Q2 2024 Sphere Entertainment Co Earnings Call
Operator: The Ultimate Parody Site! Good morning, and thank you for standing by, and welcome to the Sphere Entertainment Co. Fiscal 2024 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.
Yeah.
Good morning, and thank you for standing by and welcome to the sphere Entertainment co fiscal 'twenty 'twenty four second quarter earnings 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 I would now like to turn the call over to Ari Danes Investor Relations. Please go.
Operator: After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Ari Danes and Vesta Relations. Please go ahead.
I had.
Ari Danes: Thank you. Good morning, and welcome to Sphere Entertainment's Fiscal 2024 Second Quarter Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on Sphere. This will be followed by an update from Andrea Greenberg, President and CEO of MSG Network. And then Dave Burns, our Executive Vice President, Chief Financial Officer, and Treasurer, will conclude with a review of our financial results for the period. 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 investors section of our corporate website.
Thank you.
Good morning, and welcome to sphere entertainments fiscal 2024 second quarter earnings Conference call.
Days call will begin with our executive Chairman and CEO, Jim Dolan, who will provide an update on sphere.
This will be followed by an update from Andrea Greenberg, President and CEO of MSG networks.
And then Dave Burns, our executive Vice President Chief Financial Officer, and Treasurer will conclude with a review of our financial results for the period.
After our prepared remarks, we will open up the call for questions if.
If you do not have a copy of today's earnings release. It is available in the investors section of our corporate website.
Ari Danes: Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 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 statement.
Please take note of the following.
Today's discussion may contain forward looking statements within the meaning of the private Securities Litigation Reform Act 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.
Ari Danes: Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On pages 5 and 6 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or a non-gap financial measure. And with that, I'll now turn the call over to Jim. Thank you, Ari, and good morning everyone.
Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.
The company disclaims any obligation to update any forward looking statements that may be discussed during this call.
On pages five and six of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or non-GAAP financial measures and with that I'll now turn the call over to Jim.
Thank you Ari and good morning, everyone. As we said from the very start the vision for sphere was to create a next generation medium that would disrupt the traditional venue model.
Jim Dolan: As we said from the very start, the vision for Sphere was to create a next-generation medium that would disrupt the traditional venue model. Now, with our first full quarter of operations in Las Vegas behind us, we can see from our results that our thesis is starting to play out. With Sphere, we wanted to design a venue that would be busy 365 days a year with multiple events per day. During the second quarter, we sold more than 1 million tickets to over 200 events. This volume is two to three times greater than what you would typically see from the busiest arena-sized venues in the world.
Now with our first full quarter of operations in Las Vegas behind US we can see from our results that our thesis is starting to play out.
With sphere, we wanted to design a venue that would be busy 365 days a year with multiple events per day during.
During the second quarter, we sold more than 1 million tickets to over 200 events.
This volume is two to three times greater than what you would typically see from the busiest arena sized venues in the world.
Jim Dolan: Our original content category, the Sphere Experience, drove this volume, grossing more than $1 million in average daily ticket sales at a high margin. While the Sphere Experience is our key economic engine, residencies will continue to have an important place on our event calendar. High-profile residencies are not only profitable, they generate awareness for Sphere and other events at the venue. U2's sold-out extended run is a great example.
Our original content category the sphere experience drove this volume grossing more than $1 million in average daily ticket sales at a high margin.
While the spear experience is our key economic engine residencies, we'll continue to have an important place on our event calendar.
High profile residencies are not only profitable they generate awareness for sphere and other advanced at the venue.
Youtube is sold out extended run is a great example.
We've also had strong demand from advertisers who have been quick to recognize the unique value of the XO sphere.
Jim Dolan: We've also had strong demand from advertisers who have been quick to recognize the unique value of the Exosphere. And in November, we demonstrated what Sphere can do for corporate partners through our collaboration with Formula One. With strong results from both events and advertising, our Sphere business segment generated positive adjusted operating income for our second quarter. This is an important financial milestone, demonstrating that the Sphere business model can be both profitable and self-sustaining. We know that this is just the first of many milestones to come as we continue to build our platform into a global entertainment and technology company. As we continue to learn more about our audience, we will refine our business model to maximize revenue opportunities. We will keep investing in technology, intellectual property, and content as we look to stay on the cutting edge of immersive experiences. Our plan is to monetize these investments not only at our Las Vegas venue but over time across multiple platforms. This includes a network of Sphere venues around the globe.
And in November we demonstrated what sphere can do for corporate partners through our collaboration with Formula One.
With strong results from both events and advertising our sphere business segment generated positive adjusted operating income for our second quarter.
This is an important financial milestone demonstrating that the sphere business model can be both profitable and self sustaining.
We know that this is just the first of many milestones to come as we continue to build our sphere into a global entertainment and technology company.
As we continue to learn more about our audience, we will refine our business model to maximize revenue opportunities.
We will keep investing in technology intellectual property and content as we look to stay on the cutting edge of immersive experiences.
