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 ofMadison Square Garden Sports Corp. and its direct and indirect subsidiaries (collectively, "we," "us," "our," "MSG Sports ," or the "Company"), including, with respect to the NBA and the NHL 2020-21 seasons, and the impact of COVID-19 on our future operations. Words such as "expects," "anticipates," "believes," "estimates," "may," "will," "should," "could," "potential," "continue," "intends," "plans," and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: •the duration and severity of the coronavirus pandemic and our ability to effectively manage the impacts, including the unavailability of The Garden and league decisions regarding the resumption of play; •the impact of the possible suspension or cancellation, or a change in the duration, of the 2020-21 NBA and NHL seasons on our ability to recognize revenue from national media rights fees; •the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams; •costs associated with player injuries, waivers or contract terminations of players and other team personnel; •changes in professional sports teams' compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax; •the level of our capital expenditures and other investments; •general economic conditions, especially in theNew York City metropolitan area; •the demand for sponsorship arrangements and for advertising; •competition, for example, from other teams, and other sports and entertainment options; •changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues' respective collective bargaining agreements (each a "CBA") with their players' associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate; •any NBA, NHL or other work stoppage in addition to those related to COVID-19 impacts; •any economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations; •seasonal fluctuations and other variation in our operating results and cash flow from period to period; •the level of our expenses, including our corporate expenses; •business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security; •activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and Rangers are played; •the evolution of the esports industry and its potential impact on our esports businesses; •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 or new businesses into our operations; •the operating and financial performance of our strategic acquisitions and investments, including those we may not control; •the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions (including for The Garden) and the ability for us andMSG Entertainment to maintain necessary permits or licenses; 29 -------------------------------------------------------------------------------- Table of Contents •the impact of any government plans to redesignNew York City's Pennsylvania Station ; •a default by our subsidiaries under their respective credit facilities; •business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings; •financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate; •our ownership of professional sports franchises in the NBA and NHL and certain related transfer restrictions on our common stock; •the tax-free treatment of the MSGS Distribution and the MSGE Distribution; •the performance byMSG Entertainment of its obligations under various agreements with the Company related to the MSGE Distribution and ongoing commercial arrangements; and •the factors described under "Risk Factors" in our Annual Report on Form 10-K for the year endedJune 30, 2020 . We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. 30 -------------------------------------------------------------------------------- Table of Contents 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 Company's Annual Report on Form 10-K for the year endedJune 30, 2020 , 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," "MSG Sports ," or the "Company" refer collectively toMadison Square Garden Sports Corp. , a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are conducted. OnApril 17, 2020 , the Company distributed all of the outstanding common stock ofMSG Entertainment to its stockholders.MSG Entertainment owns, directly or indirectly, the entertainment business previously owned and operated by the Company through itsMSG Entertainment business segment and the sports booking business previously owned and operated by the Company through itsMSG Sports business segment. In the MSGE Distribution, (a) each holder of the Company's Class A common stock, received one share of MSG Entertainment Class A common stock, par value$0.01 per share, for every share of the Company's Class A common stock held of record as of the close of business,New York City time, onApril 13, 2020 , and (b) each holder of the Company's Class B common stock, received one share of MSG Entertainment Class B common stock, par value$0.01 per share, for every share of the Registrant's Class B common stock held of record as of the close of business,New York City time, on the Record Date. Subsequent to the MSGE Distribution, the Company no longer consolidates the financial results ofMSG Entertainment for purposes of its own financial reporting and the historical financial results ofMSG Entertainment have been reflected in the Company's consolidated financial statements as discontinued operations for all periods presented through the MSGE Distribution Date. After giving effect to the MSGE Distribution, the Company operates and reports financial information in one segment. Factors Affecting Results of Operations MSGE Distribution In connection with the MSGE Distribution, the Company andMSG Entertainment entered into a number of related party agreements under which both companies will continue sharing certain revenues and expenses. See Note 15 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussions of the Company's related party transactions. The