Madison Square Garden Sports Corp. Reports Fiscal 2021 Second Quarter Results

Madison Square Garden Sports Corp. (NYSE: MSGS) today reported financial results for the fiscal second quarter ended December 31, 2020.

In the fall, the NBA and NHL successfully completed their 2019-20 seasons. Since then, the NBA announced a 72-game, 2020-21 regular season, which started on December 22, 2020. During the fiscal 2021 second quarter, the New York Knicks’ ("Knicks") played nine pre/regular season games as compared to 37 pre/regular season games in the prior year period. The Knicks’ four home games at Madison Square Garden Arena ("The Garden”) during the fiscal 2021 second quarter were played without fans due to ongoing government-mandated assembly restrictions. The NHL announced a 56-game, 2020-21 regular season, which began on January 13, 2021. As a result, the New York Rangers ("Rangers”) did not play any games during the fiscal 2021 second quarter, as compared to 39 regular season games in the prior year period.

For the fiscal 2021 second quarter, financial results reflect the impact of the COVID-19 pandemic, including the timing of the start of the 2020-21 NBA and NHL regular seasons and fan attendance restrictions at The Garden. As a result, the Company generated revenues of $28.8 million, a decrease of $264.0 million, or 90%, as compared to the prior year period. In addition, the Company reported an operating loss of $38.4 million and an adjusted operating loss of $19.0 million, as compared to an operating loss of $0.2 million and adjusted operating income of $19.0 million in the prior year period.⁽¹⁾⁽²⁾

Madison Square Garden Sports Corp. President and CEO Andrew Lustgarten said, "We are excited to have the Knicks and Rangers competing again and look forward to the time when we can safely welcome fans back to The Garden. As we prepare for a return to normal operations, we remain confident in the fundamentals of our business, the strength of our balance sheet, and that we are well-positioned to create long-term shareholder value.”

Results from Operations

Results for the three and six months ended December 31, 2020 and 2019 are as follows:

Note: Does not foot due to rounding

Summary of Reported Results from Continuing Operations

Fiscal 2021 second quarter revenues of $28.8 million decreased $264.0 million, or 90%, as compared to the prior year period, primarily driven by the absence of pre/regular season ticket-related revenues and suite license fee revenue as well as a decrease in local media rights fees from MSG Networks, league distribution revenues, and sponsorship and signage revenues.

Pre/regular season ticket-related revenues decreased $108.7 million and suite license fee revenue decreased $28.2 million, both as compared to the prior year period, as a result of fans being prohibited from attending events at The Garden.

Local media rights fees from MSG Networks decreased $47.2 million and league distribution revenues decreased $37.3 million, both as compared to the prior year period, primarily due to the timing of the start of the 2020-21 NBA and NHL regular seasons.

Sponsorship and signage revenues decreased $23.8 million as compared to the prior year period, due to the timing of the start of the 2020-21 NBA and NHL regular seasons, the impact of fans being prohibited from attending events at The Garden, and the spin-off of MSG Entertainment, which impacted the comparability of results on a year-over-year basis.⁽³⁾

Direct operating expenses of $16.7 million decreased $181.1 million, or 92%, as compared with the prior year period, primarily due to the timing of the start of the 2020-21 NBA and NHL regular seasons and the impact of fans being prohibited from attending events at The Garden. Team personnel compensation decreased $88.7 million, other team operating expenses decreased $36.9 million, and net provisions for league revenue sharing expense (net of escrow) and NBA luxury tax decreased $28.4 million, all as compared to the prior year period.

Selling, general and administrative expenses of $48.9 million decreased $41.4 million, or 46%, as compared to the prior year period. This was primarily due to lower corporate overhead costs, which in the prior year period included certain corporate expenses that the Company has not incurred since the spin-off of MSG Entertainment and does not expect to incur in future periods, but which did not meet the criteria for inclusion in discontinued operations.⁽²⁾

Operating loss of $38.4 million increased $38.2 million while adjusted operating income decreased by $38.0 million to an adjusted operating loss of $19.0 million, both as compared with the prior year period. This primarily reflects the decrease in revenues, partially offset by lower direct operating expenses and, to a lesser extent, a decrease selling, general and administrative expenses.