Our plan is to monetize these investments not only at our Las Vegas venue, but overtime across multiple platforms.
This includes a network of sphere venues around the globe.
Jim Dolan: With positive worldwide reaction to Sphere, we continue to have substantive discussions about expanding to international markets. So we're pleased with our early results for Sphere in Las Vegas. But we also believe we're only scratching the surface in terms of the global opportunity for this next-generation media. Before I turn the call over to Andrea, I'd like to welcome Jennifer Koster, who was recently named president of Sphere Business Operations. Jennifer has an extensive background driving growth in premier technology and entertainment brands, including most recently at Google. At Sphere, she will lead the development and execution of all business operations. I look forward to working with her to grow our business. I would also like to welcome Dave Burns. Dave previously served as MSG Entertainment's EVP and Chief Financial Officer and has now joined Sphere Entertainment as EVP, Chief Financial Officer, and Treasurer. You will hear from him a little later on.
With positive worldwide reaction to sphere, we continue to have substantive discussions about expanding to international markets. So we're pleased with our early results for sphere in Las Vegas. However, we also believe we're only scratching the surface in terms of the global opportunity for this next generation media.
Before I turn the call over to Andrea I'd like to welcome Jennifer Caster, who was recently named President of sphere business operations, Jennifer was as an extensive background of driving growth at Premier technology, and entertainment brands, including most recently Google ads.
That's fair she will lead the development and execution of all business operations I look forward to working with her on are growing our business.
I would also like to welcome Dave burnt Dave previously served as MSG entertainments, EVP and Chief Financial Officer, and has now joined sphere Entertainment as EVP, Chief Financial Officer and Treasurer.
You will hear from him a little later on with that I will now turn the call over to Andrea.
Andrea Greenberg: With that, I will now turn the call over to Andrew. Thank you, Jim, and good morning. For this second quarter, we continue to execute on our plans for MSG Network, which includes expanding how we deliver our content to fans. Strengthening our partnerships with distributors and advertisers and building on our history of innovation. As we focus on these goals, we also remain mindful of our continued subscriber decline and its impact on our business. With regard to programming, we're in the midst of delivering another year of hundreds of live professional sports broadcasts and other award-winning original content, all with an eye on cost and operating efficiency. We are halfway through the 2023-24 NBA and NHL seasons, which also mark the first time we're making our games available through our direct-to-consumer, authenticated streaming service, MSG Plus.
Thank you Jim and good morning.
The second quarter, we continued to execute on our plans for MSG networks. This includes expanding how we deliver our networks to fans strengthened.
Strengthening our partnerships with distributors and advertisers and building on our history of innovation.
As we focus on these calls we also remain mindful of our continued subscriber decline and its impact on our business.
With regard to programming we're in the midst of delivering another year at hundreds of live professional sports broadcast and other award winning original content.
All with an eye on costs and operating efficiencies.
We are halfway through the 2023, 24, NBA and NHL seasons, which also mark the first time, we're making our games available through our direct to consumer authenticated streaming service MSG plus.
Andrea Greenberg: And we're pleased with how the launch has gone so far. Since the start of the season, we've learned from subscriber behavior and have begun to utilize key takeaways to market our D2C offering more effectively. On the advertising front, we welcome several new partners, including in the pharmaceutical category. Aleve was named the presenting sponsor of MSD+, while Moderna signed on as a presenting sponsor of our New York Islanders broadcast.
And we're pleased with how the launch has gone to date.
Since the start of the season, we've learned from subscriber behavior and have begun to utilize key takeaways to market our D to C operating more effectively.
On the advertising front, we welcomed several new partners, including in the pharmaceutical category.
<unk> was named the presenting sponsor of MSG, plus one that <unk> signed on as a presenting sponsor of our New York Islanders broadcast.
These new partners join a significant number of returning advertisers, which puts us on track for another year of solid advertising results.
Andrea Greenberg: These new partners join a significant number of returning advertisers, which puts us on track for another year of solid advertising. We also recently completed renewals with several distributors, including a multi-year agreement with one of our major affiliates. And lastly, we just announced a partnership with the YES Network to form Gotham Advanced Media and Entertainment, a new technology, sports, and entertainment streaming joint venture. Both MST Networks and the YES Network have developed expertise in technology with their direct-to-consumer launches.
We also recently completed renewals with several distributors.
<unk>, a multi year agreement with one of our major affiliates.
And lastly, we just announced a partnership with the yes network to form Gautam advanced media and entertainment and New technology Sports and entertainment streaming joint venture.
Both MSG networks and the gas network have developed expertise in technology with their direct to consumer launches.
Andrea Greenberg: With this 50-50 partnership, we'll combine these valuable insights to explore new products that further elevate the streaming experience for New York area sports fans. The joint venture will also offer a scalable, turnkey, and customizable solution to third-party content owners that want to deliver a state-of-the-art streaming experience to their own customers. We look forward to sharing our progress as we work with the guest network on building this new opportunity. And with that, I'll turn the call over to Dave. Thank you, Andrea.
