Q4 2020 Madison Square Garden Sports Corp Earnings Call
Good morning, My name is Christine there'll be your conference operator today.
At this time, we would like to welcome everyone to the MSG sports fiscal 2024th quarter and you're in earnings Conference call.
Later, we will conduct a question and answer session.
If you would like to ask a question at this time simply press Star then the number one on your telephone keypad.
To withdraw your question press the pound key.
I would now like turn the call ever to Ari Danes Investor Relations. Please go ahead Sir.
Thank you Christine.
Good morning.
And welcome to MSG sports fiscal 2024th quarter, and yearend earnings Conference call.
Our president and CEO, Andy Lustgarten will begin this morning's call with an update on the company's operations.
This will be followed by a review of our financial results with Victoria Banks are easy P Chief Financial Officer and Treasurer.
After our prepared remarks, we will open up the call for questions.
If you do not have a copy of today's earnings release. It is available in the Investor section of our corporate web site.
Please take note of the following.
Today's discussion may contain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990 fives.
Investors are cautioned that any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties.
And that actual results developments and events may differ materially from those in the forward looking statements as a result of various factors.
These include financial community perceptions of the company and its business operations financial condition and the industry in which it operates.
As well as the factors described in the company's filings with the Securities and Exchange Commission.
Including the sections entitled Risk factors, and management's discussion and analysis of financial condition and results of operations contained therein.
The company disclaims any obligation to update any forward looking statements that may be discussed during this call.
Okay, just four and five of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or alewife, a non-GAAP financial measure.
And with that I'll now turn the call over to Andy.
Good morning, and thank you for joining us.
Our first several more months as a Standalone sports company.
I've been in the Miss something extremely difficult period.
Which has seen sports the season suspended.
Irene that's close to fans due to cope with 19 pandemic.
And while the path ahead will be challenging.
I remain confident that we have financial flexibility to whether these unprecedented times.
And we continue to believe that creating a pure play sports company better highlights our premium assets and sets the stage for long term value creation.
Our company owned some of the most recognized franchises in professional sports.
Including the New York next in New York Rangers, There to development teams, the Westchester next and Hartford Wolfpack.
Next gaming in India to K leak franchise, and counter logic gaming North American Sports organization.
I'd like to share more about why we think these assets uniquely positioned MSG sports for long term growth and value creation.
But let me start by discussing how we're now beginning our business through the current environment Dnbi <unk> NHL suspended their 1920 regular seasons in March at the time of the hate US our teams that are already played it the vast majority of their regular season games.
With the Rangers missing 12 dams, including five at home.
The next missing 16 games, including eight at home.
Since then.
Hopefully have resumed play.
Well. The next went all part of the abuse restart in Orlando The Rangers did participate in the NHL to return in Toronto and.
And although we were disappointed with the outcome of the Rangers qualifying round series against the Hurricanes.
We're excited about the teams future.
Especially with US winning the first pick the lottery earlier this week.
We look forward to seeing a back on the likes next season.
We've been very encouraged by the public's response to the return of the Nbn NHL.
Which reflects the significant pent up demand for watch sports.
We've also seen the effects of this demand closer to home.
The Rangers renewal process began in March.
We're pleased to report that so far over 80% of the Rangers season ticket holders have renewed for the upcoming season.
Clearsign got Rangers fans want to see their key not the garden.
In terms of the next we started our renewal process at the end of June.
Which is much later than usual.
And while still early we've been pleased with the demand given the current environment.
Looking ahead, we are confident in the long term outlook for both the leagues and our teams.
However, given the level of uncertainty due to colder 19, we're managing our business with an eye towards reducing expenses and conserving liquidity until we're able to resume our regular operations.
As of June Thirtyth.
At over $290 million in liquidity between cash on hand, and availability under our credit facilities.
Oreo will provide more detail shortly.
In the endearing on NHL seasons were suspended in March we immediately realized cost savings since our teams, we're no longer competing including adjustments to player compensation.
Over the past several months, we closely reviewed our entire cost structure and have taken measures, including cuts to discretionary spending.
Followed last week by a reduction in our head count.
While these decisions were difficult when you believe they were necessary and will enable us to better preserve cash during this challenging time.
At the same time, we continue to thoughtfully work through our deferred revenue obligations related to Knicks and Rangers games that were not please.
To give our season ticket holders flexibility.
We offered to them and number of options.
Including a full refund or credit towards next season.
And we have been in close contact with our corporate partners as we work together to find mutually beneficial solutions.
You can be a in NHL continue to assess the best path forward for the 2021 seasons.
