Madison Square Garden Sports Corp. (MSGS) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Christy and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Madison Square Garden Company Fiscal 2017 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Ari Danes, Senior Vice President of Investors Relations for the Madison Square Garden Company. Please go ahead, sir.

Thanks, Christy. Good morning and welcome to the Madison Square Garden Company’s fiscal 2017 second quarter earnings conference call. Our President and CEO, Doc O’Connor will begin this morning’s call with a discussion of the Company’s operations. This will be followed by a review of our financial results with Donna Coleman, our EVP and Chief Financial Officer. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today’s earnings release, it is available in the investors section of our corporate website. Please take note of the following. Today’s discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties. And that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors. These include financial community perceptions of the company and its business, operations, financial condition and the industry in which it operates. As well as the factors described in the Company’s filings with the Securities and Exchange Commission, including the sections entitled Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained therein. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. Lastly, on Page 4 of today’s earnings release, we provide consolidated and combined statements of operations and a reconciliation of operating income to adjusted operating income. I would like now introduce Doc O’Connor, President and CEO of the Madison Square Garden Company. Doc O’Connor: Thank you, Ari, and good morning, everyone. For the FY2017 second quarter, we reported robust top-line and adjusted operating income growth, driven by broad-based strength across our entertainment and sports businesses, as we remained focused on delivering exceptional live experiences for our customers and partners. One area where we’ve seen steady improvement is in the utilization of our venues, as we’ve continued to successfully attract more premium events. For example, in the second quarter, we once again benefited from an increase in the overall number of concerts held at our venues, reflecting a healthy overall concert industry, the strength of our venues and markets, improved operations, and our ongoing efforts to drive growth through multi-night and multi-market engagements. In fact, we had an outstanding quarter in terms of multi-night shows, which, with a year-over-year increase of over 20%, represented nearly half of all concerts hosted at our venues during the quarter. And included Billy Joel, Louis C.K., and Phish at The Garden; Jerry Seinfeld, Mariah Carey and Steely Dan at The Beacon; and Kanye West at The Forum. We were also able to drive an increase in multi-market shows hosting artists at more than one of our venues in New York, Los Angeles, Chicago and Boston. This was highlighted by our success in booking artists at our two largest venues, The Madison Square Garden Arena and The Forum. During the quarter, artists who played both of these iconic venues included Temple of the Dog, Maxwell and Stevie Nicks, as well as comedian Amy Schumer. Our momentum on the multi-night, multi-market front has continued into the third quarter, as both Ariana Grande and Eric Clapton are scheduled to play both The Garden and The Forum, while Wilco will play four nights at The Chicago Theatre, followed by four nights at The Beacon. As we’ve talked about previously, another one of our approaches to increasing venue utilization is attracting new types of events to our venues. During the second quarter, this included two Marquee sporting events – League of Legends, the popular eSports tournament, which we hosted for four sold-out nights at The Chicago Theatre, followed by two sold-out nights at The Garden. And the first-ever UFC event in New York State, which took place at the world’s most famous arena, and became the highest-grossing single-night event in the history of The Garden, as well as an extremely profitable event for MSG. Next month we look forward to hosting more Marquee sporting events at The Garden, including: the annual BNP Paribas Showdown, which this year celebrates its 10th anniversary. The Big East Tournament, which MSG will host for the 35th consecutive year. Championship boxing, as Gennady Golovkin takes on Daniel Jacobs for the middleweight title. And the NCAA basketball East Regional finals, which returns to The Garden for the second time in four years. The strength of our bookings business in the quarter was matched by the success of our popular Christmas Spectacular production, which celebrated its 84th year this past holiday season. With a continued focus on insuring that we are operating as efficiently and effectively as possible, this past season we made changes across the board to how we operate, market and sell the Christmas Spectacular, driving record