Madison Square Garden Sports Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2024

There are 9 speakers on the call.

Operator

Good morning. Thank you for standing by, and welcome to the Madison Square Garden Sports Corp. Fiscal 2024 Second Quarter Conference Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to MSG Sports' Fiscal 20 24 Second Quarter Earnings Conference Call. Our President and COO, David Hopkinson, will begin this morning's call with an update on the company's strategy and operations. This will be followed by a review of our financial results with Victoria Mink, our EVP, Chief Financial Officer and Treasurer. After our prepared remarks, we will open up the call for questions.

Speaker 1

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 forward looking statements within the meaning of the Private Securities Litigation Reform of 1995. Any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.

Speaker 1

The company disclaims any obligation to update any forward looking statements that may be discussed during this call. On Pages 45 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non GAAP financial measure. And with that, I'll now turn the call over to David.

Speaker 2

Thank you, Ari, and good morning, everyone. With the 2023-twenty 24 NBA and NHL seasons now more than halfway complete, I'm pleased to say that our positive operating momentum from last year has carried forward into fiscal 2024. This momentum is reflected in our fiscal 2nd quarter results with revenues of approximately $327,000,000 and adjusted operating income of $37,000,000 While reported results reflect 9 fewer Knicks and Rangers home games at the Garden versus the prior year period. Per game revenues across nearly every key category, including tickets, sweets, food and beverage and merchandise were up compared to the fiscal 2023 Q2. These results highlight the sustained enthusiasm we continue to see from our fans and partners and the strength of our marquee sports franchises.

Speaker 2

It also reflects our ongoing success in executing on opportunities to grow our business including maximizing ticket revenue through season ticket renewals, increases in ticket yield and sell through, introducing new premium hospitality products and forging deeper relationships with our fans. We also continue to benefit from contractual growth in meteorites. With these successful initiatives and numerous avenues for growth ahead, we believe we are very well positioned to create long term value for shareholders. Now let's discuss our business in more detail. Both the Knicks and Rangers have had strong starts to their seasons.

Speaker 2

In December, the Knicks qualified for the quarter finals of the NBA's first ever in season tournament. This was followed by a significant trade for OGN Inovio, Precious Atchuit and Malachi Twin and we've been very pleased with how the team has performed More recently, we were proud to see Julius Randle and Jalen Brunson selected as 2024 NBA All Stars. And for the Rangers just this past weekend Igor Shesterkin, Vincent Trojcek and our Head Coach Peter Labialet represented us in the NHL All Star Game. With a couple of months left to go in the regular season, both teams are in playoff contention We look forward to watching the remainder of the seasons unfold. Complementing strong team performance has been the sustained enthusiasm from our fans.

Speaker 2

As you know, season tickets comprised a significant majority of our ticket revenue. And this season, our average combined renewal rate was above 94%. This is particularly notable as it takes into account a larger renewal base than last year and season ticket price increases for both teams. Combined with group tickets and individual tickets, we saw year over year increases in both average ticket yield and average paid attendance on a per game basis in the fiscal Q2. The enthusiasm from our fans has also been evident at the arena With food and beverage and merchandise per capita spending up almost 10% as compared to the fiscal 2023 Q2.

Speaker 2

In addition to our in arena success, we continue to look for ways to drive deeper fan engagement and build the next generation of fans, including through original merchandise offerings as well as exciting fan experiences and digital content. On the merchandise front, we continue to focus on introducing compelling offerings that our fans value. Whether it's this year's 3rd jersey for the Rangers, There's special edition Jersey for next week's outdoor stadium series game or our exclusive one off collaborations Like with Siegelman Stable for the Knicks and global rock band KITS for the Rangers, our innovative initiatives this season have generated Tremendous fan interest. We also saw robust fan interest when we welcomed 1,000 to the Knicks 20 3, 20 24 season tip-off event at The Garden in In addition to watching the Knicks practice, this free event included a celebrity basketball game and Knicks alumni meet and greets. It also demonstrated how we've been leveraging opportunities to create engaging content for our broader fan community on our digital platforms.