With this 50 50 partnership will combine these valuable insights to explore new products that further elevate the streaming experience for New York area Sports fan.
The joint venture will also offer a scalable turnkey and customizable solution to third party content owners that want to deliver a state of the art streaming experience to their own customers.
We look forward to sharing our progress as we work with the gas network and building this new opportunity.
And with that I'll turn the call over to Dave.
Thank you Andrea.
David Carl Joyce: I'm pleased to join you all here today in my new role at Sphere Entertainment. I'd like to start by reminding you that Sphere completed the spinoff of MSG Entertainment last April and the sale of its majority interest in Talgroup Hospitality last May. Results for the prior year's second quarter reflect MSG Entertainment and Tau Group Hospitality as discontinued operations.
I'm pleased to join you all here today in my new role at sphere Entertainment.
I'd like to start by reminding you that sphere entertainment completed the spin offs of MSG Entertainment last April and the sale of its majority interest in Tao group hospitality last may.
Results for the prior year second quarter reflect MSG Entertainment and Tao group hospitality as discontinued operations.
David Carl Joyce: However, the prior year period does include certain corporate overhead costs that Sphere Entertainment did not incur after the date of the spin and does not expect to incur in future periods but did not meet the criteria for inclusion in discontinued operations. Due to these factors, our results are not fully comparable on a year-over-year basis. Turning to our fiscal 24 second quarter results, on a total company basis, we generated revenues of approximately $314 million and adjusted operating income of $51 million. The Sphere segment generated revenues of $168 million and adjusted operating income of $14 million in its first full quarter of operations since opening Sphere in Las Vegas. These results reflect a number of items led by our original content category, the Sphere Experience, which debuted on October 6th. Sphere Experience currently features Postcard from Earth, which ran 191 times during the quarter.
However, the prior year period does include certain corporate overhead costs that sphere entertainment did not incur after the date of the spin and does not expect to incur in future periods, but did not meet the criteria for inclusion in discontinued operations.
Due to these factors our results are not fully comparable on a year over year basis.
Turning to our fiscal 'twenty for second quarter results on a total company basis, we generated revenues of approximately $314 million and adjusted operating income of $51 million.
The sphere segment generated revenues of $168 million and adjusted operating income of $14 million in its first full quarter of operations since opening sphere in Las Vegas.
These results reflect a number of items led by our original content category the sphere experience, which debuted on October six.
The fear experienced currently features postcard from Earth, which ran 191 times during the quarter.
David Carl Joyce: Our results were also positively impacted by YouTube's multi-month run. And while the band shows are drawing to a close, we look forward to hosting Fish and Dead & Co. later this fiscal year. We also benefited from Formula One's multi-day takeover of Sphere for the inaugural Las Vegas Grand Prix, as well as from a full quarter of advertising campaigns on the venue's Exosphere. As Jim noted, we've been pleased with early demand from advertisers. This includes around 10 poll events like the Super Bowl this coming weekend.
Our results were also positively impacted by Youtube multi month rod.
And while the band shows are drawing to a close we look forward to hosting fish and Denton co later this fiscal year.
We also benefited from Formula one's multi day takeover of sphere for the inaugural Las Vegas Grand Prix as well as from a full quarter of advertising campaigns on the venues exosphere.
As Jim noted we've been pleased with early demand from advertisers.
It includes around Tentpole events like the Super Bowl this coming weekend.
We're running a number of advertising campaigns from Premier brands ahead of the event and are looking at a record setting advertising revenue week for the exosphere.
David Carl Joyce: We are running a number of advertising campaigns from premier brands ahead of the event and are looking at a record-setting advertising revenue week for the Exosphere. In addition to the impact of strong demand across events and advertising, our second quarter results also reflect the impact of SG&A expenses, including corporate overhead and expenses related to Sphere Studios and associated content and technology development. I would also note that operating income results at the Sphere segment include a non-cash impairment charge of $117 million related to our decision to no longer pursue Sphere in London. As Jim mentioned, the company continues to have substantive discussions about bringing Sphere to other international markets. Turning to MSG Networks, the segment generated $146 million in revenue and $37 million in AOI, which represent decreases of 8% and 22%, respectively, as compared to the prior year quarter. The decrease in AOI primarily reflected lower distribution revenue and higher direct operating costs, partially offset by lower SG&A expenses.
In addition to the impact of strong demand across events and advertising our second quarter results also reflect the impact of SG&A expenses, including corporate overhead and expenses related to the sphere studios and associated content and technology development.
I would also note that operating income results at the sphere segment include a noncash impairment charge of $117 million related to our decision to no longer pursue a sphere in London.
Jim mentioned the company continues to have substantive discussions about bringing sphere to other international markets.
Turning to MSG networks segment generated $146 million in revenues and $37 million in AOI, which represent decreases of 8% and 22% respectively as compared to the prior year quarter.
The decrease in NOI, primarily reflected lower distribution revenue and higher direct operating costs, partially offset by lower SG&A expenses.
