Good morning. Thank you for standing by, and welcome to the Madison Square Garden Sports Corp. Fiscal 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to MSG Sports Fiscal 2023 second quarter earnings conference call. To begin, I’d like to welcome our new President and COO, David Hopkinson to today’s earnings call. David will provide an update on the company’s strategy and operations. This will be followed by a review of our financial results with Victoria Mink, our EVP, Chief Financial Officer, and Treasurer. 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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to David.

Thank you, Ari. Good morning, everyone. I’m delighted to be here speaking with all of you today, and I look forward to meeting with many of you in the coming months. I am honored to have taken on this new leadership role at MSG Sports. Our company has a collection of iconic professional sports assets, and with significant opportunities for growth ahead, I am excited to drive the business forward and realize this potential. Our portfolio is highlighted by the Knicks and the Rangers, who kicked off their 2022, 2023 regular season in October. And following on last year's record financial performance, I'm pleased to say that we have continued to build on that positive momentum this season as consumer and corporate demand remains robust. The strength of our business is reflected in our fiscal second quarter results with revenue of $354 million, an increase of 22% year-over-year and adjusted operating income of $77 million, up 38% as compared to the prior year period. This growth was broad based with total revenues, as well as per game revenues across tickets, suites, sponsorship, food and beverage, and merchandise all up year-over-year as compared to the fiscal 2022 second quarter. As we look ahead, our strategy remains focused on continuing to execute on our many opportunities for growth from offering new ticketing and premium hospitality products to forging deeper relationships with our fans, to strengthening our brands globally. Based on our current trajectory, we are positioned to deliver year-over-year growth across key revenue lines this fiscal year. And our announcement in October to return $250 million to our shareholders reflected this momentum, coupled with our confidence in the underlying value of our marquee professional sports franchises. And now, let's discuss in detail how our business is performing. Our teams are more than…

Thank you, David, and good morning, everyone. I would like to start by reviewing our fiscal 2023 second quarter financial performance and then provide an update on our balance sheet. Results for the fiscal second quarter reflect pre-season play and the start of the 2022, 2023 regular seasons for the Knicks and Rangers. In aggregate, we hosted 41 pre and regular season games across both teams as compared to 35 games last year for six more games, which positively impacted this quarter's results. I'd also note that our fiscal third quarter will reflect two additional home games, while our fourth quarter will reflect eight fewer regular season home games, both as compared to the prior year period. Turning to results for the fiscal second quarter, total revenues were $353.7 million, as compared to $289.6 million in the prior year period with increases across all key revenue lines. Event related revenue of $142.3 million, increased 30% year-over-year. This mainly consists of ticket related revenue, as well as food, beverage, and merchandise sales, both of which saw higher average per game revenue, driven by the enthusiasm from our fans. The increase in event related revenue also reflected the additional games played at The Garden during the current year quarter as compared to the prior year period. National and local media rights fees of $118.2 million increased 5%, primarily due to the impact of contractual escalators of both our local and national media rights agreements. Suites and sponsorship revenues of $81 million increased 38%, due to a higher number of games year-over-year, as well as an increase in per game revenue for both suites and sponsorships. These results reflect the demand we have seen from news suite licenses at The Garden and robust renewals, while sponsorship includes the full run rate impact of…

Thank you, Victoria. Operator, can we now open up the call for questions?

[Operator Instructions] And your first question comes from the line of Brandon Ross from LightShed Partners. Your line is open.

Hey, good morning. David, you mentioned the Forbes valuations and those recent sales of teams at pretty hefty prices, most relevantly, the Phoenix Sun sale, but that's nothing really but illustrative for investors without a sale of the Knicks or Rangers or at least a minority sale as a mark. Are either of those things in your consideration set?

Hi Brandon, good morning. Let me start by saying that we're as confident as ever in the value of our teams. These are incredibly scarce assets. They've got strong business fundamentals that we just reviewed and we believe they've got significant opportunities for long-term growth. So, as I mentioned in my remarks, we just don't think that is appropriately reflected in our current stock price. And that was one of the reasons that we made to the recent share repurchase. There's also changes in the ecosystem. The NBA has recently allowed for private equity to come into the marketplace, as well as sovereign wealth funds. So, we've got new pools of capital available. So, to answer your question, we have no plans to sell either team and if you [indiscernible] no current plans there, but we would certainly not rule out the possibility of selling a minority stake in the Knicks or the Rangers.

Got it. Thank you.

Your next question comes from the line of David Karnovsky from JP Morgan. Your line is open.

Thank you. David, just given the potential for major bankruptcies in the RSN space that could significantly impact distribution for the NHL, NBA, how are you thinking about risk to your own distribution over the next several years, and the potential need to maybe adjust existing terms or payments you receive if only to establish a wider or more sustainable carriage for your games?

