FinanceLooker

Excrept from filing document 2024-06-30

The aggregate market value of the voting and non voting common equity held by non affiliates of Sphere Entertainment Co computed by reference to the price at which the common equity was last sold on the New York Stock Exchange as of December 31 2023 the last business day of the registrant s most recently completed second fiscal quarter was approximately 920 million
Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2024 annual meeting of the Company s stockholders expected to be filed within 120 days after the end of our fiscal year
Sphere Entertainment Co is a Delaware corporation with its principal executive office at Two Pennsylvania Plaza New York NY 10121 Unless the context otherwise requires all references to we us our Sphere Entertainment or the Company refer collectively to Sphere Entertainment Co a holding company and its direct and indirect subsidiaries We conduct substantially all of our business activities discussed in this Annual Report on Form 10 K this Form 10 K through Sphere Entertainment Group LLC Sphere Entertainment Group and MSG Networks Inc together with its subsidiaries MSG Networks and each of their direct and indirect subsidiaries
The Company formerly Madison Square Garden Entertainment Corp was incorporated on November 21 2019 as a direct wholly owned subsidiary of Madison Square Garden Sports Corp MSG Sports On April 17 2020 the 2020 Entertainment Distribution Date MSG Sports distributed all outstanding common stock of the Company to MSG Sports stockholders the 2020 Entertainment Distribution On July 9 2021 MSG Networks Inc merged with a subsidiary of the Company and became a wholly owned subsidiary of Sphere Entertainment the Networks Merger
On April 20 2023 the MSGE Distribution Date the Company distributed approximately 67 of the outstanding common stock of Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc and referred to herein as MSG Entertainment to its stockholders the MSGE Distribution with the Company retaining approximately 33 of the outstanding common stock of MSG Entertainment in the form of MSG Entertainment Class A common stock immediately following the MSGE Distribution the MSGE Retained Interest Following the MSGE Distribution Date the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment excluding the Sphere business In the MSGE Distribution stockholders of the Company received a one share of MSG Entertainment s Class A common stock par value 0 01 per share for every share of the Company s Class A common stock par value 0 01 per share Class A Common Stock held of record as of the close of business New York City time on April 14 2023 the Record Date and b one share of MSG Entertainment s Class B common stock par value 0 01 per share for every share of the Company s Class B common stock par value 0 01 per share Class B Common Stock held of record as of the close of business New York City time on the Record Date Following the sales of portions of the MSGE Retained Interest and the repayment of the delayed draw term loan with MSG Entertainment using a portion of the MSGE Retained Interest the Company no longer holds any of the outstanding common stock of MSG Entertainment
On May 3 2023 the Company completed the sale of its 66 9 majority interest in TAO Group Sub Holdings LLC Tao Group Hospitality to a subsidiary of Mohari Hospitality Limited a global investment company focused on the luxury lifestyle and hospitality sectors the Tao Group Hospitality Disposition
The Company has historically reported on a fiscal year basis ending on June 30th In this Form 10 K the fiscal years ended on June 30 2024 2023 and 2022 are referred to as Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 respectively On June 26 2024 the Board of Directors approved a change in the Company s fiscal year end from June 30 to December 31 effective December 31 2024 The Company plans to report its financial results for the six month transition period of July 1 2024 through December 31 2024 on an Annual Report on Form 10 K T and to thereafter file reports for the twelve month period ending December 31 of each year beginning with the twelve month period ending December 31 2025 Prior to filing the transition report the Company will file its Quarterly Report on Form 10 Q for the quarter ending September 30 2024
The Company is a premier live entertainment and media company comprised of two reportable segments Sphere and MSG Networks Sphere is a next generation entertainment medium and MSG Networks operates two regional sports and entertainment networks as well as a direct to consumer DTC and authenticated streaming product
a next generation entertainment medium powered by cutting edge technologies to create multi sensory experiences at an unparalleled scale The Company s first Sphere opened in Las Vegas on September 29 2023 The venue can accommodate up to 20 000 guests and can host a wide variety of events year round including The Sphere Experience
an immersive content studio dedicated to creating multi sensory experiences exclusively for Sphere Sphere Studios is home to a team of creative production technology and software experts who provide full in house creative and production services The studio campus in Burbank includes a 68 000 square foot development facility as well as Big Dome a 28 000 square foot 100 foot high custom dome with a quarter sized version of the screen at Sphere in Las Vegas that serves as a specialized screening production facility and lab for content at Sphere
This segment is comprised of the Company s regional sports and entertainment networks MSG Network and MSG Sportsnet as well as its DTC streaming product MSG MSG Networks serves the New York Designated Market Area as well as other portions of New York New Jersey Connecticut and Pennsylvania and features a wide range of sports content including exclusive live local games and other programming of the New York Knicks the Knicks of the National Basketball Association the NBA and the New York Rangers the Rangers New York Islanders the Islanders New Jersey Devils the Devils and Buffalo Sabres the Sabres of the National Hockey League the NHL as well as significant coverage of the New York Giants the Giants and the Buffalo Bills the Bills of the National Football League the NFL
Presence in both Las Vegas a market which attracts more than 40 million visitors each year and has over 2 million local residents and the New York Designated Market Area the nation s largest media market
interdisciplinary team of creative production technology and software experts who provide full creative and production services including strategy and concept capture post production and show production
Our strategy is to leverage our Company s unique assets and brands which includes a next generation entertainment medium Sphere and regional sports and entertainment networks to create world class experiences for all key stakeholders including performers athletes content creators guests viewers advertisers and marketing partners Coupled with our continued commitment to innovation we believe the Company is positioned to generate long term value for our stockholders
Sphere combines cutting edge technologies with multi sensory storytelling to deliver immersive experiences at an unparalleled scale Sphere represents an innovative business model for entertainment venues with new and expanded revenue opportunities that span across original immersive productions concerts and residencies marquee sports and corporate events advertising and sponsorship and premium hospitality as well as food beverage and merchandise
Sphere in Las Vegas is the world s largest spherical structure standing at 366 feet tall and 516 feet wide with a fully programmable LED exterior the Exosphere that we believe offers a powerful global platform for advertisers and marketing partners as well as artistic content Inside the venue s public facing interior spaces include the Atrium food and beverage locations expo spaces 23 premium hospitality suites and more
Sphere in Las Vegas was designed and engineered from the ground up to be one of the most highly utilized venues of its size The venue s technologies and design are intended to enable it to seamlessly accommodate a variety of different event types with fast turnover between events and accommodate multiple events per day year round We believe this allows for Sphere to be more efficiently utilized than traditional large scale venues
