Madison Square Garden Sports Corp. Q4 FY2024 earnings call

• Jamaal Lesane highlighted strong fiscal 2024 results driven by fan demand and team performance, including the Rangers winning the President's trophy and both teams advancing to playoffs. - Offseason player acquisitions for the Knicks and Rangers were mentioned. - Season ticket renewal rate for Knicks and Rangers was approximately 94%, with no price increase for renewing holders but opportunistic pricing for new packages. - Merchandise revenue hit new highs with partnerships and new offerings. - Media rights face evolution due to NBA national deals affecting local media rights. - Marketing partnerships saw new deals, and premium hospitality had record suite revenues with expansions. - Victoria Mink discussed fiscal 2024 financial results, noting fourth quarter revenue growth from more games and playoffs, and balance sheet details.

For fiscal 2024, MSG Sports generated revenues exceeding $1 billion and adjusted operating income of $172 million, both setting new records. In the fiscal 2024 fourth quarter, total revenues were $227.3 million compared to $126.9 million in the prior year period. Event-related revenues, primarily from tickets, food, beverage, and merchandise, increased 116% year-over-year to $152.1 million. Suites, sponsorship, and signage revenues, including playoffs, were $34.7 million, a 71% year-over-year increase. National and local media rights fees were $28.4 million, a 1% decrease mainly due to a reduction in exclusive games available to MSG Networks, partially offset by contractual rate increases.

• Management stated no increase in season ticket prices for renewing holders but expects growth from flexible ticket plans. - The NBA's new national media rights deal will impact local media rights revenue with thresholds. - Plans to drive growth through ticketing (strong renewal rate, opportunistic pricing of new packages), sponsorship renewals, premium hospitality expansions, and suite renovations.

• RSN industry challenges. - Potential reduction in local media rights revenue due to NBA national deal changes, impacting MSG Networks' debt refinancing.

Q: Good morning. Thank you for standing by, and welcome to the Madison Square Garden Sports Corp. Fiscal 2024 Fourth Quarter and Year-End Earnings Conference Call A: Thank you, operator. Good morning, and welcome to MSG Sports fiscal 2024 fourth quarter and year-end earnings conference call Q: Just with the pressure of the RSN ecosystem, we have seen a number of teams across boards take haircuts on their right seats in order to put more stability into the model. So, given your distributor’s declining revenue in the upcoming debt maturity, wondering if that’s something that’s under consideration for the Knicks and Rangers? And then, related with the national NBA rights deal, obviously, there’s a nice step up in fees coming. But as you noted, there’s some offsets, in the exclusive game inventory for MSG Networks coming down. So, curious if you could expand on how you do the net of it all for the teams A: Jamaal Lesane: Thanks, David, and good morning. And, taking a step back for a moment, and as I mentioned earlier, our local media rights partner, MSG Networks, provided additional disclosure on the status of its debt refinancing efforts, including the implications of not completing a refinancing. And then more recently, as I mentioned earlier, the NBA reached new agreements for its national media rights. These agreements may result in a reduction in the number of exclusive live telecast made available to MSG Networks. So, it’s clear that the sports media landscape continues to evolve. We continue to actively evaluate these developments, including the potential impact on MSG Networks and any potential impact on our local media rights revenue, and we’ll keep you updated as appropriate Victoria Mink: Hey, David. It’s Victoria. I’ll take the second part of your question around the overall financial impact on the NBA’s new national media deal. So as you know, all NBA teams share equally in national media rights fees. And at the league level, players receive about 50% of league-wide revenues, including the national media rights fees. So starting with the ‘25, ‘26 season, the NBA will see that step up in the average annual value for its national media rights, as well as increased annual escalators, which in turn will increase our national media rights fees revenues. However, as noted, we’re also assessing the impact that these new rights agreements may have on other areas of our business, including local media rights revenue. Our local agreements include thresholds around the number of live games telecast to be provided to MSG Networks, such as a minimum number of total regular season games. If certain thresholds are not met as a result of the new NBA national deals, our local rights agreements would provide for a reduction in local media rights fees, and this would partially offset the increase in the national media rights revenue Q: Why not raise ticket prices and what are the implications for revenues and AOI in fiscal ‘25?