And with the successful returning to the N.B. Riley and NHL seasons, and bubble format. We're optimistic that we will a basketball in hockey next year.
I would also reiterate that we have significant liquidity available to us.
Our sports franchises are extremely valuable assets with considerable pent up demand and strong long term prospects.
And we're confident that we have financial flexibility to navigate through this challenging time.
Before I return things to the trick Toria I'd like to discuss why we remain confident in our company's future.
MSG sports provides investors with a rare opportunity to own irreplaceable and enduring assets.
With only 30 and be a 31 NHL teams there were significant scarcity value associated with these franchises.
Especially those that play in large markets.
The value of our teams is further supported by strong lead fundamentals.
Which in recent years.
I've included record attendance levels for the N.B. I mean NHL.
As well as ever increasing global interest.
The popularity of the leagues has driven ongoing expansion both domestically and internationally.
Beginning with the 21 22 season.
NHL will welcome a 32nd team to Seattle.
With an ownership group that will pay a record 650 million expansion fee.
It will be divided equally among 30 of the NHL 31 teams.
The Knicks and Rangers also benefit from being based in New York, The Nations largest media market and having 35 year agreements to play their home games at Madison Square Garden.
World's most famous arena.
And while we're currently navigating through a period of uncertainty our business has historically benefited from substantial recurring revenue streams.
This includes media rights.
15 years remaining on our local media rights agreements with MSG networks.
We are also a pro rata recipient of revenues from League media deals.
This includes multi year agreements on the and be inside with Disney.
And Warner Media.
And at the NHL with Rogers Communications.
You NHL also has the U.S. national media deal with NBC Universal that expires next year.
We believe this will be an opportunity given the continued demand for live sports and the long term visibility for rights holders.
NHL recent CBVA extension to 2026.
Sponsorship and suites are also important revenue streams.
For our company and are generally contracted on a multi year basis.
As part of Arena license agreements with MSG Entertainment, we received significant percentage as a shared in arena sponsorship and signage and suite license revenue.
Starting with sponsorships.
We entered into a 10 year agreement with MSG Entertainment at the time of the spin off that enables us to continue to benefit from being part of a broader sports and entertainment media offerings.
The majority of our sponsorship revenue comes from our marquee and signature partnerships with globally renowned brands such as JP Morgan Chase.
They are Bush Delta Airlines, Draftkings, Qia, Lexus and Squarespace.
In addition through see LG and an excuse me.
We are able to introduce both our existing marketing partners as well as new brands to the exciting World you sports, which has a global fan base that primarily consists of millennials and generations.
Tickets are another significant revenue stream.
The majority of our teams revenue is derived from full and partial season plants, where we benefit from having loyal fan basis.
On average renewal rate has been over 90% per each of the past five seasons.
In addition, but the Knicks and Rangers have continually ranked in the top three of their respectively UBS.
For ticket sale receipts.
As we look out over the long term of MSG sports, we see a number of for opportunities to accelerate our overall growth rate.
These include improved team performance and play out participation.
We've strengthened the next with the hiring of Leon Rose as President and William Wesley as Executive Vice President senior about what visor.
And most most recently we were excited to announce Tom Thibadeau as head coach.
Who is already welcomed the first some number of his stuff.
University of Kentucky can you paying at a new assistant coach for the next.
Over the next four years, the Knicks and Rangers have seven five first round draft picks respectively, including two each in the upcoming NBC in NHL dress.
These techs will allow us to build on our existing young core of town to players.
We also believe the continued legalization of sports gaming, we drive increased fan engagement and having a meaningful impact on our in venue business.
In addition media rights renewals remain an opportunity.
As press reports of major League baseball as renewal Turner sports, citing a significant premium continue to remind us how valuable sports rights Archer distributors.
As I mentioned earlier NHL has the U.S. National media rights agreement that expires after the 2021 season and a Canadian media deal that expires after the 25 26th season.
The NVS media agreements expire after the 24 25 Susan.
I'd like to conclude by saying that this is certainly a difficult into uncharted time, but again, we believe it is one that we can navigate through successfully.
I want to thank our fans employees partners and shareholders for the continued support.
I know, we all look forward to the day when we can once again gather together to cheer on our teams.
And with that I'll turn the call over its Victoria.
Thank you Andy and good morning, everyone.
In light of the current uncertainty around how the upcoming seasons will look I'd like to start by providing an update on our company's liquidity position.
As of June Thirtyth, total cash and cash equivalents.
And at least $78 million.