terms of certain related party agreements impact the comparability of the results of operations, primarily the following revenues and expenses. Suite License Fee Revenue Prior to the MSGE Distribution, suite license fee revenue was recognized based on the allocations between the Company'sMSG Sports and MSG Entertainment segments and was dependent on the total number of events held at The Garden. After the MSGE Distribution, the Company recognizes suite license fee revenue based on the Arena License Agreements and as games are played by the Knicks and Rangers. In addition, pursuant to the Arena License Agreements, the Company's aggregate share of the suite license fee is 67.5%, as compared to a higher percentage allocated to the Knicks and Rangers prior to the MSGE Distribution. Venue Sponsorship and Signage Prior to the MSGE Distribution, revenues from the sale of venue interior and exterior signage and sponsorship rights at The Garden that were not specific to our teams or entertainment events were allocated between the Company'sMSG Sports and MSG Entertainment segments and recognized over a fiscal year. Subsequent to the MSGE Distribution, pursuant to the Arena License Agreements, the Company no longer recognizes revenue related to exterior signage at The Garden, but rather only from the sale of venue interior signage space and sponsorship rights, which is now recognized over the Knicks and Rangers seasons. In addition, prior to the MSGE Distribution, costs associated with sponsorship and signage sales were allocated between the Company'sMSG Sports and MSG Entertainment segments. Subsequent to the MSGE Distribution, the Company pays sales commission fees along with the fixed fee pursuant to the sponsorship sales and service and representation agreements. Food, Beverage and Merchandise Sales Prior to the MSGE Distribution, the Knicks and Rangers reported revenues earned from food and beverage sales as gross revenue. The costs of food and beverage sales were reported in direct operating expenses. Pursuant to the Arena License Agreements, the Knicks and Rangers receive 50% of net profits from the sales of food and beverages during their games at The Garden. As such, the Company no longer recognizes costs of sales during the periods after the MSGE Distribution, and reports revenues earned from food and beverage sales as net revenues. In addition, pursuant to the Arena License Agreements, the Knicks and Rangers recognize sales of their merchandise at The Garden net of 30% commission paid toMSG Entertainment . 31 -------------------------------------------------------------------------------- Table of Contents Corporate Costs Results from continuing operations for the periods prior to the MSGE Distribution include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations. See "- Results of Operations - Comparison of the three months endedSeptember 30, 2020 versus the three months endedSeptember 30, 2019 " and Note 3 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for more information. Impact of COVID-19 on Our Business As a result of government-mandated assembly limitations and closures due to the COVID-19 pandemic, no events are currently permitted to be held at The Garden where the Knicks and Rangers play their home games, and some or all of these mandated restrictions may remain in effect even after the NBA and/or NHL resume for the 2020-21 seasons. No assurances can be made that games will be played at The Garden or will be played with any in-arena audiences or without limited-capacity in-arena audiences. COVID-19 disruptions have materially impacted the Company's revenues and we are recognizing materially less revenues, or in some cases no revenues, across a number of areas. Those areas include: ticket sales; our share of suite licenses; sponsorships; signage and in-venue advertising at The Garden; and food, beverage and merchandise sales. While we currently have the ability to reduce certain operating expenses as a result of the disruptions caused by COVID-19, including (i) rent payments toMSG Entertainment under the Arena License Agreements while The Garden remains closed, (ii) NBA league assessments and day-of-game expenses for the Knicks and Rangers games, (iii) league revenue sharing expense, and (iv) certain other selling, general and administrative and discretionary expenses, those expense reduction opportunities will not fully offset revenue losses. InAugust 2020 , the Company implemented cost-reduction measures, which included workforce reductions, limits on third-party vendor use and additional cuts to discretionary spending. Subsidiaries of the Company are parties to the Arena License Agreements with a subsidiary ofMSG Entertainment that requires the Knicks and Rangers to play their home games at The Garden. Under the Arena License Agreements, the Knicks and Rangers will pay an annual license fee in connection with their respective use of The Garden. The license fee for the first full contract year endingJune 30, 2021 is approximately$22,500 for the Knicks and approximately$16,700 for the Rangers, and then for each subsequent year, the license fees will be 103% of the license fees for the immediately preceding contract year. The Garden, however, is currently closed due to the COVID-19 pandemic and monthly rent is not required to be paid by the Knicks or Rangers. If The Garden reopens without capacity limitations, future monthly rent payments due under the Arena License Agreements will be payable by the Knicks and Rangers, even if the NBA or NHL seasons do not resume simultaneously or at all. If the Knicks or Rangers play games at The Garden subject to government mandated capacity constraints due to COVID-19, the applicable rent for such periods will be reduced by up to 80% depending on the size of the capacity constraint. This MD&A is organized as follows: Results of Operations. This section provides an analysis of our unaudited results of operations for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . Liquidity and Capital Resources. This section focuses primarily on (i) the liquidity and capital resources of the Company, (ii) an analysis of the Company's cash flows for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , and (iii) certain contractual obligations. Seasonality of Our Business. This section discusses the seasonal performance of our business. 