Sphere Studios is dedicated to the development of immersive entertainment exclusively for Sphere Sphere Studios features technology and proprietary tools developed specifically for Sphere that make content creation for this platform a seamless experience Sphere Studios is home to an interdisciplinary team of creative production technology and software experts who provide full in house creative and production services including strategy and concept capture post production and show production and Exosphere content creation The Company is developing its own content ranging from original immersive productions purpose built for Sphere to the establishment of a dynamic library of content that can be used by artists or third parties who want to bring their experiences to life whether for concerts residencies or corporate events
Original content that the Company owns is a key aspect of our business model as it allows for the Company s economic participation as both venue operator and content owner It also allows the Company to better control event scheduling and reduces the reliance on third party events In addition the Company plans to expand its network of Sphere venues around the world over time which would create additional monetization opportunities for the Company s original content
A core content category at Sphere in Las Vegas is The Sphere Experience which takes full advantage of Sphere s experiential next generation technologies The Sphere Experience can run multiple times a day year round and begins when guests enter the venue s Atrium where they can engage with the latest in technological advancements through a variety of immersive experiences
directed by Academy Award nominee Darren Aronofsky This original cinematic experience has earned critical acclaim for its captivating visuals and use of the venue s next generation immersive technologies and brings audiences on a voyage spanning all seven continents
Sphere in Las Vegas has hosted a wide variety of events including concerts and residencies from renowned artists marquee sporting events including Formula 1 and the 2024 NHL Draft as well as corporate and other events On September 29 2023 global rock band U2 opened the venue with the start of its multi month run at Sphere and after several extensions played a total of 40 sold out shows Since then several other bands have played or announced residencies and performances at Sphere in Las Vegas including Phish Dead Company Eagles and electronic dance music EDM artist Anyma In addition the Company entered into a multi year agreement with Formula 1 for a full multi day takeover of Sphere which started with its inaugural Las Vegas Grand Prix in November 2023 In June 2024 Sphere hosted Hewlett Packard Enterprise for the venue s first corporate keynote event which showcased how Sphere s technology and offerings provide a compelling platform to educate and demonstrate The Company also announced that Ultimate Fighting Championship UFC will host the first mixed martial arts MMA event at Sphere in September 2024 The Company plans to continue to leverage Sphere s unique platform as well as the Company s deep relationships across music entertainment corporate and sports to attract additional events to Sphere in Las Vegas
We believe Sphere s unique platform and technological capabilities offer powerful and premium opportunities for advertisers and marketing partners to engage with audiences Sphere in Las Vegas can deliver significant exposure to not only the guests that attend events at the venue but also to the more than 40 million annual visitors to and over 2 million local residents of Las Vegas and around the world on social media Sphere offers bespoke advertising and sponsorship opportunities including externally with the Exosphere and internally with immersive galleries interactive installations the Atrium and premium hospitality spaces Sphere has already run numerous unique advertising and marketing campaigns for a variety of companies demonstrating the appeal of Sphere s unique and valuable inventory that is not available in traditional large scale entertainment venues
The exterior of Sphere in Las Vegas the Exosphere the world s largest LED screen is covered in 580 000 square feet of fully programmable LED paneling consisting of approximately 1 2 million LED pucks spaced eight inches apart Each puck contains 48 individual LED diodes with each diode capable of displaying more than 1 billion different colors With the Exosphere we have created an impactful digital canvas for brands events and advertising and marketing partners to showcase content to audiences around the world Sphere Studios collaborates with global brands and third party creators on their Exosphere creatives Advertisements on the Exosphere captivates audiences both in Las Vegas and around the world through social media and since launch the Company has displayed numerous advertising campaigns with some of the most globally recognized brands
We believe there are other markets both domestic and international where Sphere can be successful The design of Sphere can accommodate a wide range of sizes and capacities based on the needs of the individual market Leveraging the Sphere brand and operating a network of Sphere venues would allow the Company to pursue a number of avenues for potential growth including driving increased bookings and greater advertising and sponsorship opportunities Furthermore the Company would have the opportunity to leverage its in house expertise including across venue management design and construction operations and technology to drive new revenue streams An increasing number of Sphere venues would also create additional monetization opportunities for the Company s original content library including
As we explore selectively extending Sphere s network beyond Las Vegas to other markets around the world we intend to utilize several options such as joint ventures equity partners a managed venue model and non recourse debt financing
For more than 50 years MSG Networks has been at the forefront of the industry pushing the boundaries of regional sports coverage We continually seek to enhance the value that our networks provide to viewers advertisers and distributors by utilizing state of the art technology to deliver high quality best in class content and live viewing experiences In June 2023 MSG Networks introduced MSG a DTC streaming product replacing MSG GO which allows subscribers to access MSG Network and MSG Sportsnet as well as on demand content on smartphones tablets computers and other devices MSG is available on a free authenticated basis to subscribers of participating Distributors including all of MSG Networks major Distributors as well as for purchase on a DTC basis In addition to monthly and annual DTC subscription options MSG also offers single game purchases of MSG Networks NBA and NHL teams
In January 2024 MSG Networks and The YES Network YES announced the formation of Gotham Advanced Media and Entertainment LLC GAME a new 50 50 joint venture to capitalize on technical and operational synergies associated with YES and MSG Networks streaming services GAME combines the streaming expertise of two of the largest regional sports networks in the country and seeks to combine the collective insight expertise and best in class technology not only to enhance MSG Networks and YES own streaming products but also to offer other networks teams and sports properties an efficient way to launch a state of the art streaming service
A 580 000 square foot fully programmable LED Exosphere the world s largest LED screen which consists of approximately 1 2 million LED pucks spaced eight inches apart Each puck contains 48 individual LED diodes with each diode capable of displaying more than 1 billion different colors
These technologies come together to create a powerful platform which we believe makes Sphere the venue of choice for a wide variety of content including original immersive productions concerts and residencies from the world s biggest artists and marquee sports and corporate events
Sphere in Las Vegas is a 17 600 seat venue with capacity to hold up to 20 000 guests located on land adjacent to The Venetian Resort leased from Venetian Venue Propco LLC The Venetian The ground lease has no fixed rent however if certain return objectives are achieved The Venetian will receive 25 of the after tax cash flow in excess of such objectives The lease is for a term of 50 years