In addition to our cash balance we have $215 million in borrowing capacity between our delayed draw term loans.
See entertainment and I were 15 million dollar unsecured New York next revolving credit facility.
Our 350 million dollar Knicks and Rangers senior secured revolving credit facilities remain fully drawn.
As a reminder, the 200 million dollar delayed draw term loans were put into place to provide a short term source of liquidity in light of the cobot 19 pandemic.
These loans mature in October 2021.
As we continue to monitor the operating environment, we are assessing our options.
Moving potentially seeking a longer term source of financing as an alternative to the delayed draw term loan.
With regard to our deferred revenue obligations as of June Thirtyth.
Our current balance was approximately $126 million.
This amount approximately $61 million was related to the 1920, India in NHL seasons.
This includes approximately $42 million associated with National media rights fees.
Based on the completion of the 1920 seasons, we would recognize these rights fees in the first quarter fiscal 21.
In this morning's earnings release.
And as you will see in more detail in our 10-K, which we expect to file later this month.
Our financial results for the fiscal 24th quarter reflect a number of item.
Including the impact of the India in NHL seasoned suspension as.
As well as discontinued operations accounting for the period through April 17, 2020, which was the entertainment spin off day.
The results for the post spin period through the end of the quarter represent our company on a standalone basis.
While the impact of Cobot 19 on our industry will likely continue for some period of time I'd like to take a few minutes to discuss what our financial results look like on a pro forma basis in fiscal 2019, the last full fiscal year before the pandemic.
As we disclosed in a form 8-K filing with the FCC on April 23 2020.
And in this morning's earnings release for fiscal 2019 on a pro forma basis, MSG sports generated $695 million in revenue and $96 million in adjusted operating income.
These pro forma results reflect the spin off of the entertainment and sports booking businesses and the various agreements between our company and MSG Entertainment.
As Andy noted a substantial portion of our revenue is contracted on a multi year basis.
When we look at our fiscal 2019 revenue nearly $240 million was for media rights fees and this along with sponsorship and suite license fees comprised well over half of total revenues in fiscal 2019.
The remainder of our revenue base is primarily ticket related.
And because full and partial season tickets represent the majority of this revenue stream, we typically have strong visibility visibility for the year before we even play the first game of each season.
With regard to operating expenses.
There's a significant amount of potential variability.
Including related to the level of revenues generated by our teams and lead.
This is the case for our largest expense line item team personnel compensation and revenue sharing.
Our other similar example.
Such as the assessment, we paid to the MBJ based on 6% of regular season ticket sales.
In addition.
We have entered into 35 year arena license agreements for the Knicks and Rangers typically their home games at the garden.
On a pro forma basis for fiscal 2019. This amount was comprised of a cash component of $38 million, which grows 3% per year.
On a non cash component of $30 million.
Since the garden is currently closed due to the pandemic we are not currently paying these licensees.
Once the garden is made available to us.
If capacity is limited our fees will be reduced by up to 80% depending on the capacity constraints.
With respect to FG and H extend as Andy discussed we focused on various cost saving measures and last week, we reduced our business operations and admin workforce by approximately 15%.
I would note that as our business returns to normal operations, we would look to bring back many of these positions.
In summary, although cobot 19 has had a significant impact on our company. We're confident that our business is well positioned to whether this period of uncertainty and generate long term growth and value creation for our shareholders.
With that.
Now turn the call back over to Ari.
Thanks, Victoria.
Christy can we open up the call for questions. Please.
Certainly as a reminder, if he would like to ask a question Press Star then the number one on your telephone keypad.
Your first question is from John Janedis up Wolfe research.
Thank you add to your point I think where I was hopeful that we have asked the ball in hockey next season, two so hopefully that works out but as we look out to next season, though it seems like there's a high probability that they'll be little to no fans and I know it was touched on in terms of lot of moving pieces, but can you walk us through how this impacts.
The revenue lines and impacts cost and that's an area. Thanks.
Let me give it a high level and over the past sort of a Tory with interest from the details.
Of course, we want to be back in the building next year I'm in front of found since obviously our first.
Our first desire, but we're only going to do that under one scenario one that that it's safe to say for fans safer players and stay for a stuff.
And so I'll tell you were looking out a lot of scenarios.
Everything from no fans to full buildings and in between.
No. Obviously, if we have no fans are revenues are going to come down pretty substantially.
[music].
Right. It's we will still have or media rights revenue to recognize.
Signage sponsorship tickets.
You know those those will be.
Obviously impacted I can tell you the leagues have been great cert currently in the bubbles trying to find new opportunities to generate revenue.