Turning to our balance sheet.
As of December 31, we had approximately $615 million of unrestricted cash and cash equivalents and our debt balance was approximately $1 4 billion.
David Carl Joyce: Turning to our balance sheet, as of December 31st, we had approximately $615 million of unrestricted cash and cash equivalents, and our debt balance was approximately $1.4 billion. These balances reflect our recent convertible debt offering for net proceeds of approximately $236 million. The convertible notes carry an annual coupon of 3.5% and mature in December 2028. We intend to use the net proceeds from the offering for general corporate purposes, including Sphere-related growth. With that, I will now turn the call back over to Ari. Thank you, Dave.
These balances reflect our recent convertible debt offering for net proceeds of approximately $236 million.
The convertible notes carry an annual coupon of three 5% and mature in December 2028.
We intend to use the net proceeds from the offering for general corporate purposes, including sphere related growth initiatives.
With that I will now turn the call back over to Ari.
Thank you, Dave operator can we open up the call for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
We'll go first to Brandon Ross at light shed partners.
Hi, good morning, Jim.
Ari Danes: Operator, can we open up the call for questions? Thank you. At this time, I would like to remind everyone that in order to ask a question, press star and the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We'll go first to Brandon Ross at Light Shed Park. Hi, good morning, Jim.
In your prepared remarks, you talked about substantive discussions for international locations.
I was hoping you could give.
<unk> update on those international growth plans there have been a few markets from the press like South Korea, what are the gating factors to an announcement and how do you foresee deal structuring I know you said asset light what does that exactly mean.
Brandon Ross: In your prepared remarks, you talked about substantive discussions about international locations. I was hoping you could give a detailed update on those international growth plans. There have been a few markets in the press, like South Korea. What are the gating factors for an announcement and how do you foresee deal structuring? I know you said asset light. What exactly means?
Okay.
Okay, well gating factors there.
And Theyre really.
I don't really see gating factors right.
And <unk> been exploring these markets, it's more like an evolution.
And we're I think we're pretty much on time.
But I think the one thing Brandon is that.
Jim Dolan: Okay, well, gating factors. They're really, you know... I don't really see gating factors, right, in exploring these markets. It's more like an evolution, and I think we're pretty much on time, but I think that the one thing, Brandon, is that, you know, this is the first full quarter of operations that the Sphere has gone through. And so we're proving out the business model, right? That, you know, by doing that, you're making the product more attractive, right?
This is the first full quarter of operations.
This figure has gone through and so we're proving out the business model right.
Now by doing that you are making.
The product more attractive right, there's more confidence.
And it removes one of the gating factors, which would be honest is this thing going to be profitable.
I think that were.
This.
This quarter's results are showing that yes, we are going to be profitable and we are profitable.
Jim Dolan: There's more confidence in it, and it removes one of the gating factors, which would be, "Is this thing going to be profitable?" And I think that we are, you know, that this quarter's results are showing that, yes, we are going to be profitable. And we are profitable. And now we just need to continue to negotiate with those markets that, you know, have the keenest interest, and we are doing so. And I expect that we'll soon conclude an arrangement. Great. And then for MSG Network. The debt is due in October.
And now we just need to continue to.
Moshe with those markets.
The keen interest and we are doing so and I expect that will soon conclude arrangements.
Great and then for MSG networks.
The debt is due in October how do you think about the refinancing in terms of ensuring that sphere segment has sufficient flexibility to grow and is an encumbered by a challenged asset like MSG networks, and then related I guess would love your updated.
Jim Dolan: How do you think about the refinancing in terms of ensuring that the Sphere segment has sufficient flexibility to grow and isn't encumbered by a challenged asset like MSG Networks? And then, related, I guess, I would love your updated outlook on where the MSG Networks business is going and the RSN business in general. Well, I'll let Dave answer the first part of the question. Thank you.
Outlook, where the MSG networks business is going in the <unk> business in general.
Well I'll, let Dave answer the first part of it.
The second one.
Sure Ed Hey, Brendan.
We're obviously looking at a long term growth opportunity here.
That's why we did the convertible debt offering.
December to ensure that.
We have appropriate financial flexibility to drive that growth.
We're not going to be looking to do anything that hinder our ability to drive growth for sphere.
David Carl Joyce: With Sphere, we're obviously looking at a long-term growth opportunity here. That's why we did the convertible debt offering this December to ensure that we have appropriate financial flexibility to drive that growth. And we're not going to be looking to do anything to hinder our ability to drive growth for Sphere. You mentioned the refi. Yes, it's due in October.
You mentioned the refi, yes, it's due in October just to touch on that we are currently in regular contact with our lenders.
We're pursuing a number of potential options with with regards to the ultimate refi.
And we should have more on that in the coming months.
As far as the business itself goes.
Yes.