Because of the transformative nature of Sphere we believe there could be other markets both domestic and international where Sphere can be successful The design of future Sphere venues will be flexible to accommodate a wide range of sizes and capacities from large scale to smaller and more intimate based on the needs of any individual market
As we explore selectively extending the Sphere network beyond Las Vegas to other markets around the world the Company s intention is to utilize several options such as joint ventures equity partners a managed venue model and non recourse debt financing
In February 2018 we announced the purchase of land in Stratford London The Company submitted a planning application to build a Sphere venue on that land to the local planning authority in March 2019 On November 21 2023 the Company announced that it was formally notified by the Mayor of London that its planning application for a Sphere venue in Stratford London was not approved In light of this decision the Company no longer plans to allocate resources towards the development of a Sphere in London
A core content category at Sphere in Las Vegas is The Sphere Experience which takes full advantage of Sphere s experiential next generation technologies to transport audiences and engage the senses The Sphere Experience can run multiple times a day year round and begins when guests enter the venue s Atrium where they can engage with the latest in technological advancements through a variety of immersive experiences
directed by Academy Award nominee Darren Aronofsky This original cinematic film has earned critical acclaim for its captivating visuals and use of the venue s next generation immersive technologies and offers a unique perspective on the beauty of life on earth
Our Company has deep industry relationships that can drive the world s biggest artists to Sphere in Las Vegas Global rock band U2 opened Sphere in Las Vegas on September 29 2023 and performed 40 shows through March 2024 After U2 Phish performed 4 shows and Dead Company completed a 30 show residency at Sphere that concluded in August Starting in September 2024 Eagles are scheduled to perform a multi month residency at Sphere and EDM artist Anyma has a multi show performance planned for the end of December into early January
Sphere has hosted a broad array of live events including the Formula 1 Las Vegas Grand Prix the 2024 NHL Draft and bespoke corporate events In September 2024 Sphere will host UFC for the first ever MMA event at Sphere
We believe Sphere s unique platform and technological capabilities offer powerful and premium opportunities for advertisers and marketing partners to engage with audiences Sphere in Las Vegas can deliver significant exposure not only to the guests that attend events at the venue and the more than 40 million annual visitors to Las Vegas and the over 2 million local residents but also around the world on social media Sphere offers bespoke advertising and sponsorship opportunities including externally with the Exosphere and internally with immersive galleries interactive installations the Atrium and suites We believe Sphere in Las Vegas offers advertising and marketing partners unique and valuable inventory that is not available in traditional large scale entertainment venues
MSG Networks is an industry leader in sports production content development and distribution It includes two award winning regional sports and entertainment networks MSG Network and MSG Sportsnet as well as its DTC authenticated streaming product MSG
Debuting as the first regional sports network in the country on October 15 1969 MSG Networks has been a pioneer in regional sports programming for more than 50 years setting a standard of excellence creativity and technological innovation Today MSG Networks exclusive award winning programming continues to be a valuable differentiator for viewers advertisers and the cable satellite fiber optic and other platforms Distributors that distribute its networks MSG Network and MSG Sportsnet are widely distributed throughout all of New York State and significant portions of New Jersey and Connecticut as well as parts of Pennsylvania MSG Network and MSG SportsNet are widely carried by major Distributors in our region and also carried nationally by certain Distributors on sports tiers or in similar packages
In June 2023 MSG Networks introduced MSG a DTC and authenticated streaming product replacing MSG GO which allows subscribers to access MSG Network and MSG Sportsnet and on demand content across devices MSG is available on a free authenticated basis to subscribers of participating Distributors including all of MSG Networks major Distributors as well as for purchase by viewers on a DTC basis In addition to monthly and annual DTC subscription options MSG also offers single game purchases of MSG Networks NBA and NHL teams
MSG Network and MSG Sportsnet have an average combined reach of approximately 3 6 million viewing subscribers as of the most recent available monthly information in our Regional Territory inclusive of annual and monthly subscribers to MSG
Throughout its history MSG Networks has been at the forefront of the industry pushing the boundaries of regional sports coverage In the process its networks have become a powerful platform for some of the world s greatest athletes and entertainers MSG Networks commitment to programming excellence has earned it a reputation for best in class programming production marketing and technical innovation It has won more New York Emmy Awards for live sports and original programming over the past 10 years than any other regional sports network in the region
The foundation of MSG Networks programming is its professional sports coverage MSG Network and MSG Sportsnet feature a wide range of compelling sports content including exclusive live local games and other programming of the Knicks Rangers Islanders Devils and Sabres as well as significant coverage of the NFL s Giants and Bills MSG Networks also showcases a wide array of other sports and entertainment programming which includes Westchester Knicks basketball NY NJ Gotham FC of the National Women s Soccer League New York team of the Professional Women s Hockey League PWHL NCAA basketball soccer baseball softball and other college sporting events as well as horse racing soccer poker tennis pickleball mixed martial arts and boxing programs
MSG Network and MSG Sportsnet collectively air hundreds of live professional games each year along with a comprehensive lineup of other sporting events and original programming designed to give fans behind the scenes access and insight into the teams and players they love This content includes pre and post game coverage throughout the seasons along with team related programming that features coaches and players all of which capitalizes on the enthusiasm for the teams featured on MSG Network and MSG Sportsnet
MSG Networks is also positioned as one of the premium destinations for sports gaming content MSG Networks produces original sports betting shows and segments featuring a mix of sports gaming experts and former New York athletes covering betting related topics across the sports world from NBA and NHL to NFL Major League Baseball tennis golf and mixed martial arts
In January 2024 MSG Networks and YES announced they formed the formation of GAME a new 50 50 joint venture aimed at capitalizing on technical and operational synergies associated with MSG Networks and YES streaming services GAME combines the streaming expertise of two of the largest regional sports networks in the country and seeks to combine the collective insight expertise and best in class technology not only to enhance MSG Networks and YES streaming products but also to offer other networks teams and sports properties an efficient way to launch a state of the art streaming service