revenue and record-average ticket prices. We created operational efficiencies that resulted in lower production costs, utilized more customer data to drive marketing decisions, and redeployed marketing dollars from traditional to nontraditional channels. We also shifted our focus from ticket volume to maximizing ticket revenue, and developed a show-by-show sales strategy, with the goal of driving higher ticket yields. Finally and most importantly, as we did for our sports teams, this year we implemented significant changes to how we sell Christmas Spectacular tickets. By eliminating sales to third-party brokers, we brought tens of thousands of tickets back in-house, creating the opportunity for more customers to buy tickets to the production directly from us. And in turn, for us to have an enhanced relationship with a greater portion of the show’s fan base, while also recapturing margin from ticket brokers. Our strategy paid off in a meaningful way, as we again sold over 1 million tickets to the production this season, while also driving a substantial increase in average ticket prices. In fact, we achieved our record level of revenue for this year’s show even with seven fewer performances than we had in 2015, making this a great example of the kind of organic growth we can achieve as we continue to drive operational improvements. We’ve now turned our attention to our second Rockettes franchise, the New York Spectacular. As we talked about previously, we made some significant changes to last year’s show, with the goal of creating a production for the long-term, and are currently in the process of reviewing the show. Including the timing of the production, as well as additional improvements from both a content and operating standpoint. With respect to our sports franchises, the Rangers, led by captain Ryan McDonagh, who was named to the NHL All-Star Team for the second consecutive year, are currently in playoff position with the fifth best record in the Eastern Conference, the league’s toughest division, and the eighth best record overall. And while the Knicks had a tough January, the team continues to battle for a playoff spot, and is currently one and a half games from the eighth spot in the Eastern Conference. As you know, we also made changes to our Knicks and Rangers ticketing policies this year, which is driving a meaningful change in the mix of ticket products sold, and is creating the opportunity for more fans to buy tickets directly from us. We are very pleased with the results so far this year, as our teams have continued to play to at or near-capacity crowds at The Garden. Thanks to our planned reduction in full-season ticket sales being met, to date, by strong demand for partial season plans, as well as group and individual tickets. While season tickets still represent the majority of sales, we believe the strategy of selling smaller packages to more fans is delivering the best of both worlds, as it creates a positive impact on revenue, while also broadening our customer base. Local and media rights revenues was another area of growth for the Company, making up over half of the increase in MSG Sports revenue in the quarter. Last year we experienced outsized growth in this revenue line, due to our new local media rights agreement with MSG Networks. This year we’re seeing the benefit from the NBA’s new national media rights deal with Disney and Time Warner. Our long-term local media rights agreements and the league’s long-term national rights deals both highlight the increasing value of live sports content, and represent a predictable and growing revenue source for our company. On the sponsorship and signage front, last quarter we announced that we had renewed and expanded our signature marketing partnership with Anheuser-Busch. This momentum has continued, as earlier this week we announced a renewed multi-year agreement with signature partner Lexus, which we were also able to significantly expand. With the renewed agreement, Lexus continues to be the official luxury auto partner and luxury vehicle of Madison Square Garden, The Theatre at Madison Square Garden, the New York Knicks, Rangers and Liberty, and the concert series at Madison Square Garden. At the world’s most famous arena, Lexus will continue to have a prominent presence as the presenting partner of both the seventh-floor suite level and the third-floor terrace level. Further, Lexus will now expand that presence through increased activations and enhanced branding, including in-bull signage. Lexus has also expanded its partnership outside of the arena, to become the official luxury auto partner and luxury vehicle of Radio City Music Hall, the Christmas Spectacular and the New York Spectacular. And we’ll have a permanent Lexus vehicle activation on display in Radio City’s Grand Lounge. Similar to our Marquee and signature marketing partnerships, we entered into multi-year agreements for our Event, Madison and Signature Level Suite products as part of The Garden transformation. We are at the beginning of the renewal cycle for a