David Carl Joyce: Just to touch on that, we are currently in regular contact with our lenders. We're pursuing a number of potential options with regard to the ultimate refi, and we should have more on that in the coming months. As far as the business itself goes, we've been saying for quite some time, and I think everybody is very aware, that monetization mechanisms for content are impaired. That would be a kind way of putting it. With the move from traditional cable and linear business to streaming business, I think that not only MST Networks but sports and entertainment in general are all challenged by the model.
We've been saying for quite some time.
And I think everybody is very aware that monetization mechanisms for content are impaired and that would be a kind way of putting it.
With the move from from.
Dow Com traditional cable linear business to streaming business right.
Yes.
Hi, Thanks.
Not only does the networks, but sports and entertainment a general all challenged by the model.
Having said that.
Jim Dolan: Having said that, MST Networks has great content, the consumers very much want it, and just the question about how you are going to monetize it is still up in the air. But I do think that the progress that Andrew is making in terms of developing streaming platforms, etc., is certainly part of the answer. We just have to continue along, but that is a very strong product. But how long a transition takes from linear to streaming, and how consumers consume it, and what they pay for it, are key issues yet to be resolved. Thank you. We'll move next to Paul Golding at Macquarie Capital. Thanks so much.
No.
MSG networks has some.
Great content, the consumers very much want it.
Just a question about how are you going to monetize it.
Yes.
It's still up in the air, but I do think that the progress that Andrew is making right in terms of of development streaming platforms et cetera are certainly part of the answer.
And.
We just have to continue along but that is a very strong product right and then but how long that transition takes from linear to streaming and how the consumers consume it and what they paid for it right.
Our key issues yet to be resolved.
Thank you.
Yes.
Well move next to Paul Golding at Macquarie capital.
Thanks, So much this is for either Jim or Dave just after.
Jim Dolan: This is for either Jim or Dave. Just after seeing this quarter that you grossed over a million in average daily ticket sales for Sphere Experience, I'm wondering if you could speak to whether you have a clear indication of the life cycle of an original attraction now at Sphere and if this informs subsequent Sphere Experience content that you might generate to keep that momentum going. Huh. It's a very good question that the, you know, around here, we talk about it like what we call the first pancake. It's never perfect.
Seeing this quarter that your gross over $1 billion in average daily ticket sales for our sphere experience I'm wondering if you could speak to whether you have a clearer indication of the lifecycle of an original attraction now it's fear and.
If this informs subsequent.
See our experience content that you might generate to keep that momentum going.
Okay.
That's a good question.
Yes.
Here, we talk about it like the what we call the FERC pancake.
It's never perfect.
Jim Dolan: But, you know, the demand is robust. Las Vegas is a great market for this as it renews itself almost every week with fresh customers. But how long will the Sphere experience last? Um, you know, I think that it will first off that You know, you don't, like, go for a set amount of time and then cut it off. What happens is that, you know, what our plan is is to replace it, right? They, but still run it and keep building up a library of content, right?
But.
No.
Demand is robust.
Vegas is a great market for this as it renews itself almost every week with fresh customers.
But how long will this fair experienced last.
I think that it will first off.
<unk>.
Ito you don't like though at a set amount of time and then cut it off.
Yes.
What happens is that what our plan is to replace it right, but still run it.
Keep building up a library of contact right that of course, when we opened up new spheres that'll have a hole.
Jim Dolan: That, of course, when we open up new spheres, they'll have a whole, you know, they won't, they won't be dealing with the first pancake syndrome. So, the other part of it that is probably, you know, hard, hard to quantify, but our consumers are coming in for, you know, to see postcards and the current sphere experience. Or are they just coming to see the sphere? How much does the content draw versus just the pure medium of the technology?
They won't be dealing with the first pancakes syndrome.
So.
The other part of it that probably are.
Hard to quantify.
Our consumers coming in for the sea postcards to Los Angeles, and the current sphere experience or are they just coming to see the sphere.
How much does the content draw on versus just the pure medium and in the technology and I'd say, it's a mix of both right, but over time, it will that will move closer to content and we're preparing for that.
Jim Dolan: And I'd say it's a mix of both, right? But over time, it will move closer to content, and we're preparing for that. Thanks, Jim. That's a great point. And then I wanted to circle back on the venue itself.
Thanks, Tim that's a great point, and then I wanted to circle back on the venue.
<unk>.
Jim Dolan: As you continue to engage in these substantive conversations with potential partners, is the construction cost estimate of potential subsequent venues becoming clearer relative to the original venue cost as we think about what the ROI might be for a run rate model of franchising these venues? Thanks. Well, I mean, it is a franchising model, which means that we don't carry the heaviest, lowest capital into it. However, we do think we can deliver new spheres on a less costly basis than the first one. Again, it's sort of that first pancake thing.
As you continue to engage in these substantive conversations with potential partners is the construction cost estimate of potential subsequent venues, becoming clearer relative to what the original venue cost as we think about what the ROI might be for a run rate model of franchising. These venues.
<unk>.
Well I mean.
It is a franchising model right.
Which means that we don't carry the heavy a slower capital into it.
However, we do think we can deliver.