We create own and license intellectual property in the countries in which we operate have operated or intend to operate and it is our practice to protect our trademarks brands copyrights inventions and other original and acquired works We have filed applications for many and have registered some of our trademarks in the United States and certain other countries in which we operate or intend to operate Additionally we have filed and continue to file for patent protection in the countries where we operate or plan to operate and we have been issued patents for key elements of Sphere Our registrations and applications relate to trademarks and inventions associated with among other of our brands Sphere The Sphere Experience Exosphere Sphere Studios Sphere Immersive Sound and MSG Networks We believe our ability to maintain and monetize our intellectual property rights including the technology and content developed for Sphere The Sphere Experience MSG Networks including our DTC and authenticated streaming product MSG and our brand logos are important to our business our brand building efforts and the marketing of our products and services We cannot predict however whether steps taken by us to protect our proprietary rights will be adequate to allow for registration prevent misappropriation of these rights or protect against vulnerability to oppositions or cancellation actions due to non use See Item 1A Risk Factors Risks Related to Cybersecurity and Intellectual Property
In Fiscal Year 2019 the Company acquired a 30 interest in SACO Technologies Inc SACO a global provider of high performance LED video lighting and media solutions The Company utilized SACO as a preferred display technology provider for Sphere In addition the Company also has other investments in various entertainment and related technology companies accounted for under the equity method
In Fiscal Year 2018 the Company acquired a 25 interest in Holoplot GmbH Holoplot a global leader in 3D audio technology based in Berlin Germany The Company partnered with Holoplot to create the world s largest fully integrated concert grade audio system for Sphere in Las Vegas In January 2023 the Company extended financing to Holoplot in the form of a three year convertible loan of 18 8 million equivalent to 20 5 million using the applicable exchange rate at the time of the transaction On April 25 2024 in connection with the Company s strategy to expand our capabilities and enable further innovation across immersive experiences and 3D audio technology the Company entered into a share purchase and transfer agreement to acquire the remaining equity interest in Holoplot not previously owned by the Company Following the acquisition on April 25 2024 Holoplot is now a consolidated subsidiary of the Company
On April 20 2023 the Company distributed approximately 67 of the outstanding common stock of MSG Entertainment to its stockholders with the Company retaining approximately 33 of the outstanding common stock of MSG Entertainment in the form of Class A Common Stock immediately following the MSGE Distribution As of June 30 2024 following the sales of portions of the MSGE Retained Interest and the repayment of the delayed draw term loan with MSG Entertainment using a portion of the MSGE Retained Interest the Company no longer holds any of the outstanding common stock of MSG Entertainment
Following Sphere s opening in fall 2023 the Company launched a partnership with the Clark County School District CCSD that has so far brought more than 5 300 public school students to the venue for showings of The Sphere Experience In 2024 Sphere launched the inaugural XO Student Design Challenge a groundbreaking community collaboration between Sphere CCSD and the University of Nevada Las Vegas UNLV The Student Design Challenge invited more than 100 000 Clark County Nevada based students from elementary school to graduate school to create art for the Exosphere Sphere s LED exterior with eight students winning the opportunity to have their artwork displayed on the Exosphere In addition the four winners from CCSD high schools and the four winners from UNLV each received a 10 000 educational scholarship from the Company The four winners from CCSD elementary and middle schools each earned a 10 000 donation from the Company to their school s art program along with tickets for their entire school to attend The Sphere Experience
The rules regulations policies and procedures affecting our business are subject to change The following paragraphs describe the existing legal and regulatory requirements that are most significant to our business today they do not purport to describe all present and proposed laws and regulations affecting our business
Sphere like all public spaces is subject to building and health codes and fire regulations imposed by state and local government as well as zoning and outdoor advertising and signage regulations Sphere requires a number of licenses to operate including but not limited to occupancy permits exhibition licenses food and beverage permits liquor licenses signage entitlements and other authorizations We are also subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor guest is a violation of the law and may provide for strict liability for certain damages arising out of such violations In addition we are subject to the federal Americans with Disabilities Act and related state and local statutes which requires us to maintain certain accessibility features at our facilities We are also subject to environmental laws and regulations See Item 1A Risk Factors Operational and Economic Risks
We are subject to data privacy and protection laws regulations policies and contractual obligations that apply to the collection transmission storage processing and use of personal information or personal data which among other things impose certain requirements relating to the privacy and security of personal information The variety of laws and regulations governing data privacy and protection and the use of the internet as a commercial medium are rapidly evolving extensive and complex and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application
The data protection landscape is rapidly evolving in the United States For example California passed a comprehensive data privacy law the California Consumer Privacy Act of 2018 the CCPA and other states including New Jersey Virginia Colorado Utah and Connecticut have also passed similar laws and various additional states may do so in the near future Additionally the California Privacy Rights Act the CPRA imposes additional data protection obligations on covered businesses including additional consumer rights procedures and obligations limitations on data uses new audit requirements for higher risk data and constraints on certain uses of sensitive data The majority of the CPRA provisions went into effect on January 1 2023 and additional compliance investment and potential business process changes may be required Further there are several legislative proposals in the United States at both the federal and state level that could impose new privacy and security obligations
Our international operations are subject to laws and regulations of the countries in which they operate as well as international bodies such as the European Union We are subject to laws and regulations relating to among other things foreign privacy and data protection such as the E U General Data Protection Regulation currency and repatriation of funds anti bribery anti money laundering and anti corruption such as the U S Foreign Corrupt Practices Act and the U K Bribery Act These laws and regulations apply to the activities of the Company and in some cases to individual directors officers and employees of the Company and agents acting on our behalf Certain of these laws impose stringent requirements on how we can conduct our foreign operations and could place restrictions on our business and partnering activities
business is also subject to regulation by the Federal Communications Commission the FCC The FCC imposes regulations directly on programming networks and also on certain Distributors in a manner that affects programming networks indirectly
Under FCC rules our programming networks websites and mobile applications must meet certain requirements for access by persons with disabilities Most notably our programming networks must provide closed captioning of video programming for the hearing impaired and meet certain captioning quality standards The FCC and certain of our affiliation agreements require us to certify compliance with such standards We are also required to provide closed captioning on certain video content delivered via the Internet and ensure that our website and applications offering video content comply with certain captioning functionality and other requirements