Yes. Thanks, David. That's a good question. If we take a step back, we all know and we can see that the media landscape is evolving, but we believe strongly in the value of live professional sports content and especially in the case of premium content like the Knicks and Rangers. We're happy that we operate here in the nation's largest media market. So that benefits us and it benefits our partner MSG networks. Sports rights, we've seen proven over and over is a great investment, especially over the long-term. So, we have confidence as we look ahead. And answering your question specifically, I want to flag for you that we've got long-term local media contracts in place with our partner MSG Networks. And those agreements provide exclusive local distribution of all of our live content, including our digital rights. MSG Networks have been great partners and we're really supportive of what they've been doing on the distribution front, including in terms of new digital offerings. Recently, MSG Networks announced plans to launch a direct-to-consumer offering in our market, a product that's designed to appeal to sports fans that do not currently subscribe through a traditional linear package. We're also pursuing a variety of additional ways to increase engagement and grow our reach amongst our fan base, especially on social media. A priority for us is delivering compelling exclusive social media content, giving our fans behind the scenes, player interactions, locker room footage, live look-ins and we think it's working. We've added 600,000 new social followers across both teams so far just this season alone and now have a total social media ecosystem of 17 million followers across all our social channels. Social is a priority for us and as the media landscape evolves with DTC offerings, we're going to complement distribution outreach using social media.

And then maybe for Victoria, both the Knicks and Rangers as of today are playoff teams, which means potentially playoff revenue? I guess how should investors think about potential use of fiscal year-end cash flow assuming you guys have deep run?

Sure. Thanks, David. First, let me say, we are really looking forward to the coming months of what's sure to be really exciting competition. Just as a reminder, we were really pleased last year with the financial impact of the Ranger's playoff performance, which drove significant increases in revenue and AOI for the 10 home games, playoff games that we played. So, we're definitely excited for the end of the season. But when we think about what to do with the potential of the excess cash flow, our near-term focus continues to be on paying down debt [indiscernible] as we talked about, we borrowed $215 million in addition to the cash on hand that we had generated in order to return $250 million to our shareholders. As you've heard us discuss, of course, this return of capital was a reflection of the strength of our business, which has continued through this fiscal year so far, as well as our confidence in the value of our sports franchises. So, when we look ahead and think about our capital priorities, they're generally the same, certainly near-term as of course, to maintain that appropriate liquidity to fund our operations and invest in our core business. And importantly is to keep a strong balance sheet. So, we will, as I mentioned, continue to focus on paying down debt in the near-term. Right, the $30 million we paid in the quarter and then another 15 million over the last week, but third, our longer-term capital considerations, right, we would of course consider other uses of our cash flow over time, including another return of capital, potentially in the future.

Thank you.

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

Thanks. Good morning. David, welcome to the call. Nice to meet you over the phone. Wanted to ask you about, sort of the corporate demand backdrop. You mentioned really strong suite renewals and sponsorship trends, but we are seeing corporate spending, you know pretty soft in the advertising marketplace. We're seeing layoffs obviously in a lot of sectors like tech. Can you just tell us what you're seeing when you look out into the forward bookings? And also, just the nature of these multi-year contracts, you know would you have already seen a weakness in your business if it were to show up or might that be ahead of us? And then I just want to ask Victoria if she could maybe pick up on her last answer, is there a way to think about leverage on at this company in terms of more traditional metrics, whether it's debt-to-EBITDA or debt to value the teams because it would – I know you're paying [debt and debt] [ph], but it would seem like you've got a lot of capacity if you wanted to use more, but obviously the, sort of league oversight plays a role as well. So, I’d be curious in your thoughts there. Thank you both.

Great. Thanks Ben. I'll tackle the first half of that and then I'll let Victoria answer the second part of your question. The short answer is, no. We're just not seeing an impact on our business other than a really strong demand for the product. Look, like you we're really mindful of the broader macro environment, but if I look across, sort of three big sectors of our business, all of them are really strong. Ticketing, as I mentioned, we had season ticket rules that exceeded 90%, strong sales for both teams strong demand for new packages, strong group, and individual ticket sales. As I mentioned in my remarks, the group individual ticket sales exceeded last year's Q2, but they were also above the pre-pandemic Q2 in 2020. So, tickets on an individual basis look better than ever. Specifically, with respect to corporate demand, our business remains strong and if I think about sponsorships, we're seeing, as I mentioned, the full run rate of mobile sports gaming with our three partners in their first full-year with us. We see great demands for new offerings in the marketplace, the NHL introduced the digitally enhanced DasherBoards this year. We're seeing great demand from – on that inventory from our partners. And have introduced the new partners, the renewals and with Spectrum, Verizon, Dunkin', Jägermeister, a new deal in Hub. So, we're seeing strong demand from the corporate sector. And we think we've got opportunity for headroom as well with both international as an opportunity for the mix and patch partners yet to come for both Knicks and Rangers. With respect to the suites and premium products, we had a great year for renewals. We're having a great year for new sales. And in conclusion, yes, we're taking none of that for granted. We're working hard every day. We follow the economy like you do, but so far we're seeing absolutely no softening whatsoever, and in fact, really robust demand.