Speaker 2

In total, content covering our season tip-off event generated more than 29,000,000 impressions, including over 18,000,000 video views on social media and digital platforms. We'll continue to look for unique avenues to deliver compelling content to our digital platforms that highlight our players and teams in an effort to forge stronger connections with both our avid and casual fans. Turning to marketing partnerships, we've also brought in a number of new marketing partners so far this season, including Beyond Meat, Pfizer, Nexen Tire and Oura Ring amongst others. At the same time, we continue to benefit from our existing agreements with our strong roster of core marquee and Signature partners. And this path fall to our sponsorship sales representation agreements with MSG Entertainment, we began a new relationship with Oakview Group and Crown Properties Collection that presents new opportunities to expand our sponsorship business over the long term.

Speaker 2

In terms of premium hospitality, this fiscal year we are seeing record suite revenues driven by strong new sales and robust renewal activity as well as the addition of new premium products at the arena. In October, The Garden opens 2 new event level suite products, which have been very well received. The first, An event level suite has already been licensed in a multi year agreement and the second, which is a luxury club space is nearly sold out. We're pleased with our momentum in premium hospitality and remain poised for continued growth in this area of our business. Turning to media rights, we continue to benefit from increases in local and national media rights fees due to ongoing annual contractual rate escalators.

Speaker 2

At the same time, we continue to see enthusiasm from audiences for live sports. The NBA's viewership across ESPN, ABC and TNT remains strong. And with the NBA's national media rights agreements coming up for renewal after the 2024, 2025 season, We remain optimistic about the media rights opportunity ahead. At the local level, both Knicks and Rangers have seen robust viewership trends this season with local ratings for both up double digits compared to the same time last year. Before I turn the call over to Victoria, I'd like to touch on the recent party valuations across our leagues.

Speaker 2

In December, Sportico published its annual ranking of NBA team valuations with the average team value up 33% from last year. That same month, Forbes released its updated NHL team valuations with average team values increasing 29% year over year. These rising third party valuations reflect not only the scarcity of these assets, But the strong underlying business fundamentals and significant growth opportunities for both of our leagues, All of which reinforces our confidence in the value of owning these 2 iconic sports franchises. We're pleased with how our business is performing and remain confident in our ability to deliver long term shareholder value. With that, I will now turn the call over to Victoria.

Speaker 3

Thank you, David, and good morning, everyone. I would like to start by reviewing our fiscal 2024 Q2 financial performance and then provide an update on our balance sheet. Results for the fiscal Q2 reflect pre season play and the start of the 'twenty three-twenty four regular seasons for the Knicks and Rangers. In aggregate, we hosted 32 pre- and regular season games across both teams as compared to 41 games last year, which impacted the year over year comparability of results. I'd also note that our fiscal 3rd and 4th quarters will reflect 9 additional home gains in total as compared to the prior year periods.

Speaker 3

Turning to our results for the fiscal 2nd quarter, Total revenues were $326,900,000 as compared to $353,700,000 in the prior year period, which reflected the impact of fewer home games at The Garden versus the prior year, partially offset by increases across nearly every key revenue category on a per game basis. Event related revenues of $122,400,000 which mainly consists of ticket, food, beverage and merchandise revenue decreased 14% year over year, While suites and sponsorship revenues of $69,300,000 also decreased 14% year over year. National and local media rights fees of $122,500,000 increased 4%, primarily due to the impact of contractual rate increases on our local and national media rights deals. Adjusted operating income decreased 20 $7,400,000 to $37,000,000 primarily due to the decrease in revenues and to a lesser extent, an increase in direct operating expenses, partially offset by lower SG and A expenses. AOI for our fiscal 20 24 second quarter includes $9,000,000 of non cash Arena license fee expense as compared to $12,200,000 in the prior year period.

Speaker 3

The increase in direct operating expenses primarily reflects higher team personnel compensation as well as higher revenue sharing expenses net of escrow. This was partially offset by lower Arena license fee expenses due to the 9 fewer regular season games at the Garden during the current year period and other net cost decreases. The decrease in SG and A expenses was primarily due to lower employee compensation, a result of executive management transition costs recognized in the prior year period and lower other general and administrative expenses. As we look ahead, we continue to expect our business to deliver revenue growth in fiscal 2024, excluding the impact of the playoffs. Our AOI will reflect the growth in revenues along with higher team operations expenses and league related costs.