FCC rules require multichannel video programming distributors MVPDs to ensure that all commercials comply with specified volume standards and certain of our affiliation agreements require us to certify compliance with such standards
Any programming intended primarily for children 12 years of age and under and associated Internet websites that we may offer must comply with certain limits on commercial matter and certain of our affiliation agreements require us to certify compliance with such standards
The FCC s program carriage rules prohibit Distributors from favoring their affiliated programming networks over unaffiliated similarly situated programming networks in the rates terms and conditions of carriage agreements between programming networks and cable operators or other MVPDs Some of the FCC s recent interpretations of these rules however have made it more difficult for our programming networks to challenge a Distributor s decision to decline to carry one of our programming networks or to discriminate against one of our programming networks
The FCC periodically considers examining whether to adopt rules regulating how programmers package and price their networks such as whether programming networks require Distributors to purchase and carry undesired programming in return for the right to carry desired programming and if so whether such arrangements should be prohibited
The FCC s implementation of the statutory must carry obligations requires cable and satellite Distributors to give broadcasters preferential access to channel space and the implementation of retransmission consent requirements allow broadcasters to extract compensation whether monetary or mandated carriage of affiliated content in return for permission to carry their networks These rules may reduce the amount of channel space that is available for carriage of our programming networks and the amount of funds that Distributors have to pay us for our networks
businesses are also subject to certain regulations applicable to our Internet websites and mobile applications We maintain various websites and mobile applications that provide information and content regarding our business offer merchandise and tickets for sale offer live and on demand streaming content make available sweepstakes and or contests and offer hospitality services The operation of these websites and applications may be subject to third party application store requirements as well as a range of federal state and local laws including those related to privacy and protection of personal information accessibility for persons with disabilities and consumer protection regulations In addition to the extent any of our websites seek to collect information from children under 13 years of age they may be subject to the Children s Online Privacy Protection Act which places restrictions on websites and online services collection and use of personally identifiable information online from children under age 13 without parental consent
Our Sphere business competes in certain respects and to varying degrees for guests advertisers and marketing partners with other leisure time activities and entertainment options such as other live performances sporting events music festivals television radio motion pictures restaurants and nightlife venues the Internet social media and social networking platforms online and mobile services and the large number of other entertainment and public attraction options available to members of the public advertisers and marketing partners While Sphere offers first of its kind immersive opportunities our Sphere business typically represents a competing use for the public s entertainment dollars as well as corporate advertising and sponsorship dollars The primary geographic area in which we operate Las Vegas is a highly competitive entertainment destination with numerous showrooms stadiums and arenas performance residencies museums galleries and other attractions available to the public We compete with these other entertainment and advertising options on the basis of the quality and pricing of our offerings and the public s interest in our content and advertising and marketing partnership offerings
which venues may be more familiar to performers who may not be willing to take advantage of the immersive experiences and next generation technologies that Sphere offers which cannot be re used in other venues Generally we compete for bookings on the basis of the size quality expense and nature of the venue required for the booking Some of our competitors may have a larger network of venues and or greater financial resources See Item 1A Risk Factors Operational and Economic Risks
The business of distributing programming networks is highly competitive Our programming networks face competition from other programming networks including national networks and other regional sports and entertainment networks for the right to be carried by a particular Distributor and for the right to be carried on the service tier s that will attract the most subscribers Once a programming network of ours is carried by a Distributor that network competes for viewers not only with the other programming networks available through the Distributor but also with pay per view programming and video on demand offerings as well as Internet and online streaming and DTC and on demand services mobile applications social media and social networking platforms radio print media motion picture theaters home video and other sources of information sporting events and entertainment Each of the following competitive factors is important to our networks the prices we charge for our programming networks the variety quantity and quality in particular the performance of the sports teams whose media rights we control of the programming offered on our networks and the effectiveness of our marketing efforts
Our ability to successfully compete with other programming networks for distribution may be hampered because the Distributors may be affiliated with those other programming networks In addition because such affiliated Distributors may have a substantial number of subscribers the ability of such competing programming networks to obtain distribution on affiliated Distributors may lead to increased subscriber and advertising revenue for such networks because of their increased penetration compared to our programming networks Even if such affiliated Distributors carry our programming networks there is no assurance that such Distributors will not place their affiliated programming network on more desirable tier s or otherwise favor their affiliated programming network thereby giving the affiliated programming network a competitive advantage over our own
New or existing programming networks that are owned by or affiliated with broadcast networks such as NBC ABC CBS or Fox or broadcast station owners such as Sinclair may have a competitive advantage over our networks in obtaining distribution through the bundling of agreements to carry those programming networks with the agreement giving the Distributor the right to carry a broadcast station or group of other programming networks owned by or affiliated with the network
In addition content providers such as certain broadcast and cable networks and new content developers Distributors and syndicators are distributing programming directly to consumers on a DTC basis In addition to existing DTC streaming services such as Amazon Prime Hulu Netflix Apple TV Disney Max and Peacock additional services have launched and more will likely launch in the near term which may include sports focused services that may compete with our networks for viewers and advertising revenue For example ESPN Warner Bros Discovery and Fox have announced their intention to partner on a sports oriented digital distribution platform currently known as Venu Sports that will offer their national sports programming directly to consumers and is expected to launch in fall 2024 Such DTC distribution of content has contributed to consumers eliminating or downgrading their pay television subscription which results in certain consumers not receiving our programming networks We introduced our own DTC product in June 2023 which provides consumers an alternative to accessing our programming through our Distributors but there can be no assurance that we will successfully execute our strategy for such offering Our DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such product or the impact such product may have on our traditional distribution business In addition the success of our DTC product will depend on a number of factors including competition from other DTC products such as offerings from other regional sports networks See Item 1A Risk Factors Operational and Economic Risks