New spheres.
On a less costly basis than the first one again sort of that first pancake.
Jim Dolan: We learned a lot. We're already in the midst of looking at the new designs and taking costs out of them, making the construction go faster and be more efficient. And hopefully, over time, we'll get really, really good at that. But it shouldn't go up; it should go down because of everything that we've learned. Great. Thanks so much.
We learned a lot we were already in the midst.
Looking at the new designs and taking costs out of it making the construction go faster be more efficient.
And hopefully over time, we'll get really really good at that.
But it Shouldnt go up it should go down.
Because of everything that we've learned.
Great. Thanks, so much.
We'll go next to Ben Swinburne at Morgan Stanley.
Benjamin Daniel Swinburne: We'll go next to Ben Swinburne at Morgan Stanley. Thanks. Good morning.
Thanks, Good morning.
Benjamin Daniel Swinburne: Jim, you guys have a pretty full residency calendar this year. I'm just wondering if this is, you know, the right mix of residency versus experiences. I think you're kind of running ratings around almost 100 a year now in residency.
Jim you guys.
Have a pretty full residency calendar. This year I'm. Just wondering if you think this is the right mix of residency versus experiences I think.
Can you kind of run rating around almost 100, a year now and residents we look at Q to fish in and that <unk>.
Jim Dolan: We look at U2, Phish, and Dead & Co. And then, maybe just sticking with the pancake, how long do you think it will take to build the next pancake? Do you think the construction timeline will be shorter as you move forward with your partner or partners? And do you anticipate generating any revenue until that new venue opens for you guys? Yes, well, hmm. How do I parse apart your question?
And then maybe just sticking with the pancake how long do you think it will take to build the next pancake do you think it's the construction timeline shorter under the as you move forward with your with your partner or partners and do you anticipate generating any revenue until that that new venue opens for you.
Guys. Thanks.
Yes, well.
Sure.
Hello, I parse apart your question.
Jim Dolan: What part would you like answered first? Residencies and then pancake costs. I have a timeline. Okay. So, residencies, right? We've already announced the next 2 acts to come. I can tell you, without telling you who, that pretty much our calendar is full for this calendar year.
What part would you like answered residencies and then pancake cost timeline. So okay. So resin presidencies right.
We've already announced.
The next to ask to come I can tell you without telling you who that.
Pretty much our calendar is full for this for this calendar year.
Jim Dolan: That we don't have room beyond what we've already committed to to do anything more significant, but the demand from artists is continuing to grow. We expect to have, you know, 25 be another full year. I will say that what has surprised us with this is like U2, which started off committing to around 20 shows and ended up with 40. We're seeing the same kind of demand for tickets for Fish and Dead, etc., and so these residencies look like they're going to go on longer than we initially anticipated because of ticket demand. So that's a good thing. So does that answer your residency question?
We don't have growth beyond what we've already committed to do anything more significant.
But the demand from artists.
This continuing to grow.
And.
We expect to have 25 be another.
Full year I will say that.
What has surprised us with his slides you too which started off committing to around.
Around 20 shows and ended up with 40 right. We're seeing the same time as demand let's tickets for.
Fish and debt et cetera, and so these resident season looks like theyre going to go longer than we initially anticipated because of ticket demands.
So thats a good thing.
So does that answer your residency question.
Jim Dolan: Yeah, absolutely. And then, if you want to know, I'm just wondering how long, you know, we're trying to think about when your company could start benefiting from a cash flow point of view from additional spheres. Obviously, this takes some time to build, so I'm curious if you have an updated thought on the timeline. So, I mean, it's a franchise model so that the, and we have a construction development division that, you know, services that franchise model. They don't work for free.
Yes, absolutely.
And then do you want to know.
Just wondering how long we were trying to think about when you're a company could start benefiting from a cash flow point of view from additional spheres. Obviously these wells in time to build so curious if you have an updated thought on timelines.
I mean, if the franchise model so.
And we have.
Construction and development Division.
That services that franchise model.
They don't work for free.
Jim Dolan: And so, yes, they will be generating revenue right from the start that will support the, you know, the building construction process. So, you know, there's different revenue streams that go along with the franchise model, but the construction model has revenue associated with it. And essentially, our, you know, our, you know, our minimum goal here is that there won't be any losses associated with the sphere of construction. Most likely, there will be profits that the, but then beyond construction, there's the ongoing servicing and provision of content, which will provide a revenue stream like a franchise model that is ongoing. Got it. Great.
And so yes, they will be generating revenue right from the start.
To support the.
The building construction process so.
Yes.
There's different revenue streams that go along with the franchise model.
The construction model has as revenue associated with it and essentially are our minimum goal here is to.
Deb.
There won't be any losses associated with sphere with construction most likely there will be profits.
But then beyond construction there is the ongoing servicing.
Providing a content, which will provide a revenue stream like a franchise model.
That is ongoing.
Got it.
Great. Thank you so much.
