rate of 6%. The effective tax rate was lower than the statutory federal tax rate of 21% primarily due to state and local taxes.
Current wording
Income tax benefit for the three months ended September 30, 2024 of $32,966, reflects an effective tax rate of 24%. The effective tax rate exceeds the statutory federal tax rate of 21% primarily due to income tax benefit from state and local taxes, partially offset by income tax expense related to nondeductible officer’s compensation.
Previous wording
Income tax benefit for the three and nine months ended March 31, 2024 of $15,874 and $113,627, respectively, reflects an effective tax rate of 25% and 43%, respectively. For the three months ended March 31, 2024, the effective tax rate exceeded the statutory federal tax rate of 21% primarily due to state and local taxes. For the nine months ended March 31, 2024, the effective tax rate exceeds the statutory federal tax rate of 21% primarily due to discrete items including $64,401 of income tax benefit related to the state tax rate change used to measure the deferred taxes, and income tax benefit of $15,655 related to the nontaxable gain on the repayment of all amounts outstanding under the delayed draw term loan facility (the “DDTL Facility”), partially offset by an increase in the foreign valuation allowance of $29,522.
Current wording
Income tax benefit for the three months ended September 30, 2023 of $90,287, reflects an effective tax rate of 389%. The effective tax rate exceeds the statutory federal tax rate of 21% primarily due to discrete items including $64,401 of income tax benefit related to the state rate change used to measure the deferred taxes, and income tax benefit of $15,655 related to the nontaxable gain on the repayment of all amounts outstanding under the delayed draw term loan facility with MSG Entertainment (the “Delayed Draw Term Loan Facility”).
Previous wording
The following is a reconciliation of operating loss to adjusted operating income (loss) (as defined in Note 16. Segment Information to the condensed consolidated financial statements included in “— Item 1. Financial Statements” of this Form 10-Q) for the three and nine months ended March 31, 2024 as compared to the prior year periods:
Current wording
The following is a reconciliation of operating loss to adjusted operating loss (as defined in Note 15. Segment Information to the condensed consolidated financial statements included in “— Item 1. Financial Statements” of this Form 10-Q) for the three months ended September 30, 2024 as compared to the prior year period:
Previous wording
Adjusted operating income for the three months ended March 31, 2024 increased $80,239 to $61,521. Adjusted operating income for the nine months ended March 31, 2024 increased $117,759 to $55,074. The changes in adjusted operating income were attributable to the following:
Current wording
Adjusted operating loss for the three months ended September 30, 2024 improved $47,687 as compared to the prior year period to $10,194. The changes in adjusted operating loss were attributable to the following:
Previous wording
The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating income (loss) for the Company’s Sphere segment.
Current wording
The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating loss for the Company’s Sphere segment.
Previous wording
For the three and nine months ended March 31, 2024, revenues increased $169,738 and $344,023, respectively, as compared to the prior year periods. The changes in revenues were attributable to the following:
Current wording
For the three months ended September 30, 2024, revenues increased $119,293 as compared to the prior year period. The changes in revenues were attributable to the following:
Previous wording
For the three months ended March 31, 2024, the increase in event-related revenues was due to revenues from concerts. For the nine months ended March 31, 2024, the increase in event-related revenues was primarily due to revenues from concerts and, to a lesser extent, revenues from one marquee sporting event held at Sphere in Las Vegas.
Current wording
For the three months ended September 30, 2024, the increase in event-related revenues reflects higher revenues from concerts, primarily due to a full quarter of concerts held at Sphere in Las Vegas, and, to a lesser extent, revenues from one marquee sporting event and one corporate takeover held at Sphere in Las Vegas during the current year period.
Previous wording
For the three and nine months ended March 31, 2024, the increase in revenues from sponsorship, signage, Exosphere advertising and suite license fee revenues primarily reflects advertising campaigns on the venue’s Exosphere, which began in September 2023, and, to a lesser extent, suite license fee revenues, which reflects the opening of Sphere in Las Vegas on September 29, 2023.
Current wording
For the three months ended September 30, 2024, the increase in revenues from sponsorship, signage, Exosphere advertising and suite license fee revenues primarily reflects (i) higher Exosphere advertising revenues, primarily due to a full quarter of campaigns in the current year period as compared to a partial quarter in the prior year period as a result of the start of Exosphere campaigns in September 2023 and, to a lesser extent, (ii) higher suite license fee revenues, primarily due to a full quarter of venue operations in the current year period as compared to a partial quarter in the prior year period as a result of the opening of Sphere in Las Vegas on September 29, 2023.