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 2021. This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the year endedJune 30, 2020 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. 32 -------------------------------------------------------------------------------- Table of Contents Results of Operations Comparison of the three months endedSeptember 30, 2020 versus the three months endedSeptember 30, 2019 The table below sets forth, for the periods presented, certain historical financial information. Three Months Ended September 30, Change (a) 2020 2019 Amount Percentage Revenues$ 57,038 $ 49,850 $ 7,188 14 % Direct operating expenses 39,786 18,419 21,367 116 % Selling, general and administrative expenses 42,996 85,910 (42,914) (50) % Depreciation and amortization 1,660 4,845 (3,185) (66) % Operating loss (27,404) (59,324) 31,920 54 % Other expense: Interest expense, net (1,989) (284) (1,705) NM Miscellaneous expense, net (120) (86) (34) (40) % Loss from continuing operations before income taxes (29,513) (59,694) 30,181 51 % Income tax benefit 498 19,503 (19,005) (97) % Loss from continuing operations (29,015) (40,191) 11,176 28 % Loss from discontinued operations, net of taxes - (40,475) 40,475 NM Net loss (29,015) (80,666) 51,651 64 % Less: Net loss attributable to nonredeemable noncontrolling interests from continued operations (598) (450) (148) (33) % Less: Net loss attributable to redeemable noncontrolling interests from discontinued operations - (163) 163 NM Less: Net loss attributable to nonredeemable noncontrolling interests from discontinued operations - (72) 72 NM Net loss attributable toMadison Square Garden Sports Corp.'s stockholders$ (28,417) $ (79,981) $ 51,564 64 % _________________ NM - Percentage is not meaningful For the three months endedSeptember 30, 2019 , the reported financial results of the Company reflect the results of theMSG Entertainment business segment and the sports booking business, previously owned and operated by the Company through itsMSG Sports business segment, as discontinued operations. In addition, results from continuing operations for the same period include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and does not expect to incur in future periods, but which do not meet the criteria for inclusion in discontinued operations. The reported financial results of the Company for the three months endedSeptember 30, 2020 reflect the Company's results on a standalone basis, including the Company's actual corporate overhead. Revenues Revenues increased$7,188 to$57,038 for the three months endedSeptember 30, 2020 as compared to the prior year period. The net increase was attributable to the following: Increase in revenues from league distributions$ 30,341 Increase in local media rights fees from MSG Networks
2,139
Decrease in suite license fee revenue
(14,002)
Decrease in pre/regular season ticket-related revenues
(6,302)
Decrease in sponsorship and signage revenues
(2,890)
Decrease in pre/regular season food, beverage and merchandise sales
(1,291) Other net decreases (807)$ 7,188 33
-------------------------------------------------------------------------------- Table of Contents The increase in revenues from league distributions was primarily due to the recognition of the remainder of national media rights fees related to the 2019-20 NBA and NHL seasons during the three months endedSeptember 30, 2020 , that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020. After suspending the 2019-20 seasons inMarch 2020 due to COVID-19, the NHL and NBA subsequently restarted their seasons, which were completed in September andOctober 2020 , respectively. This increase related to national media rights fees was partially offset by decreases in other league distributions. The increase in local media rights fees from MSG Networks was primarily due to the recognition of local media rights fees associated with the Rangers' participation in the Stanley Cup Qualifiers during the three months endedSeptember 30, 2020 . The decrease in suite license fee revenue was primarily due to the impact of the MSGE Distribution. See "- Factors Affecting Results of Operations - MSGE Distribution - Suite License Fee Revenue" for more information. In addition, the decrease reflects the absence of Rangers preseason home games during the current year period. We will not recognize suite license fee revenue until the Knicks and Rangers resume playing home games at The Garden with fans in attendance. The decrease in pre/regular season ticket-related revenues was due to the absence of Rangers preseason home games during the current year period as compared to three preseason home games during the prior year period. We will not recognize pre/regular season ticket revenues until the Knicks and Rangers resume playing home games at The Garden with fans in attendance. The decrease in sponsorship and signage revenues was primarily due to the impact of the MSGE Distribution. See "- Factors Affecting Results of Operations - MSGE Distribution - Venue Sponsorship and Signage" for more information. In addition, the decrease reflects the absence of Rangers preseason home games during the current year period. We will continue recognizing significantly lower sponsorship and signage revenues until the Knicks and Rangers resume playing home games at The Garden with fans in attendance. The decrease in pre/regular season food, beverage and merchandise sales was primarily due to the absence of Rangers preseason home games in the current year period as compared to three home games during the prior year period. We will not recognize revenues from pre/regular season food and beverage sales and minimal revenues from merchandise sales until the Knicks and Rangers resume playing home games at The Garden with fans in attendance. Direct operating expenses Direct operating expenses increased$21,367 , or 116%, to$39,786 for the three months endedSeptember 30, 2020 as compared to the prior year period. The net increase was attributable to the following: Increase in team personnel compensation$ 13,410
Increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax
11,633
Increase in other team operating expenses not discussed elsewhere in this table primarily due to higher league assessments
1,275
Increase in net provisions for certain team personnel transactions
630
Decrease in pre/regular season expense associated with food, beverage and merchandise sales
(655)
Other net decreases, including expenses that did not meet the criteria for inclusion in discontinued operations in the prior year period
(4,926)$ 21,367 The increase in team personnel compensation was primarily due to the recognition of player compensation expense in the current year period that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020 as a result of the NBA completing the 2019-20 season inOctober 2020 . Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax were as follows: Three Months Ended September 30, 2020 2019 Increase
Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax
The increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) was due to adjustments to revenue sharing expense for the 2019-20 NBA and NHL seasons. Based on the completion of the 2019-20 NBA and NHL seasons, the Company recognized during the three months endedSeptember 30,2020 a portion of revenue sharing expense (net of escrow) related to those seasons that otherwise would have been recognized during the third and fourth quarters of fiscal year 2020. 34 -------------------------------------------------------------------------------- Table of Contents Net provisions for certain team personnel transactions were as follows: Three Months Ended September 30, 2020 2019 Increase Net provisions for certain team personnel transactions
Team personnel transactions for the three months endedSeptember 30, 2020 reflect provisions for waivers/contract terminations of$8,373 and a player trade of$2,500 . Team personnel transactions for the three months endedSeptember 30, 2019 include a net expense for waiver/contract termination costs. Selling, general and administrative expenses Selling, general and administrative expenses for the three months endedSeptember 30, 2020 decreased$42,914 , or 50%, to$42,996 as compared to the prior year period primarily due to lower corporate overhead costs, which in the prior year period included certain corporate expenses that the Company did not incur during the current year period and does not expect to incur in future periods, but which did not meet the criteria for inclusion in discontinued operations. This decrease was partially offset by an increase in employee compensation and related benefits, primarily as a result of restructuring charges, and fees related to the Company's sponsorship sales and service representation agreements withMSG Entertainment . Depreciation & amortization Depreciation and amortization for the three months endedSeptember 30, 2020 decreased$3,185 , or 66%, to$1,660 as compared to the prior year period primarily due to depreciation in the prior year period that do not meet the criteria for inclusion in discontinued operations and, to a lesser extent, certain asset being fully amortized. The decrease was partially offset by higher depreciation on assets placed into service during the third quarter of fiscal year 2020. Operating loss Operating loss for the three months endedSeptember 30, 2020 decreased$31,920 , or 54%, to$27,404 as compared to the prior year period primarily due to a decrease in selling, general and administrative expenses and, to a lesser extent, higher revenue, partially offset by higher direct operating expenses. Interest expense, net Net interest expense for the three months endedSeptember 30, 2020 increased$1,705 to$1,989 as compared to the prior year period primarily due to the Knicks and Rangers revolving credit facilities, which were drawn on inMarch 2020 . Income taxes See Note 16 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussions of the Company's income taxes. Adjusted operating loss The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) excluding (i) deferred rent expense under the Arena License Agreements withMSG Entertainment , (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, and (vi) the impact of purchase accounting adjustments related to business acquisitions, which is referred to as adjusted operating income (loss), a non-GAAP measure. Management believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company's business without regard to the settlement of an obligation that is not expected to be made in cash. In addition, management believes that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance. The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company's performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management's effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance 35 -------------------------------------------------------------------------------- Table of Contents with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss). The following are the reconciliations of operating loss to adjusted operating loss for the three months endedSeptember 30, 2020 as compared to the prior year period: Three Months Ended