number of those agreements, and are pleased to say we’ve made great early progress with respect to suites that come up for renewal in fiscal 2018, reaching new, multi-year deals with solid, built-in annual escalators. Furthermore, we remain confident in our ability to extend and expand the rest of these agreements, given the strength of the premium sports and entertainment content we offer at The Garden, which we have continued to grow over the past several quarters. In addition to an outstanding quarter for our core operations, we’ve made real progress on our goal of strengthening and expanding our live experience offerings. As you know, in 2016, we purchased a controlling interest in Boston Calling Events. The entertainment production company is responsible for one of the largest metropolitan music festivals in the world, Boston Calling, and is taking important steps to continue to grow this premiere New England event. Last year, Boston Calling announced that, starting in 2017, the festival will take place annually on Memorial Day weekend, and relocate to the Harvard Athletic Complex, significantly expanding the festival’s capacity, and enabling Boston Calling to further develop its content offerings. This was followed last month by Boston Calling announcing its 2017 music lineup, which Billboard Magazine referred to as, "a Lineup Festival Dreams Are Made Of". In addition, Consequence of Sound, an influential online music website, published its top music festivals of the year based on lineup, and ranked Boston Calling number two in the U.S., and number four worldwide. Tool, Mumford & Sons, and Chance the Rapper will headline the three-day event, which this year will welcome 45 acts, compared with 27 in 2016. The festival will also feature a brand-new film experience, curated by Academy Award-winning actress, producer and director Natalie Portman, along with comprehensive food, drink and visual arts components. In addition, MSG and Boston Calling worked together to bring on MSG’s signature marketing partner Delta Airlines, along with Miller Lite, Samuel Adams and 47 brand as the initial sponsors for this year’s festival. And we look forward to Boston Calling announcing more partnerships in the coming months. Another important growth strategy for the company has been the exploration of adjacencies that complement our existing business and broaden our portfolio of live experiences. This week, we announced that MSG acquired a 62.5% controlling interest in a newly formed TAO Group, which strengthens our portfolio of live offerings with a complementary world-class entertainment, dining and hospitality group. TAO Group’s highly experienced and entrepreneurial management team has transformed the traditional dining and night-life business by creating truly unique and innovative live experiences in some of the most vibrant entertainment markets in the world. The management team retained a 37.5% interest in TAO Group, which operates 19 entertainment, dining and nightlife venues in New York City, Las Vegas, and Sydney, Australia, with globally recognized brands – Tao, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal. Combined, these venues welcome more than 4 million customers each year, and include four of the top 11 highest-grossing restaurants in the U.S. As a result, TAO already generates a significant level of revenue and adjusted operating income. Furthermore, we believe the business has meaningful growth potential, as the company moves forward with its plans to pursue additional venue opportunities, both domestically and internationally. In fact, TAO Group is already in contract to open 13 new venues, five in New York City, eight in Los Angeles, Chicago and Singapore. In addition to adding a business with high-growth potential, we believe this partnership will create significant value for both Companies. MSG and TAO Group will work together to create new and innovative premium hospitality experiences that can be integrated across MSG’s growing portfolio of live offerings, including our iconic venues and music and film festivals. TAO Group currently operates in New York and Las Vegas, and with plans to add venues in Los Angeles and Chicago, will overlap significantly with MSG’s markets, creating increased customer touch points and premium packaging opportunities, using both Group and MSG venues. We welcome TAO Group to the MSG family, and look forward to working together on creating truly unique and exceptional entertainment experiences. In summary, we are pleased with what we have been able to accomplish operationally across our sports and entertainment businesses, as well as with the real progress we are making in expanding our portfolio of live offerings, with compelling assets that create new avenues for growth. As we look to continue to build on this momentum, we remain confident the company is well-positioned to drive attractive, long-term growth in asset value creation for our shareholders. With that, I’ll now turn the call over to Donna, who will take you through our financial results.