Speaker 3

Turning to our balance sheet. As of December 31, our cash balance was approximately $38,000,000 And our debt balance was $360,000,000 This was comprised of $275,000,000 under the Knicks senior secured revolving credit facility, $55,000,000 under the Rangers senior secured revolving credit facility and $30,000,000 advanced from the NHL. Our cash and debt balances both reflect a total of $40,000,000 of repayments under our senior secured revolving credit facilities during the quarter. Regarding liquidity, as of December 31, we had $233,000,000 of liquidity comprised of $38,000,000 of unrestricted cash and cash equivalents and $195,000,000 in borrowing under the team's revolving credit facilities. Based on the momentum we have seen in fiscal 2024 and the opportunities ahead to drive long term growth, We remain confident in the trajectory of our business.

Speaker 3

And with that, I will now turn the call back over to Ari.

Speaker 1

Thanks, Victoria. Operator, we would now like to open the call for questions.

Operator

Your first question comes from the line of David Karnovsky from JPMorgan. Your line is open.

Speaker 4

Hi, thanks for the question. First on your RSN distribution, your partner MSG Networks has a material debt maturity coming up in October. And I wanted to see if you think there's a role or opportunity for you to play in that process just given your the largest cost item for them. And then secondly, on the Sphere Jersey Patch Agreement, are there any incremental details you'd be willing to share here, financials, deal length or Maybe even just relative to the prior partnership you had there? Thank you.

Speaker 2

Hi, David. Thanks for the questions. With respect to MSG Networks, if we take a step back, we all know the media landscape is evolving, But we believe strongly in the value of live professional sports content and especially in the case of premium content like the Knicks and Rangers. We're also fortunate that we operate in the nation's largest media market, so that benefits us and MSG Networks. So we have the long term media contracts in place with MSG Networks, the agreements that provide exclusive local distribution of all of our live content, including the digital.

Speaker 2

And they're a great partner of ours. We're supportive of what they're doing on the distribution front, including their new direct to consumer offering MSG Plus. I think MSG Plus allows sports fans in our market that do not currently subscribe through a traditional linear TV package to access live Knicks and Rangers games. So look, we believe having sports rights has proven to be a great investment, especially over the long term and we remain confident in that as we continue to look ahead. Your question on SPHER and the patch, We don't discuss the specifics of any individual margin partnership detail or part of any deal.

Speaker 2

So we're not going to share any details on that. But What I will tell you is that we're proud of this agreement, which brings together 2 globally recognized sports entertainment brands. And we think this creates an exciting partnership right at the intersection of sports and entertainment. Thank you.

Operator

Your next question comes from the line of Brandon Ross from LightShed Partners. Your line is open.

Speaker 5

All right. I'll spare you my trade deadline questions.

Speaker 6

But

Speaker 5

Your stock still trades at a pretty sharp discount to PMV. I know you're bullish about the values of sports teams in the future. But right now, there's a pretty big gap to close. And you definitely have tools to help close that gap. In the past, you've talked about minority sales.

Speaker 5

And last year, you did a pretty successful buyback. Do you intend to employ any of these tools in the near future? And just generally, how do you think about closing that gap in short order?

Speaker 2

Sure. Thanks, Brandon. Yes, you would use the word confident and that's how we feel. And I referenced in my earlier remarks Those 3rd party valuations, which we noticed really affirm our conviction. We agree to you.

Speaker 2

We don't think that our stock price today It probably reflects the value of our assets, which are incredibly scarce, but also with really strong business fundamentals. So specifically, our job is to maximize ticket revenue through season ticket renewals, increases in ticket yield and sell through, Continue to build on renewal and new sales momentum in premium hospitality, while also introducing new premium products like the 2 new event level suites. We've got a new relationship with Oakview Group and Crown Properties Collection to maximize our valuable sponsorship inventory and expand our sponsorship business over time. And we continue to work on focusing on building new And even more direct relationships with our fans is to our we're striving to enhance results across every aspect of our business. Our media rights are strong and continuing to benefit from annual contractual growth, and we talked about an upcoming renewal in the NBA after next season.