September 30, Change 2020 2019 Amount Percentage Operating loss$ (27,404) $ (59,324) $ 31,920 54 % Share-based compensation 6,345 13,796 Depreciation and amortization (a) 1,660 4,845 Restructuring charges 1,644 - Other purchase accounting adjustments - 50 Adjusted operating loss$ (17,755) $ (40,633) $ 22,878 56 % _________________ (a)Depreciation and amortization includes purchase accounting adjustments of$265 and$269 for the three months endedSeptember 30, 2020 and 2019, respectively. Adjusted operating loss for the three months endedSeptember 30, 2020 decreased$22,878 , or 56%, to$17,755 as compared to the prior year period. The decrease was lower than the decrease of operating loss primary due to lower share-based compensation and depreciation and amortization. Liquidity and Capital Resources Overview Our operations and operating results have been, and continue to be, materially impacted by the COVID-19 pandemic and government and league actions taken in response. The NBA and NHL suspended their 2019-20 seasons onMarch 11 and 12, 2020, respectively. OnMay 26, 2020 , the NHL announced return-to-play plans for 24 teams which beganAugust 1, 2020 . The Rangers were among the teams that returned to play in a 24-team tournament. OnJune 4, 2020 , the NBA announced plans to resume play onJuly 30, 2020 with 22 teams. The Knicks were not among the teams that returned to competition. For more information about the impacts and risks to the Company as a result of COVID-19, see "- Factors Affecting Results of Operations - Impact of COVID-19 on Our Business" and "Item 1A. Risk Factors - Our Operations and Operating Results Have Been, and Continue to be, Materially Impacted by the COVID-19 Pandemic and Government andLeague Actions Taken in Response" in the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2020 . Until the 2020-21 NBA and NHL seasons commence, our primary sources of liquidity are cash and cash equivalents and available borrowing capacity under our credit facilities. OnNovember 6, 2020 , the Company amended and extended the 2016 Knicks Credit Agreement and the 2017 Rangers Credit Agreement, and entered into the 2020 Knicks Holdings Credit Agreement (together with the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement, the "New Financing"), which provide for an aggregate of$250,000 of additional liquidity. In connection with the New Financing, the Company terminated its existing Knicks Unsecured Credit Facility and DDTL Facilities, described below. Once the 2020-21 NBA and NHL seasons commence, we also expect to have access to cash flow from our operations as a source of liquidity, but there can be no assurances that our expenses will not exceed our revenues, thereby presenting an ongoing use of liquidity. Our principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, and potential repurchases of shares of the Company's Class A Common Stock. As ofSeptember 30, 2020 , we had approximately$23,500 in unrestricted cash and cash equivalents. As ofSeptember 30, 2020 , the Company had approximately$138,000 in current deferred revenue obligations. This balance is primarily comprised of obligations in connection with tickets, local media rights, suites and sponsorships. The prepaid media rights payments are expected to be earned as the 2020-21 NBA and NHL seasons commence, but if those seasons do not commence, certain of those amounts are required to be returned. As a general matter, deferred revenue obligations relating to suites, tickets and sponsorships will be addressed, to the extent necessary, through credits, make-goods and/or refunds, as applicable. 36 -------------------------------------------------------------------------------- Table of Contents Cash and cash equivalents decreased from approximately$77,900 as ofJune 30, 2020 to approximately$23,500 as ofSeptember 30, 2020 , primarily reflecting the impact of compensation-related payments. This included significant amounts related to team and corporate personnel that typically occur in the first quarter and not during the balance of the year. These payments were partially offset by local media rights fees and advance season ticket sales, both related to the 2020-21 NBA and NHL seasons, along with escrow recoveries related to the 2019-20 NHL season. We regularly monitor and assess our ability to meet our net funding and investing requirements. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, management's view of a favorable allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, restrictions imposed by the NBA and NHL and challengingU.S. and global economic and market conditions could adversely impact its ability to do so at that time. We believe we have sufficient liquidity, including approximately$23,500 in unrestricted cash and cash equivalents as ofSeptember 30, 2020 , along with$250,000 of additional available borrowing capacity from the New Financing, to fund our operations, satisfy any obligations with respect to the return or application of deferred revenue and repay any outstanding debt that becomes due over the next 12 months. 