We May Not Be Able to Adapt to New Content Distribution Platforms or to Changes in Consumer Behavior Resulting From Emerging Technologies Which May Have a Material Negative Effect on Our Business and Results of Operations
We also compete with other networks and other distribution outlets to secure desired programming including sports related programming Competition for programming increases as the number of programming networks and distribution outlets including but not limited to streaming outlets increases Other programming networks or distribution outlets that are affiliated with or otherwise have larger relationships with programming sources such as sports teams or leagues movie or television studios or film libraries may have a competitive advantage over us in this area
Because the loyalty of the sports viewing audience to a sports programming network is primarily driven by loyalty to a particular team or teams access to adequate sources of sports programming is particularly critical to our networks In connection with the spinoff of MSG Sports from MSG Networks in September 2015 the 2015 Sports Distribution MSG Networks entered into long term media rights agreements with the Knicks and Rangers providing MSG Networks with the exclusive live local media rights to their games MSG Networks also has multi year media rights agreements with the Islanders Devils and Sabres Our rights with respect to these professional teams may be limited in certain circumstances due to rules imposed by the leagues in which they compete Our programming networks compete for telecast rights for teams or events principally with national or regional programming networks that specialize in or carry sports programming local and national commercial broadcast television networks independent syndicators that acquire and resell such rights nationally regionally and locally streaming outlets and other Internet and mobile based distributors of programming Some of our competitors may own or control or are owned or controlled by or otherwise affiliated with sports teams leagues or sports promoters which gives them an advantage in obtaining telecast rights for such teams or sports For example the New York Yankees have an ownership interest in YES Distributors may also contract directly with the sports teams in their local service areas for the right to distribute games on their platforms
The increasing amount of sports programming available on a national basis including pursuant to national media rights arrangements e g NBA on ABC ESPN ESPN TNT and Max ABC ESPN ESPN NBC Peacock and Amazon beginning in 2025 26 and NHL on ABC ESPN Hulu ESPN TNT and Max as part of league controlled sports programming networks e g NBA TV and NHL Network in out of market packages e g NBA League Pass and NHL Center Ice ESPN league and other websites mobile applications and streaming outlets may have an adverse impact on our competitive position as our programming networks compete for distribution and for viewers For example in July 2024 the NBA finalized new national media rights arrangements which beginning with the 2025 26 NBA season increase the number of team games that can be selected by national broadcasters which could reduce the number of games available for exclusive broadcast by our networks
The level of our advertising revenue depends in part upon unpredictable and volatile factors beyond our control such as viewer preferences traditional linear viewing verse digital streaming trends ad supported streaming services the performance of the sports teams whose media rights we control the quality and appeal of the competing programming and the availability of other entertainment activities See Item 1A Risk Factors Risks Related to Our
We are committed to fostering an inclusive environment across all areas of our business In partnership with MSG Entertainment and MSG Sports our business and supplier diversity program seeks to provide opportunities to diverse suppliers to do business with each of the three companies See Human Capital Resources Diversity and Inclusion below
We believe the strength of our workforce is one of the significant contributors to our success Our key human capital management objectives are to invest in and support our employees in order to attract develop and retain a high performing and diverse workforce
We aim to create an employee experience that fosters the Company s culture of respect and inclusion By welcoming the diverse perspectives and experiences of our employees we all share in the creation of a more vibrant unified and engaging place to work Together with MSG Entertainment and MSG Sports we have furthered these objectives under our expanded People Development Diversity and Inclusion function including
Required all employees to participate in our Uncover the Elements of an Effective Interview training prior to participation in any interview process to educate employees on various forms of bias in the interview process
Expanded our efforts with the MSG D I enterprise calendar to acknowledge and celebrate culturally relevant days and months of recognition anchored by our six Employee Resource Groups ERGs Asian Americans and Pacific Islanders AAPI Black LatinX PRIDE Veterans and Women Membership in our ERGs is open to all employees and combined ERG involvement increased from approximately 1 100 members in Fiscal Year 2023 to approximately 1 700 members in Fiscal Year 2024 an increase of 54 8 which includes employees across the Company MSG Entertainment and MSG Sports
Continued to embed our Conscious Inclusion Awareness Experience into our on boarding experience This is a required educational module delivered in two parts focused on unconscious bias and conscious inclusion within our learning management system
Broadened our D I educational strategy by launching D I Learning Moments to highlight e learning courses in our learning management system connected to D I themes including microaggressions and stereotypes Additionally the D I team offers live trainings that are open to the entire company on topics such as Inclusive Leadership LGBTQ Allyship and Generational Differences Trainings were completed by approximately 500 employees across the Company MSG Entertainment and MSG Sports from January 2024 to June 2024
Continued our LGBTQ inclusivity strategy by hosting live allyship and inclusivity trainings and launching toolkit resources for employees to learn and develop Together with the PRIDE ERG we marched in the NYC Pride Parade in 2022 2023 and 2024 and
Expanded our Community Conversations series with a theme this year of Finding Your Voice Panels were held during Hispanic Heritage Month Veterans Day Black History Month Women s Empowerment Month Asian American and Pacific Islander Heritage Month and Pride Month with elected officials and employees across the Company MSG Entertainment and MSG Sports
Focused on increasing opportunities to connect with diverse vendors and suppliers by leveraging ERGs and our community This effort creates revenue generating opportunities for diverse suppliers to promote their businesses and products In Fiscal Year 2024 the Company expanded its multi city holiday market event featuring thirty underrepresented businesses in New York City and Burbank and hosted a virtual market for our Las Vegas employees and
Invested in an external facing supplier diversity portal on our website which launched in Fiscal Year 2023 The portal is intended to expand opportunities for the Company MSG Entertainment and MSG Sports to do business with diverse suppliers including minority women LGBTQ and veteran owned businesses
We aim to attract top talent through our prestigious brands and venues as well as through the many benefits we offer We aim to retain and develop our talent by emphasizing our competitive rewards offering opportunities that support employees both personally and professionally and our commitment to fostering career development in a positive corporate culture