Thank you, Doc, and good morning, everyone. I would like to start by highlighting that financial results for both the fiscal 2017 and fiscal 2016 second quarters reflect MSG’s results on a standalone basis, including the Company’s actual corporate, general and administrative costs. Furthermore, this represents the first quarter since our spin-off that MSG Networks – from MSG Networks where the year-over-year results of MSG are fully comparable in this regard, on a total company basis. With that said, let’s turn to results for the second quarter, as compared to the prior-year period. For the fiscal 2017 second quarter, the company generated total revenues of $445.2 million, an increase of 8%, and adjusted operating income of $96 million, an million, an increase of 17%. At MSG Entertainment, second-quarter revenues were $192.5 million, an increase of 6%. This increase was primarily due to higher revenues for the Christmas Spectacular production, and higher overall event-related revenues at the Company’s venues, as well as an increase in venue-related sponsorship signage and suite-rental fee revenues. With respect to the Christmas Spectacular, we drove a strong year-over-year increase in revenues this holiday season. As Doc mentioned, we again sold over 1 million tickets to the Christmas Spectacular, which represented a low single-digit percentage decrease versus the 2015 holiday season, due to seven fewer scheduled performances this year. Partially offset by an increase in average per-show paid attendance. More notably, we drove a high single-digit percentage increase in average ticket prices, which led to the meaningful increase in revenue for the production. We believe eliminating third-party brokers, which shifted us even further to a predominantly direct-to-consumer model, played a large part in the price improvement. In terms of event-related revenues, growth this quarter was led by the Forum, and to a lesser extent, by an increase at The Garden, partially offset by lower revenues at The Theater at Madison Square Garden. MSG Entertainment generated adjusted operating income of $63.7 million, an increase of 30% versus the prior-year quarter. The increase in adjusted operating income primarily reflects an increase in Christmas Spectacular contribution and higher overall event-related contribution at the Company’s venues. At MSG Sports, second quarter revenues were $252.7 million, an increase of 10%. This increase was led by higher league distributions, which reflected the impact of the NBA’s new national media rights deals. We also delivered higher professional sports team ticket-related revenue, mainly due to higher-average per-game revenue, and one more Rangers preseason game, as compared to the year-ago quarter. The increase in average per-game revenue reflects, in part, the change in mix to fewer full-season packages and more partial-season plans, as well as group and individual tickets. In addition, we generated an increase in event-related revenues from other live sporting events, which reflects a favorable mix of events, and to a lesser extent, an increase in the number of events. Among other factors, this quarter’s results reflected multiple successful Marquee sporting events, including the UFC event at The Garden, and the League of Legends eSports Tournament at two of our venues. Lastly, we saw growth in other MSG Sports revenue lines, including professional sports team food, beverage and merchandise sales, and local media rights fees from MSG Networks. MSG Sports’ second quarter adjusted operating income of $47.2 million increased 3%. This was primarily due to the increase in revenues, largely offset by higher direct operating expenses, and to a lesser extent, an increase in SG&A expense. The increase in direct operating expenses at MSG Sports was led by higher team personnel compensation. As a reminder, in connection with the NBA’s new national media rights deals, the league’s salary cap increased significantly this season. The increase in direct operating expenses also reflects higher net provisions for NBA and NHL revenue-sharing expense, higher event-related expenses associated with other live sporting events, and higher other team operating expenses. Lastly, other adjusted operating loss increased by $2.4 million to a loss of $14.9 million in the fiscal 2017 quarter. This increase was primarily due to higher employee compensation and related benefits, and an increase in the Company’s provision for New York State and City capital tax, partially offset by lower professional fees. Turning to the TAO transaction, MSG purchased a controlling interest in a newly formed TAO Group in a transaction that values the Company at approximately $400 million, including debt. And subject to certain closing adjustments and a contingent earnout. To give you some perspective on valuation, on an unaudited basis, TAO Group generated revenues of $235 million and pro forma adjusted operating income of $43 million for calendar 2016. Let me now walk you through the key components of this transaction. MSG paid $181 million for a 62.5% common equity stake in the Company, as well as $8.7 million for a preferred equity interest, with additional preferred equity purchased by members of the TAO Group team. While TAO’s founders and other members of the TAO Group team sold a portion of their ownership stake, they retained a 37.5% common equity interest, valued at approximately $108 million. I would add that this transaction has also been partly financed by a $110 million, five-year term loan at TAO Group. This is debt is non-recourse to The Madison Square Garden Company. The amounts paid by MSG, together with the proceeds of the term loan and the preferred equity, less various fees and expenses, have primarily been paid to the TAO Group equity sellers. In addition, MSG will receive a tax step-up for nearly the entire purchase price paid, plus a delectable share of TAO Group debt used to acquire existing equity interest, which will primarily be amortized over 15 years, effectively reducing the purchase price. Lastly, we will consolidate TAO Group’s results in our financial statements starting in our fourth quarter. And are pleased to have added to our existing live entertainment portfolio a complementary business that we believe will drive both strategic and financial benefits. I would also note the fiscal third quarter results will reflect transaction costs related to our TAO Group acquisition. Turning to our balance sheet, as of December 31, total unrestricted cash and cash equivalents was approximately $1.4 billion. In addition, on January 25, the New York Rangers entered into a five-year, $150 million senior secured revolving credit facility, which along with our New York Knicks credit facility, is available to fund working capital needs and for general corporate purposes. This includes providing MSG with $365 million of liquidity, behind our substantial cash balance on hand. There have been no borrowings made on any of these credit facilities to date. Lastly, we did not repurchase stock during the second quarter, as we neared our acquisition of TAO Group. In conjunction with our announcement of the transaction, we disclosed our intent to enter into a new 10b5-1 stock repurchase plan. This plan will allow us to buy back stock, including during periods when we might otherwise be prevented from making open-market purchases. Further, we have $347 million of availability remaining under our current share repurchase authorization. With that, I’ll now turn the call back to Ari.