With signage new new locations.
We'd expect something like that because we look towards the future.
And then of course, there some of our expenses will come down their variable based on games, such as players and they became expenses, but Detroit once you take fixed or the come to us.
Sure Hi, John So let me provide a little more color on the revenue side. We would you know of course not received revenue related to tickets sweep food beverage and merchandise soul of art in arena business, but at the seasons are played in broadcast we would expect to receive.
Our local and national media rights fees, which represent approximately $250 million in our annual revenues.
I must sponsorship revenue would be reduced we would still likely recognize revenue from certain of our agreements for example related to the broadcast exposure certain partners received a as well as you know for example, the N.B.A. Jersey spat Pat sponsorship.
In addition in fiscal 2021, it's somewhat of a unique year. Since we also expect to receive our pro rata share of the NHL expansion fee related to the new Seattle franchise.
No, but on the expense side, our single largest expense item as player compensation. The NHL recently extended CBD.
Which is what some in sort of helpful terms and the MBA, we're still waiting for some guidance there but.
Yes to the extent early arena license fee payments to the garden. It would be impacted if were unable to play in front of fans.
And since the garden is currently close to do that a pandemic were not currently paying these licensees.
If the garden is made available to us but capacity is limited our fees would be reduced by up to 80% depending on the capacity constraints.
I guess, there's also a number of reductions across additional areas of expense, including our revenue sharing legal league assessments and of course day of game costs and marketing expenses.
So I hope this color that I provided is helpful.
Very helpful. Thank you.
Thank you. Your next question is from Brandon Ross of light shed partners.
Hey, guys. Thanks first of a follow up to John last question can you just summarize what the cash burn rate is kinda in between seasons and then assuming there were no fans to start the season next season, what what the <unk> you would expect the.
Cash burn rate to look like that.
And then on the job cuts.
What percent of those do you foresee being permanent or efficiencies you found and.
If some of them are temporary why not do furloughs instead of full cuts and then I have one for Randy after.
Sure Okay.
Okay brand and so I.
I guess is regarding cash burn in some more overall liquidity Hill was we operate in this period of uncertainty we're carefully considering and planning for a range of scenarios with respect to our 2021 seasons, you know and as you'd imagine we're very focused on cost reduction and cash.
Conservation.
We recently implemented these cost cutting measures measures.
That will help us preserve additional cash as we continue to navigate through this period of uncertainty in on a sort of as we mentioned what we reduced our workforce by approximately 15% in our business operations and admin area. We're carefully reviewing any potential new hires going forward, we've reduced view since third party vendors and.
Additional cuts to discretionary spending.
But just as a reminder, at fiscal year end, we had over $290 million of liquidity.
This included capacity under our delayed to a term loans, which were put in place for this exact purpose as a short term source of additional liquidity.
Given the impact of Cobot 19, and they said it if it continues into next season.
Looking ahead, we'll continue to monitor the operating environment and assess our options. For example, we may seek a longer term source of financing as an alternative to the delayed draw term loans.
And at the end of the day, our sports franchises are extremely valuable assets with strong long term growth.
Confident that we'll have the financial flexibility to navigate through this challenging time.
Yeah, but whether or not our cost reductions a permanent I guess I can say that you know like other companies. We've been focused during this time on how we can operate more efficiently.
So we'll be able to realize some savings as a result of it.
But you know many of we do anticipate many of our many of the positions that we had two unfortunately eliminate we do anticipate them coming back as our business returns to normal operations.
Specifically, we need to hire back to the extent, we need to drive revenue and deliver great experiences for our guests seven and for our players.
Got it and then just for Andy I know your contract with Chase is up very shortly is there anything to report there on those negotiations say I know recent sponsorship numbers, including in Seattle have been pretty encouraging just your thoughts there.
Granted thanks.
Well at the highest level at the start we don't really comment or we don't comment on any individual agreements than our policy.
I will say over with chase.
They've been a long time.
Great partner of ours.
I believe they understand the value, we bring and we incredibly value their partnership.
And this relationship has been very strong.
I can't really give you much more than that right now but.
So.
I think that's either Brandon.
Okay no problem. Thank you.
Thank you. Your next question is from Ben Swinburn of Morgan Stanley.
Thanks, Good morning.
Just going back to the balance sheet Victoria.
Any thing you can tell us about plans around the term loan b. The revolver is at the Knicks and Rangers I think they mature in the next I think it's 12 18 months.
Just any plans and may be term those out and remind us if there's any restrictions that the league sets on on debt levels as those teams.