Benjamin Daniel Swinburne: We'll move to our next question from David Karnofsky at J.P. Morgan. I'm interested in how you think about the venue in Vegas as a destination, not just for residencies, but maybe for music touring generally. Is it feasible for an artist to consider Sphere as a one or two night stop for a tour when they're in Vegas? Not at this time.
Well move to our next question from David Karnofsky at J P. Morgan.
Alright, Thanks, Jim just following up on the residency question interested in how you think about the venue in Vegas as a destination not just for resident sees but maybe for music touring generally.
Is it feasible for an artist to consider spheres.
One or two nights stop for a tour when Theyre in Vegas.
Not at this time.
<unk>.
Jim Dolan: The investment that the artist has to make in order to create the show, do the content, requires more than just one or two shows. When an artist is on tour, they're playing 40 markets. They build a show, and they amortize their show investment over the 40 markets. The Sphere, because of how unique it is, what they build for Sphere really doesn't move into a touring model, or at least most of it doesn't. They need to justify it based on the run that they have at the Sphere. One or two shows won't do it.
The investments that the artist.
Has to make in order to create the shelf due to the content right.
Requires more than just one or two shows.
When an artist is oncor, they're playing 40 markets they build a show and they amortize their their show investment over 40 markets.
With the with the sphere because of how unique it is what they build for sphere really doesn't move too.
Into a touring model or at least most of it doesn't.
So they need to justify it based on the run that they have at the sphere. So wanted to show doesn't do it.
Jim Dolan: Okay. And then on networks, following up on the term loan expiration question, I'm just wondering how you're thinking about potential costs that you could still take out of the business as far as programming, SG&A, or even amended rights fees. And then separately, with the Game JV with YES, do you view this purely as a technology tie-up, or is there an opportunity down the line to bundle content and go to market together in the New York area? I'll take that, David. Hi,
Okay and then on networks following up on the term loan exploration question, just wondering how youre thinking about potential costs that you could still take out of the business as far as programming SG&A or even.
Amid amended rights fees, and then separately with the game JV with yes, do you view this purely as a technology tie up or is there opportunity down the line to bundle content and go to market together and the New York area.
I'll take that David.
David Carl Joyce: Well, as you know, a significant percentage of our costs are set. That includes, you know, the rights fees that we pay our teams. You know, that said, we're always looking for ways to run our business more efficiently, and considering the pressures facing all similar companies, that is and will remain a big focus of ours. We previously mentioned, I think, on our last call that we had renewed our Doubles Rights Agreement. That renewal did reflect the realities of the current landscape,
As you know a significant percentage of our clients.
Our fixed and includes the rights fees that we pay our teams.
That said, we're always looking for ways to run our business more efficiency efficiently and considering the pressures facing on similar companies that is and will remain a big focus of ours.
We previously mentioned I think on our last call that we had renewed our Douglas rights agreement that renewal did reflect the realities of the current landscape.
David Carl Joyce: At the same time, we do expect to see operating efficiencies and streaming coming from our new venture with the YES Network. As to your second question about a potential larger deal with YES, the deal that we announced related to the streaming venture only, but, you know, as always, we're open to exploring opportunities that make strategic and financial sense for us. We'll move next. We'll move next to Logan Angris at Wolf Research. Hi, thanks for taking my question. Congratulations. I'm just curious, acknowledging that Sphere is still very new, to what extent are you seeing opportunities for new utilization or cost?
At the same time, we do expect to see operating efficiencies and screening coming from our new venture with the yes network.
As to your second question about.
A potential larger deal with yes, the deal that we announced related to the streaming venture and only to the streaming venture, but as always we are open to exploring opportunities that make strategic and financial sense.
Yes.
Thank you.
We have more.
Okay.
We'll move next to Logan Angus at Wolfe Research.
Hi, Thanks for taking my question.
Congrats on the results.
First just curious acknowledging the sphere is still very new to what extent are you seeing opportunities to drive greater efficiencies at the sphere in terms of either venue venue utilization or costs, specifically do you expect to be able to do both for your experiences and concert residency.
Jim Dolan: We do expect to be able to do both Sphere experiences and concerts or residencies. Yeah. And that's exactly what we're driving towards, right? The Sphere is designed and strategized to run multiple events on a day, right? Not just the same event multiple times, but different events.
And the same day at some point during this fiscal year.
Yes.
And that's exactly what we're driving towards.
The sphere is designed and strategize to run multiple events on a day not just the same event multiple times, but different events.
And we are.
Jim Dolan: And we do want to have a concert and a Sphere experience on the same day. And we think, actually, that will be quite lucrative. But there are other things, too, that we're looking at, including a late-night EDM show. We want to see how far we can stretch this thing.
Yes, we do want to have.
Our concert and that's fair experience on the same day, and we think actually that will be quite lucrative but there are other things too that we can that we're looking at including we're looking at a late night EDM show.
How far we can stretch this thing.
Jim Dolan: We've talked about it. I don't know if we're going to get to three different kinds of events in a day, but we can definitely do two. And a big part of the old venue model was what they call the load-in and the load-out and how much time that took. Now, there basically is no load-in and load-out with the Sphere.