Thank you, Donna. Christy, can we open up the call for questions?

Sure. [Operator Instructions] And your first question comes from Michael Morris of Guggenheim.

Hi, thank you, good morning. A couple of additional questions on the TAO investment and partnership. I guess first it seems like the restaurant and nightclub business can be a bit more volatile than kind of your traditional business based on the popularity of you know, the venue or the brand. And I’m curious if you could share any more about how TAO venues have been trending relative to the results we saw that you share with us for the past year. And also maybe a little more detail on why you want to be there. I think Doc you mentioned the possibility of new hospitality experience. Can you expand on that a bit? Why are these businesses stronger together? Thanks. Doc O’Connor: Okay. Well, I’ll take the volatility issue first. First of all, we don’t believe that the TAO Group is just another restaurant business. We think that they’ve cracked a code on hospitality, dining, nightlife experiences in a completely unique way. So we believe that they’ve, in large part, transcended the restaurant and nightlife experience business. With that being said, I think they’ve also demonstrated that their brands are in fact durable. Take TAO as an example, which is their flagship and their first business was launched in 2000 over 17 years ago, and it remains today one of the highest grossing restaurants in the U.S. Further to that, we are opening a new TAO restaurant in the next few months in Los Angeles, the second biggest market in the U.S. So we believe that that brand alone not only has shown durability but will sustain that durability, and will, in fact, likely grow. Marquee, their first nightclub brand, was launched in 2003. And that brand has weathered and been nimble overall of those years, to change and respond to different trends in the nightclub and hospitality world. So, and many of their other brands have existed and sustained over a very long-term. This group is never open to venue that they had to close. And they’ve demonstrated the ability over the long-term to reinvigorate their brands when it becomes necessary. And beyond that, they have successfully launched many new dining and nightclub brand in multiple and international markets. So we believe that unlike other restaurant and nightclub brands, first we think they are unique and differentiated, but secondly, we think they are in fact durable and not exposed to the volatility of your traditional restaurant or nightclub businesses. As to the second part of your question the, you know, why TAO? The reasons are both strategic and financial. First on a financial basis, on a stand alone basis the TAO Group is a very profitable, long-term, non-capital intensive business, with an exceptional world class management team. And they’ve sustained success over two decades, nearly two decades. They have 19 venues operating, with strong brands across the board, they have 13 venues in important markets in the pipeline. So we believe that there is really robust opportunities for growth. We think we acquired TAO on an attractive, multiple based on trailing 12-month AOI, and even more attractive multiple if you factor in the tax basis step up. And when you factor in the growth, again 13 venues in the pipeline in very important markets, that by the way, are synergistic with our markets. When you factor in that growth, and where we expect the business is going over the next several years, that’s an even more attractive multiple still. So on a financial basis, we think the TAO delivers terrific revenue, AOI, and great growth potential. On a strategic basis, as I’ve said on this call many times, post spin, we are a pure play live experience company. A key component of our growth strategy is to grow and diversify our portfolio of owned and operated live experiences. As I said, we think the TAO Group has revolutionized dining and nightlife experiences. They create a truly unique live experience that’s both powerful and unforgettable, much like our existing assets in the sports and entertainment live experience base. And like our venues – like our existing venues, their gathering places that create memorable experiences. So, we think their live experiences combine well with our existing portfolio. Attending an entertainment or sporting event is a high-end night out of the house and is often combined with dining and nightlife. We now have a more diversified and comprehensive offering. You can imagine that we’ll look to bundle those experiences. As I said and I want to emphasize, the TAO business is not terribly capital intensive. But it adds great value to our existing assets by diversifying our offerings. As I said before, they are already in or are entering the very same markets in which we operate. So there are geographic synergies. And, I guess lastly, I would say that the TAO Group, they are experts at the premium live experiences – excuse me, live experience. They know how to deliver it better than anyone in the world to their guests. We plan to leverage that across our entire platform. I’ve said before that the premium experience is an area of growth for us with our existing assets and we think they’ll help us achieved that growth. I hope that covers your why question.