Other Matters

As of December 31, 2020, the Company had $290.8 million of liquidity, comprised of the following components:

• $70.8 million of cash and cash equivalents;
• $55 million in borrowing capacity under the Knicks senior secured revolving credit facility;
• $90 million in borrowing capacity under the Rangers senior secured revolving credit facility; and
• $75 million available under the Knicks Holdings unsecured revolving credit facility.

As of December 31, 2020, total debt outstanding under the Company's Knicks and Rangers senior secured revolving credit facilities was $380 million. In addition, the Company's deferred revenue obligations as of the end of the fiscal 2021 second quarter were approximately $206 million, net of billed, but not yet collected deferred revenue, as compared to approximately $127 million as of September 30, 2020. The increase was primarily due to local and national media rights payments related to the 2020-21 NBA and NHL seasons, as well as $30 million from the NBA, which the league provided to each team following the completion of its $900 million private placement in December 2020. The majority of the deferred revenue balance was comprised of local and national media rights, tickets, and suites, all of which will be addressed through games played and, to the extent necessary, through make-goods, credits and/or refunds.

About Madison Square Garden Sports Corp.

Madison Square Garden Sports Corp. (MSG Sports) is a leading professional sports company, with a collection of assets that includes: the New York Knicks (NBA) and the New York Rangers (NHL); two development league teams – the Westchester Knicks (NBAGL) and the Hartford Wolf Pack (AHL); and esports teams through Counter Logic Gaming, a leading North American esports organization, and Knicks Gaming, an NBA 2K League franchise. MSG Sports also operates two professional sports team performance centers – the MSG Training Center in Greenburgh, NY and the CLG Performance Center in Los Angeles, CA. More information is available at www.msgsports.com.

Non-GAAP Financial Measures

We define adjusted operating income (loss), which is a non-GAAP financial measure, as operating income (loss) excluding (i) deferred rent expense under the Arena License Agreements with MSG Entertainment, (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, and (vi) the impact of purchase accounting adjustments related to business acquisitions. Because it is based upon operating income (loss), adjusted operating income (loss) also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of our business without regard to the settlement of an obligation that is not expected to be made in cash. We believe that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance.

We believe adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of our Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze our performance. Internally, we use revenues and adjusted operating income (loss) as the most important indicators of our business performance, and evaluate management’s effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles ("GAAP”). Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. For a reconciliation of operating income (loss) to adjusted operating income (loss), please see page 5 of this release.

Forward-Looking Statements

This press release may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors, including financial community and rating agency perceptions of the Company and its business, operations, financial condition and the industry in which it operates, the impact of the COVID-19 pandemic and the factors described in the Company’s filings with the Securities and Exchange Commission, including the sections titled "Risk Factors” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The Company disclaims any obligation to update any forward-looking statements contained herein.

Conference Call Information:

The conference call will be Webcast live today at 10:00 a.m. ET at investor.msgsports.com
Conference call dial-in number is 877-347-9170 / Conference ID Number 5598615
Conference call replay number is 855-859-2056 / Conference ID Number 5598615 until February 10, 2021

ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS) TO
ADJUSTED OPERATING INCOME (LOSS)

The following is a description of the adjustments to operating loss in arriving at adjusted operating income (loss) as described in this earnings release:

• Deferred rent. This adjustment eliminates the impact of the non-cash portion of lease expense associated with the Arena License Agreements with MSG Entertainment.
• Depreciation and amortization. This adjustment eliminates depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets in all periods.
• Share-based compensation. This adjustment eliminates the compensation expense related to restricted stock units and stock options granted under the Company's employee stock plan and non-employee director plan in all periods.
• Restructuring charges. This adjustment eliminates costs related to termination benefits provided to employees as part of the Company's full-time workforce reduction in August 2020.
• Purchase accounting adjustments. This adjustment eliminates the impact of various purchase accounting adjustments related to the CLG acquisition.

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