On the franchise is just as we think about ability to raise more capital.
And then I had two for Andy one is whether or not a a bubble is under consideration bubble approach for this upcoming season.
And if so what that might mean to the financials.
And then you mentioned in your remarks, any about sports betting and you talked about benefiting the in venue business and.
Sports betting is continuing to happen now during the covert periods or at least that's going on I'm wondering if you could just update us on your thoughts around that opportunity for the company, especially based on what we've seen so far over the last couple of weeks and months.
Given the return of sports would be great.
Sure been so let me let me address your debt question.
Yes, so yes, the Knicks senior secured revolver matures in September 21, and the Rangers matures in January of 22, So yes regarding the Knicks all its still early we expect to begin to the refinancing process for that next facility in the near term and with the ranges would be following thereafter as you know ours.
Sports franchises are extremely valuable assets and I carry a relative small amount of debt relatively small amount of debt as compared to the estimated values.
We have strong relationships with our bank group and expect to be able to secure successfully refinanced these credit facilities in the ordinary course.
Are delayed draw term loans are also available to us and they were intended to be a short term source of liquidity and you know, but as I mentioned earlier, we continue to monitor the operating environment and our assessing our options, including potentially seeking a longer term source of financing as an alternative to the delayed draw term loans.
Any restrictions from the league that we should be keeping in mind, there was the amount of money or that you're able to raise [laughter].
So the leads have approved you the delayed draw term loans, which is the additional 200 million dollar the availability in and around those loans seem to there are some parameters there with the delayed draw.
Well, we would first have to secure commercially reasonable.
Used commercially reasonable efforts to raise you know alternative debt financing.
But we of course.
There are restrictions ethylene Kevin place, but were clear this 200 million.
Gotcha. Thank you just system and on that I will say the leagues have shown willingness to understand where we are and work through leavers to policy is both with Austin with other as we can see weather delayed draw term as well as with other Kim so understanding whats the uncertainty in the market.
Sure. Thanks, since then I'd expect them to work when I'd expect them to work with us as well.
[noise], great anything on a bubble or and sports betting and you can add.
Absolutely.
Well, but public question I'd like to.
Every we're looking at every.
Many different scenarios on the leagues, you're looking through many scenarios, but everyone is focused on one scenario, which is being with our fans in the building, but in a safe and.
Secure manner.
It's hard to go in any more detail than that I'm not sure. Obviously you got to look at you Gotta look through <unk> look at every opportunity actually.
In terms of sports betting I only mentioned in venue.
Just because I do think is a big opportunity there, but I think there's also an opportunity I'm in a market we talked about this many times, we we love.
What sports gaming does for sport and just on its face if I didn't make a dollar from partnerships or from any direct.
Or any other.
The direct revenue from gaming I still we would still love the on the business. It's I mean encourages engagement.
It drives.
Tune it drives in the venue.
Then add in the facts.
When people, we will have the opportunity to monetize through various means you know you've already seen already through drafting partnership store clearly.
And.
Things just a market that's growing.
In venue and maybe you've noticed.
Just what's gone on recently in Washington DC.
They open at the capital one arena they opened a book within the building that will benefit both the building the teams.
No.
Hopefully I can say something after being on table.
And we look across the river to New Jersey, where.
The sportsbook, there's the at the metal in Florida and the country.
So we know there's a huge opportunity.
And it's.
That's just a question of timing.
Excellent and.
Thanks is a really.
Really big opportunity for us.
Okay. Thank you.
Thanks, Dan Christy well take one last caller please.
Certainly your final question is from John Belton of Evercore.
Hi, good morning, it seems to tell on for John Belton.
Could you share any thoughts around how has endemic impacted your core view around E sports universe, and kind of any longer term implications.
Around that.
Sure.
Oh, you sports universe.
The.
Well the benefit of these words right now it seems it's it's not all of them a fixed location in venue business. There are opportunities here and there for to more as a booking type of a business right, but the championships rig I know when it's it's more of a media play.
And the eyeballs are off and so.
When we took in its very millennial focused whose people are spending more and more time on line.
Or on TV and you sports plays right into that.
The eyeballs just keep on growing and it's something that we need.
We feel bullish for long term as.
We've begun to figure out how to turn those eyeballs into <unk> dollars.
And we think.
We just we think that's just going to keep on going so thank you.
Thank you would that I will turn the call back over to Ari dates for any additional or closing remarks.
Thanks, Christy and thank you all for joining US we look forward to speaking with you on our next earnings call have a great day.
Thank you. This does conclude today's conference call you mean.
Correct.