MSG Nets Double-Digit Earnings Gain in Fiscal Q3

Affiliate Fees Drive AOCF Results at MSG Media Unit
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May 3 was a good day for Madison Square Garden Co. as the New York Knicks eliminated the Boston Celtics to advance to the second round of the National Basketball Association playoffs and it announced a double-digit rise in fiscal 2013 third-quarter earnings.

The Madison Square Garden Co. registered a 14% rise in adjusted operating cash flow to $91.7 million for the three months ended March 31, up from $80.2 million in the year-earlier period.

The results were driven by MSG Media, partially offset by a decrease in adjusted operating cash flow at MSG Sports, which was impacted by changes in the timing of professional sporting events involving the Knicks and the National Hockey League’s New York Rangers.

"Our company delivered strong AOCF results in our fiscal third quarter, as we successfully managed our business through the NHL work stoppage,” said MSG Co. president and CEO Hank Ratner in a statement. “The final phase of the [Madison Square Garden] transformation project will begin following the end of the Knicks' and Rangers' seasons, and we look forward to the successful completion of this historic project in the fall. With the approaching conclusion of this significant capital investment, long-term NBA and NHL collective bargaining agreements now in place, our recurring and increasing affiliation fee revenue base and a strong balance sheet, we believe our company is well-positioned to drive continued growth."   

MSG Co.’s third-quarter operating income jumped 23% to $63.8 million from $53.3 million, while net income improved 20% to $38.4 million from $31.1 million. Total revenues rose 3% to of $412.4 from $400.5 million in the prior-year period.

By segment, MSG Media posted a 46% jump in AOCF to $95.4 million from $65.3 million as revenue climbed 11% to $184.7 million from $166.2 million. Operating income advanced 53% to $89.8 million from $58.5 million.

The gain reflected an increase in affiliate fee revenue of $16.8 million, as MSG Networks were carried for the entire quarter by Time Warner Cable at a higher rate, compared with just about half of the third quarter of fiscal 2012, when the parties were engaged in a license fee dispute. This was offset to some extent by the by the impact of revenue recognized in the prior-year quarter related to the affiliate's carriage of Fuse during calendar 2011. 

On the advertising side, revenue grew $1.8 million, due to an increase at national music network Fuse.  Advertising revenue at MSG Networks dipped, owing to fewer NBA telecasts compared with the Knicks' compressed schedule in the prior-year quarter, following last season's pro basketball lockout. The Knicks' May 3 victory over the Celtics marked the team's first playoff series win in 13 years.

Moreover, there were fewer NHL telecasts of the Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres in the fiscal 2013 quarter tied to that league’s work stoppage, as well as other declines, largely offset by higher Knicks per-game advertising revenue.

The performance of the MSG Sports unit also reflected the Knicks and Ranger' labor-related changes, with revenues decreasing 4% to $208.1 million from $216.1 million. The impact of these two items was reflected in lower professional sports team ticket-related revenue, league distributions, and food, beverage and merchandise revenues, partially offset by an increase in suite rental fee revenue and sponsorship and signage revenue. In addition, event-related revenues from other live sporting events and other net revenues decreased, as compared to the prior-year quarter.

AOCF fell 60% to $11.6 million from $29.3 million, while operating income declined 68% to $8.1 million from $25.4 million. Lower revenue aside, results were affected by higher direct operating expenses, due to higher net provisions for certain team personnel transactions and higher team personnel compensation costs. Those expenses were partially offset by lower event-related costs for other live sporting events, expenses associated with food, beverage and merchandise sales and other net expense decreases. 

For its part, MSG Entertainment’s third fiscal quarter revenues increased 3% to $35.5 million from $34.3 million, owing to higher event-related revenues at The Theater at Madison Square Garden and the Beacon Theatre, both of which held more events. Revenue also benefited from higher venue-related sponsorship and signage and suite rental fees. Conversely, the increase was largely offset by lower revenues for the "Radio City Christmas Spectacular" franchise, which didn’t have any performances in the third quarter, as well as lower event-related revenues at that venue and The Chicago Theatre.  

The segment’s AOCF loss of $13.1 million widened 2% from $12.8 million and the operating loss increased 4% to $17.1 million from $16.4 million, due to an increase in selling, general and administrative and direct operating costs, partially offset by the increase in revenues. The higher SGA expenses emanated from greater employee compensation and related benefits and allocated corporate general and administrative expenses. The increase in direct operating expenses was primarily due to higher venue operating costs, primarily for Radio City Music Hall and the Forum in Englewood, Calif., which is not currently open for events. There were also higher event-related expenses, partially offset by lower expenses for the Christmas Spectacular franchise and other net expense decreases.