Yes.
Yes.
We've talked about it I don't know if were going to get to three different kinds of events in a day, but we can definitely do too.
And.
A big part of the old venue model is what they call the loading in the load out right and how much time that now they're.
There basically is no load in and load out with with the sphere. So that enables us like we do with you to right now have a concert on Wednesday, and Thursday by Thursday at noon, we're running with sphere experience, which is why youre seeing some of that in the results now, but there is a great deal of refinement.
Jim Dolan: So that enables us, like we do with U2 right now, to have a concert on Wednesday, and then by Thursday at noon, we're running the Sphere experience, which is why you're seeing some of that in the results now. But there's a great deal of refinement that is still to come on this, both on the expense and the revenue side. Great, thanks. And then on the Exosphere side, I'm curious.
That is still to come on this.
Both on the expense and the revenue side.
Great. Thanks, and then on the Exosphere side I'm curious.
Jim Dolan: How much does social media reach factor into how you price? And I guess, is the reach on social media as important for advertisers as... Oh, yes, I'd say probably, you know, I wouldn't just limit it to social media, but that the but look, what advertisers are seeing that the with the sphere, right, with the exosphere, is that by designing, particularly by taking content and specifically designing it for the exosphere, that the amount of attention that it grabs a lot of it through social media, right, is significant enough for them to look at using it to launch new brands, new products, right, make statements, do the things that marketers and advertisers want to do, right, well beyond reaching just the Las Vegas market. And that's how we're seeing them utilize it now.
How much does social media reach factor into how you price exosphere ads.
And I guess as the reach on social media as important for advertisers as the physical reach at the venue is.
Oh, yes, I'd say probably.
I wouldn't just limit it to social media, but.
But look the.
What advertisers are seeing.
The sphere right when the XO sphere does that <unk>.
Designing, particularly taking content that specifically designing it for the XO sphere.
That's the amount of pension that it grabs a lot of it through social media right.
Significant.
But enough for them to look at using it to launch new brands new products like make statements to the states that marketers and advertisers want to do right well beyond just the Las Vegas market and Thats, how were seeing them utilize them now and Youll see in the Super Bowl.
Jim Dolan: And, and you'll see in the Super Bowl, right, that we have quite a robust group of advertisers using it in just that way. Great. Thanks, Logan.
We have.
Quite a.
Robust group of advertisers using it just that way.
Great. Thanks, so much.
Thanks, Logan operator, we'll take one last caller.
David Carl Joyce: Operator, we'll take one last caller. Thank you. We'll take that question from David Joyce at Seaport Research Partner.
Thank you we will take that question from David Joyce at Seaport Research partner.
Jim Dolan: Thank you. On behalf of Jim, could you please update us on the status of the sponsorship business? You've had a few announcements lately, post-quarter. So, I was just wondering, you know, where do you see that going from here? How do you differentiate between sponsorship opportunities and Exosphere advertising? And just some more color there would be helpful. So, I mean, most of those opportunities are focused on the exosphere at this point, right? Which is the predominant sort of medium for advertisers.
Thank you.
Jim could you please update us on the status of the sponsorship business you've had a few announcements lately post quarter.
So I was just wondering where do you see that going from here, how do you differentiate between sponsorship opportunities and exosphere advertising.
More color there would be helpful.
Yes.
I mean, most of those opportunities are focused on the <unk> at this point right, which is the predominant sort of.
Medium for advertisers.
Jim Dolan: But sponsorship is something that we're going to continue to develop, and I expect that this year we'll have some significant announcements that, yes, involve the Exosphere, but more involve the direct association between the client and the product, right? And even the content that runs in the product.
But sponsorship is something that we're going to continue to develop.
As I expected. This year, we will have some significant announcements that yes involved the access but more involved the direct association between the client and the product right.
And even the content that runs in the products.
Ari Danes: All right. Great. And that does conclude the question and answer session. I would like to turn the conference over to Ari Deans for closing remarks. Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day. Goodbye. And this concludes today's conference call. You may now disconnect. We've been together for 30 years And the longer that ismaking you smile The slower you become On every chance that you get We've been together for 30 years And we knew that you're coming With so much stuff To write you a story We wanna know You're thinking What were you thinking Of when you foundidir I tried to tell you There's something Something you need... A play Polypore Still But it had to be 50 different plays There's something I think you need And sometimes I let you down We've been together for 30 years And the longer that ismaking you smile The slower you become On every chance that you get We've been together for 30 years And we knew that you're coming With so much stuff To write you a story We wanna know You're thinking What were you thinking Of when you foundidir I tried to tell you There's something Something you need
Alright, great. Thank you.
And that does conclude the question and answer session I would like to turn the conference over to Ari Danes for closing remarks.
Thank you all for joining US we look forward to speaking with you on our next earnings call have a good day goodbye.
And this concludes today's conference call you may now disconnect.
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