This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. In this MD&A, there are
statements concerning the future operating and future financial performance of
•our ability to effectively manage the impacts of the COVID-19 pandemic (including COVID-19 variants) as well as the actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues as they are permitted to continue to operate;
•the effect of any show postponements or cancellations by third-parties or the Company as a result of the COVID-19 pandemic due to operational challenges and other health and safety concerns (such as the partial cancellation of the 2021 production of the Christmas Spectacular Starring the Radio City Rockettes (the "Christmas Spectacular");
•the extent to which attendance at our venues may be impacted by government actions, continuing health concerns by potential attendees and reduced tourism;
•risks related to the Merger, as defined herein, with MSG Networks Inc., including, but not limited to: failure to realize the expected benefits of the Merger, business disruption following the Merger and the risk of the litigation relating to the Merger?
•the impact on the payments we receive under the Arena License Agreements as a
result of government-mandated capacity restrictions, league restrictions and/or
social-distancing or vaccination requirements at games of the
•the level of our expenses and our operational cash burn rate, including our corporate expenses;
•our ability to successfully design, construct, finance and operate new
entertainment venues in
•the level of our revenues, which depends in part on the popularity of the Christmas Spectacular, the sports teams whose games are played at The Garden and broadcast on our networks, the appeal of our Tao Group Hospitality venues, and other events which are presented in our venues or broadcast on our networks;
•the demand for MSG Networks programming among cable, satellite, telephone and other platforms ("Distributors") and the subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, or to do so on favorable terms, as well as the impact of consolidation among Distributors;
•our ability to develop and successfully execute MSG Networks' strategy for a direct-to-consumer offering;
•the ability of our Distributors to maintain, or minimize declines in, subscriber levels;
•the impact of subscribers selecting Distributors' packages that do not include our networks or Distributors that do not carry our networks at all;
•the security of our MSG Networks program signal and electronic data;
•the on-ice and on-court performance of the professional sports teams whose games we broadcast on our networks and host in our venues;
•the level of our capital expenditures and other investments;
•general economic conditions, especially in the
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•the demand for sponsorship arrangements and advertising and viewer ratings for our networks;
•competition, for example, from other venues and other sports and entertainment and nightlife options and other regional sports and entertainment networks, including the construction of new competing venues;
•the relocation or insolvency of professional sports teams with which we have a media rights agreement;
•our ability to maintain, obtain or produce content, together with the cost of such content;
•our ability to renew or replace our media rights agreements with professional sports teams through MSG Networks Inc.;
•changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate;
•any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage due to COVID-19 or otherwise;
•seasonal fluctuations and other variations in our operating results and cash flow from period to period;
•the successful development of new live productions or attractions, enhancements or changes to existing productions and the investments associated with such development, enhancements, or changes, as well as investment in personnel, content and technology for MSG Sphere;
•business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, disruption of our Networks business or disclosure of confidential information or other breaches of our information security;
•activities or other developments (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues;
•the continued popularity and success of Tao Group Hospitality dining and nightlife venues, as well as its existing brands, and the ability to successfully open and operate new entertainment dining and nightlife venues;
•the ability of
•the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;
•our ability to successfully integrate acquisitions, new venues or new businesses into our operations, including the Merger with MSG Networks Inc. and our acquisition of Hakkasan through Tao Group Hospitality;
•the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
•our internal control environment, remediation of the material weakness, and our ability to identify any future material weaknesses;
•the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire;
•the impact of governmental regulations or laws, changes in how those regulations and laws are interpreted, including with respect to the legalization of sports gaming, as well as the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;
•the impact of any government plans to redesign
•the impact of sports league rules, regulations and/or agreements and changes thereto;
•the substantial amount of debt incurred, and any default, by our subsidiaries under their respective credit facilities;
•financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate;
•the ability of our investees and others to repay loans and advances we have extended to them;
•the tax-free treatment of the Entertainment Distribution (as defined below);
•our ability to achieve the intended benefits of the Entertainment Distribution and the Merger with MSG Networks Inc.;
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•the performance by
•lack of operating history as an operating company and costs associated with being an independent public company; and
•the additional factors described under "Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
Introduction
This MD&A is provided as a supplement to, and should be read in conjunction
with, the Company's unaudited financial statements and accompanying notes
thereto included in this Quarterly Report on Form 10-Q, as well as the Form 10-K
to help provide an understanding of our financial condition, changes in
financial condition and results of operations. Unless the context otherwise
requires, all references to "we," "us," "our," "
This MD&A is organized as follows:
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.