Yes, that was great. Thank you, Doc

Thanks Mike. Christy, we’ll take the next caller.

The next question comes from Brandon Ross of BTIG.

Hi guys. Thanks for taking the questions. First, I want to say with your multi-night concert strategy, I’m surprised you didn’t mention your upcoming 13-night Phish run. That should be a boon to next Q1, right? Doc O’Connor: The only reason I didn’t mention that Brandon, is that it is often our what? Is it…

July and August. Doc O’Connor: July and August. So not in this fiscal year.

Right. Anyway, I have two questions. First on TAO, just thinking about the risk factors in that deal, are there any of the restaurants or clubs that contribute a disproportionate amount of the revenue or EBITDA to the total group. I think in the past, we’ve seen some pretty lofty numbers associated with the Marquee and TAO properties in Las Vegas. And then secondly, on your forum like music venue expansion strategy. Just wanted to get an update, where you stood with that. Are there any markets that are of particular interest right now? And how do you see that venue expansion evolving over the next year or two? Thank you. Doc O’Connor: I’ll let Donna answer the first part of your question.

Hi, Brandon. Yes, so, certainly revenues and AOI vary by venue. But I wouldn’t say we are disproportionately weighted to any single venue. I would note that not surprisingly the New York market, where TAO has 11 venues does represent a meaningful percentage of revenues, and AOI. But of course, as TAO builds out its venue portfolio to other areas, it will certainly diversify the geographic nature of that concentration. Doc O’Connor: And I’ll deal with the venue expansion question. We continue to aggressively explore select markets both domestically and internationally, where we believe we can replicate the success and expand upon the success that we had with The Forum. Las Vegas was the first market we announced. But there are other key markets again as I said, domestically and internationally, where we think we have the opportunity to create large scale music, entertainment focused venues. And then utilize the capabilities of our organization to deliver a differentiated experience for our fans, artists and our various partners. We are pursuing those markets aggressively. We don’t have anything to report, substantively here and now, but we hope to have some news in the future.

Great, thanks very much

Thanks Brandon. Christy, we’ll take the next caller.

Next question from David Miller of Loop Capital.

Hey guys. Congratulations on the stellar results. A couple of questions, Donna I noticed you guys didn’t buy back any stock in the quarter. I would assume that the reason for that is because you were just in the diligence phase and the closure phase for TAO or was there another reason, just wanted to make sure there wasn’t another reason, and then I have a follow-up. Thanks

Sure. No, you are completely correct. We didn’t t buy any stock as we neared our acquisition as TAO. We were in the diligent phase throughout the quarter. And so as you probably read in our press release, we are entering into a 10b5-1 plan, which will allow us to make progress on our buyback program. So we are going to be looking forward to doing that. We still are very committed to the repurchase program.