Previous wording
For the three and nine months ended March 31, 2024, direct operating expenses increased by $57,880 and $133,023, respectively, as compared to the prior year period. The changes in direct operating expenses were attributable to the following:
Current wording
For the three months ended September 30, 2024, direct operating expenses increased by $54,644 as compared to the prior year period. The changes in direct operating expenses were attributable to the following:
Previous wording
For the three and nine months ended March 31, 2024, the increase in venue operating expenses reflects the opening of Sphere in Las Vegas on September 29, 2023.
Current wording
For the three months ended September 30, 2024, the increase in venue operating expenses reflects a full quarter of venue operations in the current year period as compared to a partial quarter in the prior year period as a result of the opening of Sphere in Las Vegas on September 29, 2023.
Previous wording
For the three months ended March 31, 2024, the increase in event-related direct operating expenses was primarily due to expenses from concerts. For the nine months ended March 31, 2024, the increase in event-related direct operating expenses was primarily due to expenses from concerts and, to a lesser extent, expenses from one marquee sporting event held at Sphere in Las Vegas.
Current wording
For the three months ended September 30, 2024, the increase in event-related direct operating expenses was primarily due to higher expenses from concerts, primarily due to an increase in the number of concerts held at Sphere in Las Vegas as compared to the prior year period, and, to a lesser extent, expenses from one marquee sporting event and one corporate takeover held at Sphere in Las Vegas during the current year period.
Previous wording
For the three and nine months ended March 31, 2024, the increase in direct operating expenses from sponsorship, signage, Exosphere advertising, and suite license fees primarily reflects expenses related to advertising campaigns on the venue’s Exosphere, which began in September 2023.
Current wording
For the three months ended September 30, 2024, the increase in direct operating expenses from sponsorship, signage, Exosphere advertising and suite license fees primarily reflects higher expenses related to advertising campaigns on the venue’s Exosphere, primarily due to a full quarter of campaigns in the current year period as compared to a partial quarter in the prior year period as a result of the start of Exosphere campaigns in September 2023.
Previous wording
For the three and nine months ended March 31, 2024, selling, general, and administrative expenses increased $25,595 and $55,599, respectively, as compared to the prior year periods. The increase was primarily due to higher employee compensation and related benefits, the impact of the Company’s transition services agreement with MSG Entertainment, and other cost increases.
Current wording
For the three months ended September 30, 2024, selling, general, and administrative expenses increased $20,800 as compared to the prior year period. The increase was primarily due to higher employee compensation and related benefits.
Previous wording
For the three and nine months ended March 31, 2024, depreciation and amortization increased $71,667, and $152,438, respectively, as compared to the prior year period primarily due to assets related to Sphere in Las Vegas that were placed in service during the first quarter of Fiscal Year 2024.
Current wording
For the three months ended September 30, 2024, depreciation and amortization increased $67,461 as compared to the prior year period primarily due to an increase in depreciation of assets related to Sphere in Las Vegas that were placed in service at the end of the first quarter of Fiscal Year 2024.
Previous wording
For the three and nine months ended March 31, 2024, the Company recognized restructuring charges of $4,886 and $9,564, respectively, related to termination benefits provided for certain executives and employees, as compared to restructuring charges of $18,670 and $22,757 in the three and nine months ended March 31, 2023, respectively, as a result of the Company’s cost reduction program implemented during Fiscal Year 2023.
Current wording
For the three months ended September 30, 2024, the Company recognized restructuring charges of $883 related to termination benefits provided for certain executives and employees, as compared to restructuring charges of $3,391 related to termination benefits provided for certain executives and employees in the three months ended September 30, 2023.
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Previous report — wording carried elsewhere
The LV Sphere Term Loan Facility and related guaranty by Sphere Entertainment Group include financial covenants requiring MSG LV to maintain a specified minimum debt service coverage ratio and requiring Sphere Entertainment Group to maintain a specified minimum liquidity level. The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31, 2023 on a historical basis and on a prospective basis. Both the historical and prospective debt service coverage ratios are required to be at least
Previous report — wording carried elsewhere
Indenture occurs or is continuing, the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding 3.50% Convertible Senior Notes may declare the principal amount of the 3.50% Convertible Senior Notes to be immediately due and payable.
Previous report — wording carried elsewhere
Based on the impairment test, the Company’s MSG Networks reporting unit had a sufficient safety margin, representing the excess of the estimated fair value of the reporting unit, derived from the most recent quantitative assessment, less its carrying value (including goodwill allocated to the reporting unit). The Company believes that if the fair value of the reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.