The absence of games and fans as a result of the pandemic caused Madison Square Garden Sports revenues to plunge 90% in the second quarter, while net income swung to a $41.1 million loss, compared to a $92.4 million profit in the last calendar quarter of 2019.
The parent of the NBA’s New York Knicks and the NHL’s New York Rangers saw decreases across almost every metric in the period, its second fiscal quarter. It’s no surprise: The NHL season didn’t start until January and the NBA season also began late, with the Knicks playing just nine home and away games in the quarter, including the preseason. In a normal year, both teams will play 76 or more games in the period.
MSG Sports is one of the few North American sports groups to be publicly traded, and the losses were largely expected. The company beat analyst consensus on revenues by about 5% and missed estimates on the loss by about 10%. MSG Sports stock traded slightly lower on the news this morning, to around $167 a share.
MSG Sports management emphasized the future outlook on its earnings call with analysts mid-morning today, noting that there is 75% renewal rate of season tickets between the two teams. MSG Sports president and CEO Andrew Lustgarten noted they are taking very low deposit amounts and not yet charging people on renewals in an effort to be fan-friendly. That shouldn’t affect near-term liquidity, citing recent debt raises by both the NBA and NHL that provide each franchise with about $30 million. The Rangers have yet to decide if they will access the available NHL funds, however, Victoria Mink, MSG Sports chief financial officer, said.
In prepared remarks to start the call, Lustgarten called out the new framework in the NBA that will allow private equity to own stakes in teams, “which we believe will help drive team valuations,” he said. The executive declined to comment on an analyst’s question on whether the company would consider selling a Knicks stake to private equity under the framework. He also declined to comment when asked if the NBA is considering permitting private equity firms to buy majority control of franchises—the current framework permits only minority stakes in a limited number of teams. The Knicks are the most valuable franchise in the league, and it is widely believed the team would sell for more than their stock market valuation, if ever put on the market.
Sports betting is also seen as a future benefit, with New York possibly becoming the largest sportsbook market when it is legalized, as is proposed. “We like it for what it does for fan engagement during programing and the ability to drive extra eyeballs, drive sponsorship and, implicitly, the media rights that come from increased engagement,” Lustgarten said. “There are many other ways to make money.” He declined to comment on whether an integrity fee—in which pro teams get a slice of betting revenue—is being discussed.
Media rights were also of high interest to Wall Street analysts on the call, given both NHL and NBA national contracts are expiring over the next couple of years. There was no information on the NHL’s contract, which runs through the end of this season, however. “As everyone knows the media landscape is constantly evolving, and distribution patterns are going to change,” Lustgarten said, later adding, “The one thing we know is content is king, and there is nothing like live sports for premium content…. The more platforms that are out there the more buyers and the more value in our products.”
MSG Sports also emphasized the core of young players on both its franchises as another reason analysts should be bullish on the company. Lustgarten cited the Rangers’ Alexis Lafreniere and Knicks draft pick Obi Toppin and draft-day acquisition Immanuel Quickley by name. He also noted the teams have been working to improve fan engagement, holding small social media roundtables with players, executives and alumni and providing behind-the-scenes content. “But, obviously, getting fans back in the building is what we’re really looking forward to,” added Mink.
The Madison Square Garden group of companies is controlled by the Dolan family through supervoting stock and is split into three publicly traded businesses. MSG Sports is the holding company for the sports teams, and includes a couple of G League teams and an esports franchise. The arena itself is owned by MSG Entertainment, which reports its second quarter earnings next week. MSG Sports noted its licensing fee for use of the arena is currently reduced by 80%. The regional sports network, MSG Network, announces its quarterly results tomorrow.
(This story has corrected Victoria Mink’s title to CFO and added CEO to Andrew Lustgarten’s title in the fourth paragraph. The next to last paragraph has been corrected to show that Lustgarten cited the Knicks’ Immanuel Quickley by name, not Leandro Bolmaro.)