Great.

Will take over from there?

Sure. So, yes, we have not publicly provided an official will target. But I will say it is certainly something that we're thinking about and that we are discussing internally, right. And you're correct, the leagues do have oversight as to the amount of debt that either one of the teams could carry, but sort of as we mentioned, we're going to feel very good about our overall liquidity position, the amount of debt that we currently have outstanding. Again, we just think it's prudent to use our excess cash flow at this time. So, to just continue to pay it down given the overall cost of borrowing these days, but like I said, it is certainly something that we spend a lot of time thinking about. But at the end of the day, when I really take that step back, it's really the trajectory of the business that we feel good about and our ability to generate free cash flow and then it's the potential as to what we can do with that cash going forward. Again, with some variety of capital allocation and opportunities that are out there, including returning money to shareholders as we did that we were very pleased to be able to do.

Great. Thank you. Your next question comes from the line of Devin Brisco from Wolfe Research. Your line is open.

Thanks. My question is related to the upcoming NBA National TV rights renewal. The values that are being talked about are multiples higher than the current deal. Could you talk about how strong the flow through of incremental revenue to cash flow could be from a new deal? And if and how it would change your capital allocation priorities?

Sure, Devin. So, first-off, right, we continue to believe in the value of live sports and particularly as well as our leagues appeal domestically and internationally. And we fully trust the NBA to maximize the opportunity when the time comes, which – so just as a reminder, that's going to be after the 2024, 2025 season, which is where the current agreement runs through. So, sort of what we're talking about would be out into our fiscal 2026. But specifically to answer your question, in terms of that financial impact, all teams across the league, which share equally in the increase from national media fees with a net impact of, I would say, roughly about half before revenue sharing dropping down to increase our AOI. So, certainly some good potential for a positive financial impact. And when I talked about the capital allocation policy, a little earlier, we sort of focused a bit more on the near term in terms of the potential for excess cash flow on – with play-offs. But I think thinking out several years, I think the priorities still remain the same in terms of maintaining a healthy balance sheet, maintaining enough liquidity for our ongoing operating needs, and then again, from a longer-term perspective, which is, I think is what we're talking about here is that opportunity for additional returns of capital.

Thank you.

And your next question comes from the line of Paul Golding from Macquarie Capital. Your line is open.

Thanks so much. I was hoping we could dive a little deeper into some of the comments earlier around the sponsorship space. In terms of cohort, is there any color you could give? It's apparent that the mobile sports betting cohort seemingly media as well has been strong, but are they, sort of mopping up any excess supplier inventory, sort of in the spot market from others that might be weaker or is it pretty much all spoken for in terms of the strength that they're able to deliver as the largest component of your sponsorship revenue? And then secondly, just wanted to see if we could get a little more color on the jersey patch sponsorship process? Thanks so much.

Yes, sure thing, Paul. Those are really good questions. With respect to the three mobile gaming partners that we have, DraftKings, BetMGM, and Caesars, you know we’re – that was a big focus for us. When that category was introduced, we want to make sure that we were able to maximize that opportunity and we're really happy with where we landed. They are not just from a revenue perspective, but also from a brand perspective. We believe we found the right partners and the right mix to fully profit from and benefit from that new opportunity. We think about the partnerships business in those two dimensions that you mentioned. One is category, and one is inventory. I was pleased to introduce Hub as a signature partner of ours new this season, which was an important category for us insurance brokerage is an important strategic category. I'm glad that we filled that opportunity with such a strong partner and good economics underpinning that deal. So, we'll continue to look for key categories that we can sell to the right partner on an exclusive basis on the right package. When it comes to inventory, sort of the second half of your question and on jersey patches, we currently are not playing with a patch on the next jersey. We've got that opportunity open and available. And we believe that when the right deal presents itself, which we're working on, on a daily basis, we'll conclude that. For us, it's about the right partner, the right economics, and we're prepared to sit and work that category because it's such a strategic priority for us. We want to make sure we get the right deal done. With the ranges we're taking the exact same approach. The NHL introduced that opportunity just at the beginning of this year. We are watching the marketplace very closely because baseball has also introduced the sleeve opportunity this year. And so, it's a noisy marketplace out there. I really believe that we've got to work this every day and conclude the right deals, not the – not necessarily the quickest deal. However, when we do so, whether it's the Knicks or the Rangers or ultimately both, we've got material upside in our partnership's business.

Great. Thanks for the color.

And this ends our question-and-answer session. Mr. Ari Danes, I'll turn the call back over to you for some final closing comments.

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

This concludes today's conference call. Thank you for your participation. You may now disconnect.