2020 Knicks Revolving Credit Facility OnNovember 6, 2020 ,Knicks LLC , a wholly owned subsidiary of the Company, entered into the 2020 Knicks Credit Agreement with a syndicate of lenders providing for the 2020 Knicks Revolving Credit Facility to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default. The 2020 Knicks Revolving Credit Facility requiresKnicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As ofSeptember 30, 2020 ,Knicks LLC was in compliance with this financial covenant. The 2020 Knicks Revolving Credit Facility will mature and any unused commitments thereunder will expire onNovember 6, 2023 . All borrowings under the 2020 Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option ofKnicks LLC may be either (i) a base rate plus a margin ranging from 0.50% to 0.75% per annum or (ii) LIBOR plus a margin ranging from 1.50% to 1.75% per annum.Knicks LLC is required to pay a commitment fee ranging from 0.25% to 0.30% per annum in respect of the average daily unused commitments under the 2020 Knicks Revolving Credit Facility. The outstanding balance under the 2020 Knicks Revolving Credit Facility was$220,000 as ofNovember 9, 2020 . All obligations under the 2020 Knicks Revolving Credit Facility are secured by a first lien security interest in certain ofKnicks LLC's assets, including, but not limited to, (i) theKnicks LLC's membership rights in the NBA and (ii) revenues to be paid to theKnicks LLC by the NBA pursuant to certainU.S. national broadcast agreements. Subject to customary notice and minimum amount conditions,Knicks LLC may voluntarily prepay outstanding loans under the 2020 Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans).Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the 2020 Knicks Revolving Credit Facility is greater than 350% of qualified revenues. In addition to the financial covenant described above, the 2020 Knicks Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2020 Knicks Revolving Credit Facility contains certain restrictions on the ability ofKnicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2020 Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2020 Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders' liens on anyKnicks LLC's collateral. The foregoing description of the 2020 Knicks Credit Agreement is qualified in its entirety by reference to that agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference. 2020 Knicks Holdings Revolving Credit Facility OnNovember 6, 2020 ,Knicks Holdings entered into the 2020Knicks Holdings Credit Agreement with a syndicate of lenders providing for the 2020 Knicks Holdings Revolving Credit Facility to fund working capital needs and for general corporate purposes. The 2020 Knicks Holdings Revolving Credit Facility requiresKnicks Holdings to comply with a debt service ratio of 1.1:1.0 over a trailing four quarter period. 37 -------------------------------------------------------------------------------- Table of Contents The 2020 Knicks Holdings Revolving Credit Facility will mature and any unused commitments thereunder will expire onNovember 6, 2023 . All borrowings under the 2020 Knicks Holdings Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the 2020Knicks Holdings Revolving Credit Facility bear interest at a floating rate, which at the option ofKnicks Holdings may be either (i) a base rate plus a margin ranging from 1.00% to 1.25% per annum or (ii) LIBOR plus a margin ranging from 2.00% to 2.25% per annum.Knicks Holdings is required to pay a commitment fee ranging from 0.375% to 0.50% per annum in respect of the average daily unused commitments under the 2020 Knicks Holdings Revolving Credit Facility. The 2020 Knicks Holdings Revolving Credit Facility is currently undrawn as ofNovember 9, 2020 . All obligations under the 2020 Knicks Holdings Revolving Credit Facility are secured by debt service and distribution accounts maintained byKnicks Holdings , and includes a guarantee fromMSG NYK Holdings, LLC , an indirect wholly-owned subsidiary of the Company and the direct parent ofKnicks Holdings . Subject to customary notice and minimum amount conditions,Knicks Holdings may voluntarily prepay outstanding loans under the 2020 Knicks Holdings Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans).Knicks Holdings is required to make mandatory prepayments in certain circumstances, including if the amount of commitments under the 2020 Knicks Holdings Revolving Credit Facility increase above$350,000 . In addition to the financial covenant described above, the 2020Knicks Holdings Revolving Credit Facility and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2020 Knicks Holdings Revolving Credit Facility contains certain restrictions on the ability ofKnicks Holdings to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2020 Knicks Holdings Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2020 Knicks Holdings Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders' liens on anyKnicks Holdings' collateral. The foregoing description of the Knicks Holdings Credit Agreement and related security agreements is qualified in its entirety by reference to those agreements, which are attached hereto as Exhibits 10.2 and 10.3 and are incorporated herein by reference. Knicks Unsecured Credit Facility OnSeptember 30, 2016 ,Knicks LLC entered into the Knicks Unsecured Credit Facility.Knicks LLC renewed this facility with the lender on the same terms in successive years and the facility was renewed for a new term effective as ofSeptember 25, 2020 . There was no borrowing under the Knicks Unsecured Credit Facility as ofSeptember 30, 2020 . OnNovember 6, 2020 , the Company terminated the Knicks Unsecured Credit Facility in connection with the New Financing. 2020 Rangers Revolving Credit Facility OnNovember 6, 2020 ,Rangers LLC entered into the 2020 Rangers Credit Agreement with a syndicate of lenders providing for the 2020 Rangers Revolving Credit Facility to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default. The 2020 Rangers Revolving Credit Facility requiresRangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As ofSeptember 30, 2020 ,Rangers LLC was in compliance with this financial covenant. The 2020 Rangers Revolving Credit Facility will mature and any unused commitments thereunder will expire onNovember 6, 2023 . All borrowings under the 2020 Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option ofRangers LLC may be either (i) a base rate plus a margin ranging from 0.75% to 1.25% per annum or (ii) LIBOR plus a margin ranging from 1.75% to 2.25% per annum.Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the 2020 Rangers Revolving Credit Facility. The outstanding balance under the 2020 Rangers Revolving Credit Facility was$160,000 as ofNovember 9, 2020 . All obligations under the 2020 Rangers Revolving Credit Facility are secured by a first lien security interest in certain ofRangers LLC's assets, including, but not limited to, (i)Rangers LLC's membership rights in the NHL, (ii) revenues to be paid toRangers LLC by the NHL pursuant to certainU.S. and Canadian national broadcast agreements, and (iii) revenues to be paid toRangers LLC pursuant to local media contracts. Subject to customary notice and minimum amount conditions,Rangers LLC may voluntarily prepay outstanding loans under the 2020 Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans).Rangers LLC is required to make mandatory prepayments in certain 38 -------------------------------------------------------------------------------- Table of Contents circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount under the 2020 Rangers Revolving Credit Facility. In addition to the financial covenant described above, the 2020 Rangers Credit Agreement and related security agreements contain certain customary representations and warranties, affirmative covenants and events of default. The 2020 Rangers Revolving Credit Facility contains certain restrictions on the ability ofRangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the 2020 Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the 2020 Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders' liens on any ofRangers LLC's assets securing the obligations under the 2020 Rangers Revolving Credit Facility. The foregoing description of the 2020 Rangers Credit Agreement is qualified in its entirety by reference to that agreement, which is attached hereto as Exhibit 10.4 and is incorporated herein by reference. Delayed Draw Term Loan Credit Facilities As an additional source of liquidity for the Company in response to the COVID-19 pandemic, onApril 17, 2020 ,MSG NYR Holdings, LLC andMSG NYK Holdings, LLC , two indirect wholly-owned subsidiaries of the Company, each entered into a separate delayed draw term loan credit agreement with the DDTL Lender. The credit agreement for the Knicks DDTL Facility Borrower provides for a$110,000 Knicks DDTL Facility and the credit agreement for the Rangers DDTL Facility Borrower provides for a$90,000 Rangers DDTL Facility. OnNovember 6, 2020 , the Company terminated the DDTL Facilities in connection with the New Financing. Financing Agreements and Stock Repurchases See Note 11 and Note 14 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussions of the Company's debt obligations and various financing agreements, and the Company's stock repurchases, respectively. Contractual Obligations The Company did not have any material changes in its contractual obligations since the end of fiscal year 2020 other than activities in the ordinary course of business. Cash Flow Discussion The following table summarizes the Company's cash flow activities for the three months endedSeptember 30, 2020 and 2019: Three Months Ended September 30, 2020 2019 Net loss $
(29,015)
7,459 45,477 Subtotal (21,556) (35,189) Changes in working capital assets and liabilities (35,929) 955 Net cash used in operating activities (57,485) (34,234) Net cash used in investing activities (80) (74,236) Net cash used in financing activities (6,902) (23,946)
Effect of exchange rates on cash, cash equivalents and restricted cash
- (1,950) Net decrease in cash, cash equivalents and restricted cash$ (64,467) $ (134,366) Operating Activities Net cash used in operating activities for the three months endedSeptember 30, 2020 increased by$23,251 to$57,485 as compared to the prior year period due to changes in working capital assets and liabilities partially offset by the decrease in net loss adjusted for non-cash items. Net cash used in operating activities for the prior year period was not adjusted to exclude net cash used in discontinued operations. Investing Activities Net cash used in investing activities for the three months endedSeptember 30, 2020 decreased by$74,156 to$80 as compared to the prior year period primarily driven by investing activities in discontinued operations in the prior year period. Investing 39 -------------------------------------------------------------------------------- Table of Contents activities included in discontinued operations in the prior year period primarily consisted of capital expenditures related toMSG Entertainment's planned MSG Spheres inLas Vegas andLondon partially offset by proceeds received from the sale of interest in a nonconsolidated affiliate. Financing Activities Net cash used in financing activities for the three months endedSeptember 30, 2020 decreased by$17,044 to$6,902 as compared to the prior year period. This decrease was primarily due to lower taxes paid in lieu of shares issued for equity-based compensation in the current year period as compared to the prior year period. Taxes paid in lieu of shares issued for equity-based compensation in the prior year period included taxes associated withMSG Entertainment employees. Seasonality of Our Business The Company's dependence on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company's fiscal year. OnMarch 11 and 12, 2020, respectively, the NBA and NHL suspended their 2019-20 seasons due to COVID-19. In July andAugust 2020 , the NBA and NHL, respectively, restarted their seasons. As a result, the Company recognized certain revenues that otherwise would have been recognized during the third and fourth quarter of fiscal year 2020 during the first quarter of fiscal year 2021. In addition, depending on when the 2020-21 NBA and NHL seasons commence, the Company might recognize certain revenues during the third and fourth quarters of fiscal year 2021, that otherwise would have been recognized during the second and third quarters of fiscal