Executive Summary / Key Takeaways

• Madison Square Garden Sports owns and operates two of the most valuable and iconic franchises in professional sports, the New York Knicks (NBA) and New York Rangers (NHL), capitalizing on their scarcity and premium market position.
• Recent financial performance, including record revenues exceeding $1 billion and Adjusted Operating Income of $172 million in fiscal 2024, demonstrates robust demand across ticketing, premium hospitality, and sponsorship, driven by team performance and strategic initiatives.
• A significant challenge is the evolving regional sports network (RSN) landscape, particularly the financial difficulties of local media partner MSG Networks (MSGE), leading to anticipated reductions in local media rights fees ($162.9M expected in FY25, $139.2M in FY26 after amendments) and posing risks to a key revenue stream and liquidity access.
• The company is strategically focused on maximizing value through enhanced fan engagement, innovative merchandise, expansion of premium hospitality offerings (new/renovated suites), and growing marketing partnerships (including pursuing jersey patches and global deals), leveraging its brand and facilities.
• Despite near-term pressures on local media rights and increased team operating costs (driven by higher player compensation and NBA luxury tax), management expresses confidence in the long-term trajectory, supported by strong underlying business fundamentals, rising third-party team valuations, and financial flexibility.

The Enduring Appeal of Marquee Assets

Madison Square Garden Sports Corp. (MSGS) stands as a unique entity in the investment landscape, centered around the ownership and operation of two cornerstone franchises in major North American professional sports: the New York Knicks of the NBA and the New York Rangers of the NHL. These teams, steeped in history and playing their home games in the world-renowned Madison Square Garden Arena, represent scarce, high-value assets in the largest media market in the United States. The company's journey to its current pure-play sports focus was shaped by strategic separations, including the distribution of its stock from MSG Networks in 2015 and the spin-off of Sphere Entertainment (SPHR) in 2020. This history underscores a deliberate strategy to concentrate on maximizing the value inherent in its core sports properties.

The competitive landscape for MSGS is multifaceted. Directly, it competes with other owners of major professional sports teams for fan attention, corporate partnerships, and talent. Peers like Atlanta Braves Holdings (BATRA) in MLB, Manchester United (MANU) in global soccer, and Endeavor Group Holdings (EDR) with its diverse sports and entertainment portfolio, operate with varying models. While BATRA leverages venue development and regional loyalty, and MANU boasts a vast global brand and merchandising scale, MSGS differentiates itself through its premium urban market location and a multi-sport portfolio spanning two major U.S. leagues. EDR, with its event-centric approach, highlights the scalability challenges inherent in traditional team ownership models compared to event management.

MSGS's strategic approach is built upon capitalizing on the popularity and performance of its teams. This involves a multi-pronged effort to drive revenue across key verticals: ticketing, premium hospitality, marketing partnerships, and media rights. The company aims to enhance the fan experience, deepen engagement, and leverage its brand strength to command premium pricing and secure valuable partnerships.

A key differentiator for MSGS lies in its proprietary facilities and operational focus. While not a technology company in the traditional sense, its ownership and operation of the Madison Square Garden Training Center in Greenburgh, NY, provides a dedicated, state-of-the-art environment for athlete performance optimization. This facility, along with the iconic Garden arena itself, serves as a crucial operational asset. Management's commentary points to initiatives like the FanFirst program, leveraging technology for direct ticket delivery, and enhanced digital content strategies as ways to build direct relationships with fans and drive engagement. While specific, quantifiable performance metrics directly attributable to the Training Center's technological edge or the FanFirst program's impact are not publicly detailed, the strategic intent is clear: to invest in infrastructure and fan-facing technology to support team performance, enhance the customer experience, and ultimately drive revenue and brand loyalty. This focus on operational excellence and targeted technological application within its core sports business provides a competitive moat, albeit different from the broad technological platforms of indirect competitors like streaming services.

Indirect competition comes from the broader entertainment industry, including streaming services (like those offered by Netflix (NFLX) or ESPN/Disney (DIS)) and other leisure activities that vie for consumer time and spending. The rise of digital consumption and the evolving media landscape, particularly impacting regional sports networks, represent significant external pressures that MSGS must navigate.

Performance Reflecting Strategy and Market Dynamics

Recent financial results underscore the inherent value and operational momentum within MSGS's core business, even as external pressures emerge. Fiscal year 2024 marked a significant milestone, with the company achieving record revenues exceeding $1 billion and record Adjusted Operating Income of $172 million. This performance was a direct result of robust demand across all key revenue categories – ticketing, suites, sponsorship, and media rights – fueled by the strong on-field and on-ice performance of both the Knicks and the Rangers, including successful playoff runs.

Looking at the most recent interim period, the nine months ended March 31, 2025, total revenues increased by 4% to $835.3 million compared to the prior year period. This growth was primarily driven by higher sponsorship and signage revenues (up 13% to $198.3 million), suite revenues (up 13% to $198.3 million), and league distributions, partially offset by a decrease in local media rights fees. Event-related revenues for the nine-month period also saw a 5% increase to $322.2 million, reflecting strong per-game performance despite variations in game count.