Speaker 2

So we're as confident as ever in the value of our teams. You asked about the minority stake sale. And while we would never rule out the possibility of a minority stake sale, I have nothing to report at this time. Victoria, do you want to take that about capital allocation?

Speaker 3

Sure. Good morning, Brandon. So when it comes to how we think about capital allocation and the sort of the disconnect between now our Stock price and the values, our priorities remain the same. First, we want to maintain appropriate liquidity to fund our operations and invest in our core business. 2nd, we want to make sure we have a strong balance sheet.

Speaker 3

And to that extent, we have been prioritizing debt pay down Given the high interest rate environment that we're in, including the $40,000,000 of repayments under our senior secured revolving credit facilities that we did during this fiscal Q2. But 3rd, we plan to be opportunistic about our uses of our cash flow and we'll keep all options open. As you mentioned, last year, we did return $250,000,000 to shareholders Through the $173,000,000 cash dividend and the $75,000,000 accelerated share repurchase program, That leaves us today with still approximately $185,000,000 remaining under our share repurchase authorization. And that's first ever return of capital to our shareholders was really a reflection of the strength of our business and the confidence in the value of the sports franchises as Hop was talking about. And we're pleased to see that positive operating momentum has carried forward.

Speaker 3

We feel really good about our business and the opportunities ahead to continue to drive long term value for our shareholders.

Speaker 5

Excellent. Thank you so much.

Operator

Your next question comes from the line of Logan Angrist from Wolfe Research. Your line is open.

Speaker 7

Thanks for taking the question. I guess first on demand, you mentioned Per caps and per game revenues a little bit. I'm curious, to what extent are you seeing the Knicks and Rangers benefit from strong demand For live entertainment more broadly, and I guess if you could dig in a little bit more into specific per caps or specific kind of revenue sources that are seeing sort of the biggest tailwinds? And then in terms of costs, can you provide any more color On the cost forecast for this year, and do you expect the revenue growth you mentioned to outpace growth in costs? Thank you.

Speaker 2

Thanks, Logan. I'll start and dig in, as you said, on the specifics for the demand and how that's translating into our business. As we said in the opening remarks, we're up across almost every line on a per game basis. But With some granularity here. Ticketing.

Speaker 2

Our average season ticket renewal rate was over 94%. And again, that was on a larger renewable base and with season ticket price increases for both teams. So that's a huge lever For us and as a result, we're seeing growth in overall per game revenue, paid attendance and total ticket yield so far this seasons of this season, pardon me. If I think about suites, We're seeing record revenues from suites driven by both strong new sales and robust renewal activity. And then we're also benefiting from the addition of those 2 new event level suites at the Garden.

Speaker 2

On sponsorship, we've welcomed a number of new partners this year, Joining our strong roster of signature partners and looking to we've also got headroom there. We look to continue to pursue valuable growth opportunities, the Jersey Patch for the Rangers, international sponsorship for the Knicks. We're focused on maximizing The value of these opportunities and that's one of the reasons that we've entered our new relationship with Ophiuch Group and Crown Properties Collection, who we believe will help us expand this area of the business over the long term. We're also really focused on fan engagement and driving deeper relationships with fans results in enhanced performance across every aspect of our business. So things like that 3rd jersey for the Rangers, the special edition jersey that we're going to wear next week at the outdoor game, the NHL Stadium Series, our Stegelman stable collection with the Knicks, The partnership we did, the merchandise partnership we did with KISS, these are all things that excite and engage our fans.

Speaker 2

And One of the reasons that we're experiencing food and beverage and merchandise per capita spending, which is up almost 10% over the same period last year. So we're really bullish on our business for the remainder of this fiscal and beyond? Victoria, do you want to take the second half of that question?

Speaker 3

Sure. Good morning, Logan. So let me talk a little bit about revenue and expenses in this fiscal year. So taking a step back, right, we do expect to again deliver robust revenue growth on a year over year basis, excluding the impact of the playoffs. And as you can see in our Q2 results today, we saw higher average per game revenues across tickets, sweets, food and beverage and merchandise.