year 2021, respectively. Recently Issued Accounting Pronouncements and Critical Accounting Policies Recently Issued Accounting Pronouncements See Note 2 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements. Critical Accounting Policies The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2021. There have been no material changes to the Company's critical accounting policies from those set forth in our Annual Report on Form 10-K for the year endedJune 30, 2020 .Goodwill The carrying amount of goodwill as ofSeptember 30, 2020 is$226,955 .Goodwill is tested annually for impairment as ofAugust 31st and at any time upon the occurrence of certain events or changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level, which is the same as or one level below the operating segment level. The Company has one operating and reportable segment, and one reporting unit for goodwill impairment testing purposes. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair value of the Company's reporting units are primarily determined using discounted cash flows and comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables. Significant judgments inherent in a discounted cash flow analysis include the selection of the appropriate discount rate, the estimate of the amount and timing of projected future cash flows and identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows. The amount of an impairment loss is measured as the amount by which a reporting unit's carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill. The Company elected to perform the qualitative assessment of impairment for the Company's reporting unit for the fiscal year 2021 impairment test. These assessments considered factors such as: •macroeconomic conditions; •industry and market considerations; •market capitalization; 40 -------------------------------------------------------------------------------- Table of Contents •cost factors; •overall financial performance of the reporting unit; •other relevant company-specific factors such as changes in management, strategy or customers; and •relevant reporting unit specific events such as changes in the carrying amount of net assets. The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2021, and there was no impairment of goodwill. Based on this impairment test, the Company's reporting unit had sufficient safety margins, defined as the excess of the amount by which the estimated fair value of the reporting unit exceeded the carrying value of the reporting unit, including goodwill. The Company believes that if the fair value of a reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized. Identifiable Indefinite-Lived Intangible Assets Identifiable indefinite-lived intangible assets are tested annually for impairment as ofAugust 31st and at any time upon the occurrence of certain events or substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company's consolidated balance sheet as ofSeptember 30, 2020 : Sports franchises$ 111,064 Photographic related rights 1,080$ 112,144 The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets. These assessments considered the events and circumstances that could affect the significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include: •cost factors; •financial performance; •legal, regulatory, contractual, business or other factors; •other relevant company-specific factors such as changes in management, strategy or customers; •industry and market considerations; and •macroeconomic conditions. The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2021, and there were no impairments identified. Based on this impairment test, the Company's indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset's estimated fair value over its respective carrying value. The Company believes that if the fair value of an indefinite-lived intangible asset exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized. Item 3. Quantitative and Qualitative Disclosures About Market Risk Except for the broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets, there were no material changes to the disclosures regarding market risks in connection with our interest rate risk exposure and commodity risk exposure. See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year endedJune 30, 2020 . In addition, see Item 2, "- Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Results of Operations - Impact of COVID-19 on Our Business" of this Quarterly Report on Form 10-Q for discussions of disruptions caused by COVID-19. Potential interest rate risk exposure: We have potential interest rate risk exposure related to outstanding borrowings incurred under our credit facilities. Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under the credit facilities. 41 -------------------------------------------------------------------------------- Table of Contents Borrowings under our credit facilities incur interest, depending on our election, at a floating rate based upon LIBOR, theU.S. Federal Funds Rate or theU.S. Prime Rate, plus, in each case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. As ofSeptember 30, 2020 , we had a total of$350 million borrowings outstanding under our credit facilities. The effect of a hypothetical 100 basis point increase in floating interest rates prevailing as ofSeptember 30, 2020 and continuing for a full year would increase interest expense by approximately$3.5 million . Item 4. Controls and Procedures An evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that as ofSeptember 30, 2020 the Company's disclosure controls and procedures were effective. There were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter endedSeptember 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 42 --------------------------------------------------------------------------------
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