A: Jamaal Lesane: And, thank you for that, Daniel. So philosophically, all of our key decisions are made with a long-term view. That includes how we manage our relationships with our loyal season ticket holders. And as you alluded to, after a successful season for both of our teams, or I should say successful seasons, we made the decision to not increase season ticket prices for renewing holders. However, we will continue to opportunistically price new season ticket packages as well as individual and group tickets and expect to benefit from increased demand for those and our flexible ticket plans. And, so putting it all together, we believe we have the opportunity to drive modest ticket revenue growth in fiscal ‘25. And, then looking beyond the ‘24, ‘25 seasons, we still see opportunity around ticket yield, and we’ll continue to reevaluate our season ticket pricing on an annual basis Q: Just wanted to get an update on how you’re thinking about capital return. You’ve de-levered, a bunch at this point. You paid down that Rangers facility. Cash on the balance sheet’s up, what, $50 million year-over-year. Should we expect some buyback activity? And, how does the situation with networks play into your thinking around capital return?

A: Victoria Mink: Sure. Good morning. So, in taking a step back, as it relates to our overall capital allocation philosophy and priorities, things really remain the same at this point. So, to just take you through, right, first is to maintain appropriate liquidity to fund our operations and invest in our core business. Second, we want to make sure we have a strong balance sheet and we’ve continued to prioritize debt pay downs given the high-interest rate environment. And as you noted, this included $55 million of repayments under our Rangers revolving credit facility during the fourth fiscal quarter. And then third, we plan to be opportunistic about other uses of our cash flow and we’ll keep all options open. As you know, we currently have approximately $185 million remaining under our share repurchase authorization. And as Jamaal noted, we continue to just evaluate the overall landscape of the RSN industry and we’ll act accordingly Q: A question about revenue growth. Obviously, the new broadcast rights deal, media rights deal will bring welcome growth to the Company. I wonder what initiatives you might be thinking about beyond that to drive organic revenue growth next year and beyond?

A: Jamaal Lesane: Thank you for that, Peter, and I’m glad you asked that question as we continue to be very pleased with how our business is performing, including record financial results in fiscal ‘24. And, let me walk you through some of the key areas of our business for the upcoming year and looking ahead. From a ticketing standpoint, we are already seeing strong demand with, as I mentioned earlier, combined average season ticket renewal rates of approximately 94%. We will also continue to opportunistically price new season ticket packages as well as individual and group tickets, and we expect to benefit from increased demand for our flexible ticket packages. From a sponsorship standpoint, we believe we’re off to a good start in fiscal ‘25 in terms of new deals and expect to have more to share in the coming weeks. We also have a number of renewals this year and are optimistic about those. And, then on premium hospitality, we expect to capitalize on strong demand through renewals and new sales activity. And, in partnership with MSG Entertainment, we are expanding the Event level club space at The Garden that was introduced last season. And lastly on suites, we also expect to benefit from the renovation of several Event and Lexus level suites. So, we believe we have the opportunity to drive growth across a number of areas of our business this year Q: Just wondering if you could give some additional detail on the financial dynamics of the playoffs this year in terms of maybe per game margins or contribution? And, as a follow-up, now that you’ve had a couple of years of both teams having good playoff appearances, wondering if that’s factoring into your planning going forward at all assuming team stability for next year?

A: Jamaal Lesane: And, thank you for that, Paul. So let me, I’ll jump in and just talk about playoffs in general, and then I’ll turn it over to Victoria for more of the, the financial impact. And, typically a playoff run results in several benefits to our business. In terms of tickets, a player friend usually increases demand across all of our offerings, whether it’s season ticket renewals, sales to new members, or individual and group ticket sales. As I mentioned earlier, our combined renewal rate for last season, for season ticket packages is already approximately 94%. A player upfront also typically drives new fans. In fiscal ‘24, we added over 830,000 net new social media followers, and of those new followers, nearly 35% were added during the playoffs. This increased demand also extends to the corporate side of our business, which then in turn allows us to sell more premium hospitality and marketing partnerships. So, we are already seeing the momentum from the playoffs carry forward. And, I’ll turn to Victoria for a little bit more detail Victoria Mink: Great. Sure. So, yes, so the playoffs result in significant incremental business for our Company, depending obviously on the length of the playoff run, which is very evident in our results today. Playoff tickets are priced at a premium to regular season games and increase each incremental round. F&B and merchandise per cap spending is typically above regular season averages. And, then in particular, this past quarter, we hosted 15 playoff games at The Garden as compared to eight last year. So as a result, our playoff related revenues for the fourth quarter were $128 million as compared to $56.2 million in the prior year period. So, this translates to approximately $8.5 million in average per game revenues and approximately there were approximately $4 million in average per game direct operating expenses as well as some additional marketing and administrative costs incurred in connection with our overall playoff participation. So, as Jamaal mentioned, we expect to see the positive impact of the past season’s playoff runs across our business in fiscal ‘25