Our performance management practice includes ongoing feedback and conversations between managers and team members and talent reviews designed to identify potential future leaders and inform succession plans We value continuous learning and development opportunities for our employees which include a career development tool leadership development programs a learning platform and tuition assistance
Our benefit offerings are designed to meet the range of needs of our diverse workforce and include domestic partner coverage an employee assistance program which also provides assistance with child and elder care resources legal support pet insurance wellness programs and financial planning seminars These resources are intended to support the physical emotional and financial well being of our employees
As of June 30 2024 approximately 18 of our employees were subject to collective bargaining agreements CBAs Approximately 5 of those union employees are subject to CBAs that expired as of June 30 2024 and approximately 39 are subject to CBAs that will expire by June 30 2025 if they are not extended prior thereto Labor relations can be volatile though our current relationships with our unions taken as a whole are positive We have from time to time faced labor action or had to make contingency plans because of threatened or potential labor actions
Substantially all revenues and assets of the Company s reportable segments are attributed to or located in the United States A majority of the Company s revenues and assets are concentrated in the New York City metropolitan area and Las Vegas Financial information by business segments for each of Fiscal Years 2024 2023 and 2022 is set forth in Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations and Part II Item 8 Financial Statements and Supplementary Data Consolidated Financial Statements Notes to Consolidated Financial Statements Note 19 Segment Information
We make available free of charge through the investor relations section of our website annual reports on Form 10 K quarterly reports on Form 10 Q and current reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act of 1934 as amended as well as proxy statements as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission SEC at
Copies of these filings are also available on the SEC s website References to our website in this report are provided as a convenience and the information contained on or available through our website is not part of this or any other report we file with or furnish to the SEC
Investor Relations can be contacted at Sphere Entertainment Co Two Penn Plaza New York New York 10121 Attn Investor Relations telephone 212 465 6618 e mail investor thesphere com We use the following as well as other social media channels to disclose public information to investors the media and others
Our officers may use similar social media channels to disclose public information It is possible that certain information we or our officers post on our website and on social media could be deemed material and we encourage investors the media and others interested in Sphere Entertainment to review the business and financial information we or our officers post on our website and on the social media channels identified above The information on our website and those social media channels is not incorporated by reference into this Form 10 K
The following is a summary of the principal risks that could adversely affect our business operations and financial results For a more complete discussion of the material risks facing our business please see below
The success of our Sphere business depends on the popularity of The Sphere Experience as well as our ability to continue to attract advertisers and marketing partners and audiences and artists to concerts residencies and other events at Sphere in Las Vegas
The difficulty with estimating the costs of our initial Sphere in Las Vegas and the complexities of the planning process create risks with respect to our Sphere initiative which may not be successful unless we can develop additional venues
We depend on licenses from third parties for the performance of musical works at our venue the loss of which or renewal of which on less favorable terms may have a negative effect on our business and results of operations
The success of our MSG Networks business depends on affiliation fees we receive under our affiliation agreements the loss of which or renewal of which on less favorable terms may have a material negative effect on our business and results of operations
Given that we depend on a limited number of distributors for a significant portion of our MSG Networks revenues further industry consolidation could adversely affect our business and results of operations
We may not be able to adapt to new content distribution platforms or to changes in consumer behavior resulting from emerging technologies which may have a material negative effect on our business and results of operations
If the rate of decline in the number of subscribers to traditional MVPD services continues or these subscribers shift to other services or bundles that do not include the Company s programming networks there may be a material negative effect on the Company s distribution revenues
Our MSG Networks business depends on media rights agreements with professional sports teams that have varying durations and terms and include significant obligations and our inability to renew those agreements on acceptable terms or the loss of such rights for other reasons may have a material negative effect on our MSG Networks business and results of operations
Our MSG Networks business depends on the appeal of its programming which may be unpredictable and increased programming costs may have a material negative effect on our business and results of operations
Although MSG Networks is pursuing a work out of the MSG Networks Credit Facilities there can be no assurances that it will be successful any refinancing may require an equity contribution by Sphere Entertainment Group to MSG Networks and even if a refinancing is successfully consummated it may be on terms materially less favorable to MSG Networks than the current terms
If MSG Networks is unable to refinance the MSG Networks Credit Facilities through a work out or otherwise the outstanding debt thereunder could be accelerated and the lenders could foreclose upon the MSG Networks business
We have incurred substantial operating losses adjusted operating losses and negative cash flow and there is no assurance we will have operating income adjusted operating income or positive cash flow in the future
Our business has been adversely impacted and may in the future be materially adversely impacted by an economic downturn recession financial instability inflation or changes in consumer tastes and preferences
There is a risk of injuries and accidents in connection with Sphere which has in the past and could in the future subject us to personal injury or other claims we are subject to the risk of adverse outcomes in other types of litigation
We face continually evolving cybersecurity and similar risks which could result in loss disclosure theft destruction or misappropriation of or access to our confidential information and cause disruption of our business damage to our brands and reputation legal exposure and financial losses
We are controlled by the Dolan family As a result of their control the Dolan family has the ability to prevent or cause a change in control or approve prevent or influence certain actions by the Company
We share certain directors officers and employees with MSG Sports MSG Entertainment and or AMC Networks which means those individuals do not devote their full time and attention to our affairs and the overlap may give rise to conflicts
The Success of Our Sphere Business Depends on the Popularity of The Sphere Experience as Well as Our Ability to Continue to Attract Advertisers and Marketing Partners and Audiences and Artists to Concerts Residencies and Other Events at Sphere in Las Vegas If The Sphere Experience Does Not Continue to Appeal to Customers or We Are Unable to Attract Advertisers and Marketing Partners There Will be a Material Negative Effect on Our Business and Results of Operations
