Business Overview and History

Madison Square Garden Sports Corp. (MSGS) is a leading professional sports company that owns and operates a portfolio of iconic sports teams, including the New York Knickerbockers (Knicks) of the National Basketball Association (NBA) and the New York Rangers (Rangers) of the National Hockey League (NHL). With a rich history spanning decades, the company has established itself as a premier owner and operator of some of the most recognized sports franchises in the world.

Madison Square Garden Sports Corp. was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (MSG Networks). In September 2015, all the outstanding common stock of the company was distributed to MSG Networks stockholders in a tax-free spin-off transaction known as the MSGS Distribution. The company's operations include the Knicks, the Rangers, two development league teams (the Hartford Wolf Pack of the American Hockey League and the Westchester Knicks of the NBA G League), and the Madison Square Garden Training Center in Greenburgh, NY.

Both the Knicks and the Rangers play their home games at the iconic Madison Square Garden Arena. In April 2020, MSG Sports distributed all of the outstanding common stock of Sphere Entertainment Co. (Sphere Entertainment) to its stockholders. This transaction resulted in MSG Sports becoming a standalone, publicly-traded company focused on its portfolio of professional sports franchises.

Over the years, the company has faced various challenges within the sports and media industries. In 2023, the company's local media rights partner, MSG Networks, announced that it was pursuing a refinancing of its credit facilities through a workout process, which is still ongoing. Despite these industry-wide pressures on local media rights, MSG Sports has continued to demonstrate strong underlying fundamentals across its business, particularly in areas such as ticket sales, premium hospitality, and marketing partnerships.

Financials

In fiscal year 2024, Madison Square Garden Sports Corp. reported record revenues of over $1 billion, up 16% year-over-year. The company's operating income for the fiscal year reached $146.0 million, with adjusted operating income of $172.2 million. These strong financial results were driven by robust demand from fans and corporate partners across all key revenue streams, including ticketing, suites, sponsorship, and food, beverage, and merchandise sales.

The company's recent quarterly performance has also been impressive. For the fiscal second quarter ended December 31, 2024, the company reported revenues of $357.8 million, an increase of 9% compared to the prior-year period. Adjusted operating income for the quarter was $20.2 million, reflecting the company's continued investment in its teams and the ongoing strength of its business model.

For the most recent fiscal year (FY 2024), MSGS reported net income of $58.8 million, operating cash flow of $92.1 million, and free cash flow of $90.7 million. In the most recent quarter (Q2 FY 2025), net income was $1.1 million. The 9% year-over-year revenue increase in Q2 FY 2025 was driven by increases in preregular season ticket-related revenues, suite revenues, sponsorship and signage revenues, revenues from league distributions, and preregular season food, beverage, and merchandise sales.

Direct operating expenses for Q2 FY 2025 were $275.8 million, an increase of 19% compared to the prior year period. This was primarily due to higher team personnel compensation, increased net provisions for league revenue sharing expense and luxury tax, and higher operating lease costs associated with Knicks and Rangers home games at The Garden.

Selling, general and administrative expenses for Q2 FY 2025 were $67.9 million, an increase of 4% compared to the prior year period, driven by higher operating lease costs and professional fees, partially offset by lower employee compensation and related benefits.

Operating income for Q2 FY 2025 was $13.3 million, a decrease of 54% compared to the prior year period, primarily due to the increase in direct operating expenses and selling, general and administrative expenses, partially offset by the increase in revenues.

Liquidity

As of December 31, 2024, Madison Square Garden Sports Corp. reported cash and cash equivalents of $107.8 million. The company's debt-to-equity ratio stood at -3.93 as of June 30, 2024. MSGS has access to significant credit facilities, including a $275 million senior secured revolving credit facility for the Knicks and a $250 million senior secured revolving credit facility for the Rangers, both maturing in December 2026.

The company's current ratio and quick ratio both stood at 0.49 as of December 31, 2024, indicating potential short-term liquidity challenges. However, the strong financial performance and diverse revenue streams contribute to the company's overall financial health. The ability to generate significant revenue from various sources, including ticketing, sponsorships, and merchandise sales, likely provides Madison Square Garden Sports Corp. with a solid liquidity foundation.

Navigating Evolving Media Landscape

One of the key challenges facing Madison Square Garden Sports Corp. is the evolving media landscape, particularly the financial difficulties experienced by its local media rights partner, MSG Networks. In August 2024, MSG Networks announced that it was pursuing a refinancing of its credit facilities through a workout, which included renegotiating its local media rights agreements with the company, potentially resulting in a reduction in rights fees.

Additionally, in January 2025, Altice USA dropped MSG Networks from its Optimum offering, further demonstrating the challenging environment faced by regional sports networks (RSNs). The company is actively assessing the best path forward for its business and is committed to maintaining its important connection with its local fan base.

Outlook and Risks

Despite the uncertainties surrounding the RSN industry, Madison Square Garden Sports Corp. remains confident in the long-term trajectory of its business. The company's marquee sports franchises, strong fan engagement, and diversified revenue streams position it well to navigate the evolving media landscape.

However, the company is not without its risks. The potential for further disruptions in the RSN industry, including the possibility of a bankruptcy or insolvency event involving MSG Networks, could have a material negative impact on the company's local media rights revenue. Additionally, any economic or business-related challenges, such as the impact of the COVID-19 pandemic or geopolitical tensions, could affect the company's operations and financial performance.

In terms of future outlook, MSGS did not provide explicit forward-looking guidance for future quarters or the full fiscal year 2025. However, the company stated that they remain confident in the long-term trajectory of their business, citing the strong demand trends they are seeing across their operations. Regarding their local media rights agreement with MSG Networks, MSGS mentioned that MSG Networks has approached them to renegotiate the rights fees, potentially resulting in a reduction. MSGS is actively assessing the best path forward for their business in this regard.

Conclusion

Madison Square Garden Sports Corp. is a well-established player in the professional sports industry, owning and operating some of the most recognizable sports franchises in the world. The company's strong financial performance, robust fan base, and diversified revenue streams have allowed it to navigate the evolving media landscape, though challenges remain in the form of the uncertain future of its local media rights partner, MSG Networks. As the company continues to adapt and innovate, it remains well-positioned to deliver long-term value for its shareholders.