Results of Operations. This section provides an analysis of our unaudited
results of operations for the three and nine months ended
Liquidity and Capital Resources. This section provides a discussion of our
financial condition and liquidity, an analysis of our cash flows for the nine
months ended
Seasonality of Our Business. This section discusses the seasonal performance of our Entertainment segment.
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, recently issued accounting pronouncements not yet adopted by the Company, as well as the results of the Company's annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of Fiscal Year 2022. This section should be read together with our critical accounting policies, which are discussed in our Form 10-K under "Item. 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recently Issued Accounting Pronouncements and Critical Accounting Policies - Critical Accounting Policies" and in the notes to the consolidated financial statements of the Company included therein.
Business Overview
The Company is a leader in live experiences comprised of iconic venues; marquee
entertainment brands; regional sports and entertainment networks; popular dining
and nightlife offerings; and a premier music festival that, together,
entertain millions of guests each year. The Company's portfolio of venues
includes:
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Company's regional sports and entertainment networks, MSG Network and MSG+, a companion streaming app, MSG GO, and other digital properties. Tao Group Hospitality is a hospitality group with globally-recognized entertainment dining and nightlife brands.
Merger with MSG Networks Inc.
On
The Merger has been accounted for as a transaction between entities under common
control as the Company and MSG Networks Inc. were, prior to the Merger, each
controlled by the
Factors Affecting Results of Operations
Impact of the COVID-19 Pandemic on Our Business
The Company's operations and operating results have been materially impacted by the COVID-19 pandemic (including COVID-19 variants) and actions taken in response by governmental authorities and certain professional sports leagues. For the majority of Fiscal Year 2021, substantially all operations of the Entertainment business were suspended, MSG Networks aired substantially fewer games and Tao Group Hospitality was operating at significantly reduced capacity and demand. Fiscal Year 2022 has also been impacted by the pandemic, with fewer ticketed events at our venues in the first half of the year as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19) due to the lead-time required to book touring acts and artists, and an increase in cases due to a COVID-19 variant, which resulted in a number of events at our venues being cancelled or postponed in the second and third quarters.
As a result of government-mandated assembly limitations and closures, all of our
performance venues were closed beginning in
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For Fiscal Year 2021, the majority of ticketed events at our venues were
postponed or cancelled. For the nine months ended
The impact of the COVID-19 pandemic on our operations also included (i) the
partial cancellation of the 2021 production of the Christmas Spectacular, (ii)
the cancellation of the 2020 production of the Christmas Spectacular, and (iii)
the cancellation of both the 2020 and 2021
The Company has long-term arena license agreements (the "Arena License
Agreements") with
As a result of the COVID-19 pandemic and league and government actions relating thereto, MSG Networks aired substantially fewer NBA and NHL telecasts during Fiscal Year 2021, as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19), and consequently experienced a decrease in revenues, including a material decrease in advertising revenue. The absence of live sports games also resulted in a decrease in certain MSG Networks expenses, including rights fees, variable production expenses, and advertising sales commissions. MSG Networks has resumed airing full regular season telecast schedules for its five professional teams across both the NBA and NHL, and, as a result, its advertising revenue and certain operating expenses, including rights fees expense, reflect the same.
Disruptions caused by the COVID-19 pandemic had a significant and negative
impact on
It is unclear to what extent COVID-19 concerns, including with respect to new variants, could result in new government or league-mandated capacity restrictions or vaccination/mask requirements or impact the use of and/or demand for our entertainment and dining and nightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations.
As a result of the material impact COVID-19 had on our revenues during Fiscal
Year 2021, we took several actions to improve our financial flexibility, reduce
operating costs and preserve liquidity, including (i) revising our construction
schedule for MSG Sphere (which has an anticipated opening date in the second
half of calendar year 2023), (ii) making significant cuts in both Entertainment
and Tao Group Hospitality venue and corporate headcounts (we have since begun
rehiring), and (iii) having our wholly-owned subsidiary,
In
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covenant waivers in the future.
The Company is building its first MSG Sphere in
In
For more information about the risks to the Company as a result of the COVID-19 pandemic and its impact on our operating results, see "Part I - Item 1A. Risk Factors - General Risk Factors - Our Operations and Operating Results Have Been, and Continue to be, Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues." of the Form 10-K.
Factors Related to the MSG Networks Business
As further discussed under Note 2 to the consolidated financial statements included in "- Item 1. Financial Statements" of this Quarterly Report on Form 10-Q, the financial performance of MSG Networks business is affected by the affiliation agreements the Company negotiates with Distributors (including rates, terms, and conditions as well as the ability to renew such agreements), the number of subscribers of our Distributors that receive MSG Networks, and also by the advertising rates we charge advertisers. Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams carried on the Company's networks as well as the cost and the attractiveness of the Company's programming content.
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