However, profitability metrics saw a decline in the nine months ended March 31, 2025. Operating income decreased by 60% to $37.4 million, and Adjusted Operating Income decreased by 53% to $54.9 million. This significant reduction was primarily attributable to a substantial increase in direct operating expenses. A major driver of this increase was higher NBA luxury tax expense, as the Knicks are expected to be a significant luxury tax payer in the 2024-25 season, unlike the prior year. Increased team personnel compensation, stemming from roster changes, also contributed to the higher costs. Selling, general and administrative expenses saw a more modest increase for the nine-month period, influenced by higher professional fees and operating lease costs, partially offset by lower employee compensation compared to the prior year which included executive transition costs.

The financial performance highlights the dual nature of MSGS's business: strong top-line potential driven by asset value and team success, coupled with significant cost volatility tied to player markets and league economics (like the luxury tax).

Liquidity remains a key focus. As of March 31, 2025, MSGS held $96.5 million in cash and cash equivalents and had $258 million in available borrowing capacity under its existing credit facilities.

The company's deferred revenue obligations, primarily related to tickets and suites, stood at $125 million (net of billed receivables). Management has prioritized debt paydown, including $55 million under the Rangers revolving credit facility in Q4 FY24, bringing its balance to zero at that time. Total debt paydown in fiscal 2023 was $140 million.

The company's first-ever return of capital in fiscal 2023 (dividend and share repurchase) signaled confidence in its financial health and asset values. Management believes its current liquidity position is sufficient to fund operations and satisfy obligations in the foreseeable future, although potential disruptions related to the MSG Networks situation could impact access to credit facilities.

Outlook, Guidance, and Navigating the Media Shift

The outlook for MSGS is shaped by the continued strength of its core business segments and the significant, evolving dynamics in the sports media landscape. Management anticipates continued revenue growth in fiscal 2024 (excluding playoff impact) and expects to drive modest overall ticket revenue growth in fiscal 2025. Premium hospitality and marketing partnerships are also expected to contribute positively, leveraging strong demand and planned facility enhancements like the expansion of the event level club space and renovation of suites at The Garden.

However, the most impactful near-term factor is the situation surrounding local media rights. The Transaction Support Agreement entered into on April 24, 2025, contemplates significant amendments to the media rights agreements with MSG Networks, effective January 1, 2025. These amendments include a 28% reduction in the annual rights fee for the Knicks and an 18% reduction for the Rangers, the elimination of annual escalators, and a shorter contract term ending after the 2028-29 season. As a result, MSGS expects media rights fees to be approximately $1.1 million lower in Q4 FY25 compared to the prior year period. The anticipated stated annual local media rights fees, subject to adjustments, are expected to be $162.9 million for the year ending June 30, 2025, and $139.2 million for the year ending June 30, 2026.

This reduction in a significant revenue stream will pressure profitability. Management has guided that Adjusted Operating Income in fiscal 2024 and 2025 will reflect higher team operations expenses and league-related costs, including the impact of current rosters, increased salary caps (NBA cap rose to $136M in FY24), higher revenue sharing, and lower projected luxury tax receipts. While management notes that a reduction in local media rights revenue does not translate to a dollar-for-dollar reduction in cash flow due to offsetting factors like decreased revenue sharing and income taxes, the impact on reported earnings will be notable.

The risk associated with MSG Networks extends beyond revenue reduction. The potential for MSG Networks to seek bankruptcy protection and potentially discharge the media rights agreements remains, which would eliminate a significant recurring revenue stream and the associated exposure for the teams. While MSGS would pursue alternative distribution methods, the timing and success of such efforts are uncertain and subject to league approval. Furthermore, an MSG Networks bankruptcy or insolvency event could trigger events of default under MSGS's credit facilities, potentially restricting borrowing capacity. As of March 31, 2025, MSGS had an outstanding receivable balance of $30.1 million from MSG Networks related to unpaid amounts, which could be impaired in such a scenario.

The new NBA national media deals, while promising a step-up in fees starting in FY26, also contribute to the RSN challenge by reducing the number of exclusive games available to local networks. This further underscores the need for MSGS to assess the best path forward for local distribution in a rapidly changing environment.

Despite these headwinds, management remains confident in the long-term value of its assets, citing rising third-party valuations for sports franchises as validation. The company continues to explore opportunistic uses of capital, including the remaining $185 million under its share repurchase authorization, balancing this with the need to maintain liquidity and a strong balance sheet.

Conclusion

Madison Square Garden Sports Corp. possesses a compelling core thesis rooted in the ownership of scarce, premium sports assets in a major market. The recent track record of record revenues and strong operational performance across ticketing, premium hospitality, and sponsorship highlights the enduring demand for the Knicks and Rangers brands and the effectiveness of the company's strategies to maximize value from these assets. Investments in facilities and fan engagement initiatives further support this operational strength.

However, the investment narrative is currently dominated by the significant challenges facing the regional sports network industry and the direct impact on MSGS's local media rights revenue. The anticipated fee reductions and the potential risks associated with MSG Networks' financial situation introduce near-term uncertainty and pressure on profitability, despite management's efforts to mitigate the cash flow impact. While the long-term value of the franchises remains robust, as evidenced by rising third-party valuations and the potential upside from future national media rights deals and continued growth initiatives, investors must carefully weigh the near-term headwinds from local media against the fundamental strengths and growth opportunities of these iconic sports properties. The company's ability to successfully navigate the evolving media landscape and continue driving growth in other revenue streams will be critical determinants of its future financial performance and shareholder value creation.