Okay, great. And then Doc, just as a follow-up to the first question. The morning that the TAO Group announcement was made, when it hit the tape, which was Wednesday of course stock traded down. There was some skepticism going around, clientele or investors or what have you about. What does Madison Square Garden really know about running nightclubs? What does MSG really know about running restaurants? There was just sort of, I don’t know, ethos of skepticism surrounding the deal. What do you say to those investors out there that might be skeptical about your ability to run these assets better than the TAO Group could run themselves. Appreciate the answer thank you. Doc O’Connor: Okay. Well, first of all, I’m not going to debate the stock performance on the announcement with you, but we’ll leave that, it’s longer term than that. But the way I would answer those skeptics is to say that existing Madison Square Garden management is not running the restaurant in nightlife’s business on a day-to-day basis. The TAO Group’s management is going to do that on a day-to-day basis. And the principles of that management team, who remaining with the company and we’ve structured a deal in such a way to incentivize them to stay with the Company long –term. They have decades of experience in restaurant and nightlife operations and brand management and experience management. They’ve launched and sustained these brands, as I’ve said, over the long -term. So, beyond that though, one point I would like to make is that and I didn’t mention this in our prepared remarks or the press surrounding this. But we did extensive diligence on the TAO Group over an extended period of time during this acquisition. And during that diligence, we got exposed to the next generation of management, and leadership at the TAO Group. The generals, as they are known in the TAO Group. And as impressed as we are with the TAO principles, and they are enormously impressive. It’s safe to say we were more impressed with the next generation of management and leadership at that company. They have a very deep and very extensive bench of talent of people on the ground in each and every one of their venues. And their processes around training their employees and their staff all the way down to the ground, is probably the most impressive element of what we saw during our diligence. They deliver a level of service and experience that is unparalleled in our experience. So, what I can say to the skeptics out there, about Madison Square Garden running this business is that, as I said, existing management will not be running the day-to-day of this business, the experienced professionals and the talent that exists in that group will be running that business on a day-to-day basis. They’ve grown it over time. They’ve weathered the greatest financial crisis in any of our lifetimes, and continue to grow and thrive through those headwinds. So we believe that what is past is prologue.

Thanks, David. Christy, we’ll take the next caller.

Your next question comes from David Karnovsky of JPMorgan.

Hi, good morning. Just to follow-up on TAO, is there any specific data that you can share on the recent trend in same-store sales either for the whole group or maybe some of the more established venues. And then on the 13 new locations, is there any data that you can share on the cadence of venue openings and also maybe the sense for time required to get those locations to free cash flow positive? Thanks.

Just on the first part of your question, we are not right now providing that level of detail and as you know, there really is no financial impact on this quarter in from TAO. However, I would say, that as Doc mentioned the first TAO venue opened in 2000 and since then, we’ve grown to 19 venues and have generated, in 2016, $235 million in revenue and $43 million in pro forma AOI. I would add that for leased venues where TAO Group does fund the CapEx, the payback period has typically been very short and I would also note that we see meaningful growth potential as TAO moves forward into the venue expansion plans. Doc O’Connor: On the specifics of openings, I can take that part, which is there are four Los Angeles venues that are going to be opening within the next two months. Specific dates are not – we are not going to share, at this very moment, but within the next two months. The additional 9 venues that encompass New York City, Chicago and Singapore will come online over the course of the next set of years, but we won’t be any more specific than that right now.

Thank you.

Christy, we’ll take the next caller.

Your next question is from John Janedis with Jefferies.

Thank you. Just had one more follow-up on TAO. I apologize in advance. You talked about building out the 13 new venues, 019. Just for clarification, do you own any of the land? Is it leased? And what are the CapEx needs to run the business? Is that an expense that you are responsible for? Or does the landlord pay for it?

So let me start with the second part of that question. One of the really attractive aspects of the TAO Group is that the business is generally speaking, not very capital intensive. Today a majority of the TAO Group’s venues are released and the rest are the managed model. And essentially, all the venues either have long-term leases or long-term management agreements. Going forward, it’s expected that the new venues the TAO Group will open will primarily be managed venues and that is the benefit of being less capital intensive, because the real estate owner typically covers the majority of the cost of the venue build. So the business plan anticipates the TAO Group or real estate partners will be able to sell fund. But this managed venue model really is very low in capital and provides very good margins for us.

Okay, thanks. And then maybe separately, with the talk in the press about the Barclays Center looking to potentially move out from hockey in favor of live events and concerts, can you just talk more about the competitive landscape in the New York market? And to what extent this could impact the number of events at The Garden? Doc O’Connor: Well. I’m not going to speculate on what’s going to happen with the Islanders that currently going on in the press. But I will say we’ve lived in a competitive landscape. This company has lived in a competitive landscape in New York for decades. We’ve existed in a competitive landscape with Barclays for four to five years. Only two of which the Islanders have been a factor. We believe that The Garden is The Garden. And I’ll leave it at that.

