Madison Square Garden Sports Corp. Q3 FY2022 earnings call

• Business showed strong momentum in the fiscal third quarter with revenues and per game revenues across various segments above pre-pandemic levels. - Knicks and Rangers completed full regular season schedules with no capacity restrictions, fan enthusiasm remained high, and Rangers entered Stanley Cup playoffs. - Ticket holders' attendance recovered to pre-Omicron levels, season ticket renewals and sales to new members started strong. - F&B and merchandise per caps saw double-digit percentage increases compared to pre-pandemic levels, driven by new merchandise products and improved service. - Corporate hospitality demand was strong, with suite revenue above pre-COVID levels and trending up. - Marketing partnerships continued to grow, with new partners like DraftKings, Coinbase, Socios, DoorDash, and Future; NHL and NBA introduced new sponsorship inventory opportunities such as jersey patches and increased international sponsors.

For the fiscal third quarter, revenues were $338 million and adjusted operating income was $81.5 million. National and local media rights fees were $124.8 million for the quarter, a $15.2 million decrease compared to the prior year period, primarily due to higher revenue recognized over the compressed timing of the shortened NBA and NHL 2021 seasons in the prior year period, partially offset by the impact of the NHL's new U.S. media rights deals and contractual rate increases. Adjusted operating income increased $51.4 million to $81.5 million compared to the prior year period, driven by revenue increases but partially offset by increases in direct operating expenses and SG&A expenses. Direct operating expenses increased due to lifting of fan attendance restrictions, including higher revenue-sharing expense and other team operating expenses. SG&A expenses increased due to higher employee compensation, marketing costs, and commissions. Mobile sports betting represents the largest revenue category in marketing partnerships on a run rate basis.

• Expect total revenues for the fiscal year, even excluding media rights growth and playoff impact, to exceed the last full pre-pandemic year. - Anticipate solid growth in ticket revenue next year due to new ticket inventory, Ranger season ticket price increase, and improved tourism and office occupancy. - Rangers playoff run is expected to boost fiscal fourth quarter results, and the buzz from playoffs will increase next year's ticket, suite, and sponsorship demand.

• Uncertainty from the ever-changing environment, such as potential resurgence of variants affecting business. - Economic processes could lead to easing of pent-up demand, impacting F&B and merchandise per caps. - Media rights changes, league rule adjustments, and market fluctuations could affect marketing partnership revenues.

Q: Just on the higher per caps you mentioned for food and merch. Wondering about drivers versus pre-pandemic, including price increases, order volume, customer mix, and risk to levels.

A: Drivers include variable pricing of individual tickets, new merchandise products, and improved F&B service like cashless transactions. Risk exists as pent-up demand may ease or due to economic processes.

Q: On jersey patches, when is the deal with SquareSpace up and thoughts on renewal upside?

A: When the patch deal comes up, expect substantial increase as market has moved since initial deal, and SquareSpace has been a good partner. Thought on maximizing the category and integrated partnerships.

Q: Fiscal 4Q potential boost from playoffs, color on economics and sponsorship incremental.

A: Playoff games provide significant boost to revenues and AOI, with each home playoff game in first round expected to generate over $1.5 million in AOI. Playoffs provide incremental sponsorship opportunity now and multi-year benefits in fan engagement, pricing, and partnership demand.

Q: Insight on corporates for next year and leverage target discussion.

A: Corporate demand is strong with partners seeing value in reaching fans. Leverage target is part of options evaluated as business generates free cash flow, but near-term focus remains on debt paydown due to environment uncertainty.