Speaker 3

So we're seeing overall positive momentum across our business and expect Now that to continue for the remainder of the fiscal year. Now while we're not providing more specific AOI guidance, As I mentioned earlier, AOI this fiscal year, it will reflect the growth in these revenues. But in addition, there'll be the impact of higher team operation expenses and league related costs. So what that really includes is, number 1, the impact of our current rosters. So as a reminder, the NHL salary caps saw a modest increase from $82,500,000 to $83,500,000 While on the NBA side, the salary cap is increased over $12,000,000 to $136,000,000 this season.

Speaker 3

So in addition to those costs, we are also expecting higher revenue sharing expense and lower projected luxury tax receipts. But with that, based on the momentum we've seen, we remain confident in the trajectory of our business this fiscal year.

Operator

Your next question comes from the line of Paul Golding from Macquarie Capital. Your line is open.

Speaker 8

Thanks so much. Just had a quick question on the ticket sales commentary. You mentioned that combining group and individual Average ticket yields were up in fiscal 2Q year on year. I was wondering if you could break that down a bit more for us just in terms of How group is faring relative to individual in making up that yield comment? And then Secondly, just around sponsorship demand, a similar question for year to date or a balance of the year, any commentary on the mix?

Speaker 8

In other words, where you're seeing the strength come through whether it's signage, ads or otherwise? Thank you.

Speaker 2

Thanks, Paul. I'll talk about the tickets first. So as I mentioned, our average combined renewal rate season ticket packages, this season was over 94%. And again, I think that's really noteworthy considering we had both the large Pardon me, the larger renewal base and season ticket price increases for both teams. We were strong last year where we renewed over 90%, but the 94% is we're really pleased to bet.

Speaker 2

So with the larger season ticket base comes a reduced amount of individual tickets available for sale, but we're seeing both individual and group ticket sales also continue to be really strong. Average paid attendance for groups is up year over year. And overall, including the season tickets, average per game paid attendance is up as well. So our higher overall, we've got a higher overall average ticket yield this year. And I think this is really a combination of the enthusiasm we're seeing from our fans and the continued improvement in tourism here in New York Post pandemic, we just have really good momentum on the ticketing front.

Speaker 2

We're seeing that shine through in the suites as well, where we've got really robust demand from our corporate partners renting suites and licensing those suites in long term agreements. We saw that again and we capitalize on that with the 2 new event level suites we introduced for this season, 1 of which has direct access and one of which has indirect access to the bowl in a luxury sort of a club style suite. The direct access suite we licensed in a multiyear agreement and that club space is almost sold out. I referenced some of the new sponsorships that we have introduced this year, Oura Ring, Pfizer, NexenTire. And our new partnership with Ophi Group and Crown Properties, we believe will help us grow that business even further in the weeks, months and years to come.

Speaker 8

Great. Thanks so much.

Speaker 2

Operator, we have time for one last caller.

Operator

Our final question comes from the line of David Joyce from Seaport Research Partners. Your line is open.

Speaker 6

Thank you. Going back to the upcoming NBA national rates renewal, which should come with a significant step up. Could you please help us understand, what are the incremental flows from that new contract comes to the teams versus to the players? And also, are there other structural changes in the rights, be it local or digital or otherwise that you might expect, perhaps influenced by the issues that some other RSNs are facing? Thank you.

Speaker 3

Great. Good morning, David. So looking at the national the NBA National Rights renewal. So I guess first as a reminder, The current national deals run through the 2024, 2025 seasons. So we're talking about our fiscal 2026 period.

Speaker 3

But in terms of the potential financial impact, so all teams across the league will share equally in any potential increase in the national media rights fees. But as you know and you alluded to the players also receive fees and that therefore would include any potential increase there. And regarding the sort of the second part of your question there, And I think that Top has talked about too. It's clear that the media landscape is evolving and we continue to believe in the value of live professional sports content and we expect the NBA will maximize that opportunity. But specifically in terms of local rights, As you know, we have long term contracts in place with MSG Networks and those contracts run through the 2,034, 35 seasons, So about 11 years left.

Speaker 3

Yes, so that's where our games will be shown locally.

Speaker 2

All right. Thank you.

Operator

This concludes our question and answer session. I will now turn the call back over to Mr. Ari Danes for some closing remarks.

Speaker 1

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

Powered by Quartr
Earnings Conference Call
Madison Square Garden Sports Q2 2024
00:00 / 00:00