Okay. I mean maybe one last quickie on TAO. How quickly can you integrate some of the dining experiences into your venues? Doc O’Connor: I don’t necessarily have a timetable on that. And whether, specifically, we are going to integrate these brands into the venues themselves. That remains to be seen. But, as I said, the critical thing is their methodology. You know, I’ve said, again, for all the time that I’ve been here, that the premium live experience is a growth area for us. And these guys are the greatest experts in the world on the premium experience, if you ask my opinion. So we plan to leverage that our expertise in all of our day-to-day operations across all of our venues and all of our entertainment and sports properties. And we believe that expertise will be of great value in driving revenue and profitability growth over the long-term. But it remains to be seen whether you’re going to see a TAO nightclub at any one of our existing venues.

Thank you.

Thanks, John. Christy, we’ll take the next caller.

The next question comes from Ryan Fiftal of Morgan Stanley.

Great, thanks. Good morning. Two if I may? So first I know there are limits on what you can say on NBA-level deals. But is there anything you can say maybe on the directional impact you would expect from the new collective bargaining agreement that was signed? Doc O’Connor: I’m a little mystified to the question. Can you be more specific?

It was my understanding that the NBA was at least in the press that there was a renewal the player collective bargaining agreement? Doc O’Connor: Yes.

So I was just curious, I haven’t seen a lot of details on it. I don’t know if you expect any kind of directional impact on your financials? Doc O’Connor: I’m sorry. Okay. Now I know what you mean. No, we don’t believe there’s any meaningful impact or change with the new NBA collective bargaining agreement.

Okay, great. And then second, you talked about the sponsorship deal you renewed with Lexus. So I was hoping you could elaborate maybe a little more on the trends you are seeing there more broadly. I guess, I’m curious, do you get any sense big marketers are maybe prioritizing this kind of sponsorship deal over other forms of media compared to how they used to. I guess, I’m thinking with as much media fragmentation is there. I would think, should be some rising scarcity value to what you guys offer. And then separately on the same point, you see – the way you see, do you think there is more opportunity from extracting more revenue from your existing sponsors to expansions to the deal or do you think there is more opportunity from expanding into new categories and expanding the roster of sponsors? Thanks. Doc O’Connor: Okay. Well, let me take the second part first. As you’ve seen, we are in the process of renewing many of our long-term signature partners that were first initiated immediately post transformation. And again, to reiterate, the conventional wisdom was that we saw a big lift in value due to the transformation. But actually, what we’ve seen with these first renewals is that there’s significant lift because of the value of our assets and our live sports and entertainment experiences. So there’s substantial growth that we’re seeing in these individual partnerships that we are leveraging. We are also, in addition to the growth that we’re seeing on apples to apples basis, we are, and have been successful at expanding these partnerships in new areas of activations, and new pieces of our portfolio, to effectively expand overall the revenue opportunities. I would going back to your thesis about rising scarcity and the fragmentation of media, yes, we are seeing value with that across the board. And as we expand our portfolio, whether that’s live events like Boston Calling or it’s this new TAO acquisition, we are expanding our portfolio and allowing for and bringing in new partnership opportunities for not only our existing partners but for new partners that we haven’t worked with before. It’s an ongoing effort to increase our partnerships with new brands and businesses and we are succeeding on every level, growing the existing ones and bringing in new partners and seeing a rise in revenue with both.

Thanks for the questions Ryan. Christy, we have time for one last caller.

Sure, your final question is from David Joyce of Evercore ISI.

Thanks, for a change of pace I would like to ask a question on TAO, if we can understand a little bit more about the seasonality, and how it varies by market. And then secondly, can you help us understand the size and square footage of the planned 13 venues that you are going to be opening. Thank you.

Sure. On seasonality, it’s really not dramatic. It does depend on the market. Our recent history indicates that the calendar second and fourth quarter are stronger in the New York market, and in Las Vegas the calendar second quarter is stronger. But when you look at it on a consolidated basis, while the second and fourth quarter are somewhat – the performance is somewhat stronger it is really not as dramatic as you might think. As to the size, the new venues we’ll be opening are really quite consistent with the same size of the venues we currently have. On average, obviously some will be larger and some will be smaller, based on the economics of the specific market, but on average they are consistent.

All right, thank you.

Thank you. With that I’ll hand the floor back over to Ari Danes for any additional or closing remarks.

Thank you for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

Thank you. This does conclude today’s conference call. You may now disconnect.