The financial results of our Sphere business are largely dependent on the popularity of The Sphere Experience which features original immersive productions that can run multiple times per day year round and are designed to utilize the full breadth of the venue s next generation technologies The Sphere Experience employs novel and transformative technologies for which there is no established basis of comparison and there is an inherent risk that we may be unable to achieve the level of success appropriate for the significant
investment involved Fan and consumer tastes also change frequently and it is a challenge to anticipate what will be successful at any point in time Should the popularity of The Sphere Experience not meet our expectations our revenues from ticket sales and concession and merchandise sales would be adversely affected and we might not be able to replace the lost revenue with revenues from other sources For example we have experienced a decline in the average revenues per show of The Sphere Experience quarter over quarter since its debut on October 6
at Sphere in Las Vegas As a result of any of the foregoing we may not be able to generate sufficient revenues to cover our costs which could adversely impact our business and results of operations the price of our Class A Common Stock and the value of our 3 50 Convertible Senior Notes
The risk of reliance on The Sphere Experience described above is exacerbated by the lack of availability of alternative content If The Sphere Experience is not successful in continuing to attract guests we may not have sufficient capital to develop additional original immersive productions In that event Sphere in Las Vegas may need to either rely on increased advertising and marketing revenues and the success of much more frequent third party live entertainment offerings to generate enough capital to develop additional original immersive productions and or partner with third parties to develop and finance such productions
Additionally our Sphere business is also dependent on our ability to continue to attract advertisers and marketing partners to our signage digital advertising and partnership offerings Advertising revenues depend on a number of factors such as the reach and popularity of our venue including risks around consumer reactions to advertisers and marketing partners the health of the economy in the markets our businesses serve and in the nation as a whole general economic trends in the advertising industry and competition with respect to such offerings Should the popularity of our advertising assets not meet our expectations our revenues would be adversely affected and we might not be able to replace the lost revenue with revenues from other sources which could adversely impact our business and results of operations and the price of our Class A Common Stock and the value of our 3 50 Convertible Senior Notes
The success of our Sphere business also depends upon our ability to offer live entertainment that is popular with guests While the Company believes that these next generation venues will enable new experiences and innovative opportunities to engage with audiences there can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform We contract with promoters and others to provide performers and events at Sphere and Sphere grounds Although our concert performances have been popular with guests there can be no assurances that future performances will achieve similar popularity There may be a limited number of popular artists groups or events that are willing to invest in and to take advantage of the immersive experiences and next generation technologies which cannot be re used in venues other than Sphere or that can attract audiences to Sphere and our business would suffer to the extent that we are unable to attract such artists groups and events willing to perform at our venue
The Difficulty with Estimating the Costs of our Initial Sphere in Las Vegas and the Complexities of the Planning Process Create Risks with Respect to our Sphere Initiative Which May Not Be Successful Unless We Can Develop Additional Venues
The Company s venue strategy is to create build and operate new music and entertainment focused venues called Sphere that use cutting edge technologies to create the next generation of immersive experiences There is no assurance that the Sphere initiative will be successful
We completed construction of our first Sphere in Las Vegas in September 2023 The costs to build Sphere were substantial While it is always difficult to provide a definitive construction cost estimate for large scale construction projects it was particularly challenging for one as unique as Sphere In May 2019 the Company s preliminary cost estimate for Sphere in Las Vegas was approximately 1 2 billion This estimate was based only upon schematic designs for purposes of developing the Company s budget and financial projections The cost estimate for Sphere was subsequently increased numerous times during the course of the project and the final construction cost for Sphere in Las Vegas meaningfully exceeded the initial estimate See Note 8 Property and Equipment Net and Note 9 Leases to the consolidated financial statements included in Item 8 of this Annual Report on Form 10 K
In February 2018 we announced the purchase of land in Stratford London which we expected would become home to a future Sphere On November 21 2023 we announced that we were formally notified by the Mayor of London that our planning application for a Sphere venue in Stratford London was not approved In light of this decision we no longer plan to allocate resources towards the development of a Sphere in the United Kingdom In connection with this decision we recorded an impairment charge of 116 5 million in the quarter ended December 31 2023
We continue to explore domestic and international markets where these next generation venues are expected to be successful The design of future Spheres will be flexible to accommodate a wide range of sizes and capacities from large scale to smaller and more intimate based on the needs of any individual market While the Company has self funded the construction of Sphere in Las Vegas the Company s intention for future venues is to utilize several options such as joint ventures equity partners a managed venue model and non recourse debt financing In connection with the construction of future Sphere venues the Company may need to obtain additional capital beyond what is available from cash on hand and cash flows from operations There is no assurance that we would be able to obtain financing for any costs relating to any future venues on terms favorable to us or at all
The difficulty with estimating the costs of our initial Sphere in Las Vegas and the complexities of the planning process create risks with respect to our Sphere initiative which may not be successful unless we can develop additional venues
Sphere employs novel and transformative technologies and new applications of existing technologies Although the application of these technologies at Sphere have been successful to date there can be no assurance that Sphere will achieve the operational and artistic goals the Company is seeking over the long term Any failure to do so could have a material negative effect on our business and results of operations
While the Company believes that these next generation venues will enable new experiences and innovative opportunities to engage with audiences there can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform The substantial cost of building Sphere in Las Vegas as well as the potential costs and or financing needs with respect to future Spheres may constrain the Company s ability to undertake other initiatives during these multi year construction periods Given our strategy of using original immersive productions across multiple venues our Sphere initiative may not be successful unless we can develop additional venues
Our Sphere Business Strategy Includes the Development of The Sphere Experience and Related Original Immersive Productions Which Could Require Us to Make Considerable Investments for Which There Can Be No Guarantee of Success
our first original immersive production and have commenced the development of additional original immersive productions which will require significant upfront expense that may never result in a viable production as well as investment in creative processes commissioning and or licensing of intellectual property casting and advertising and may lead to dislocation of other alternative sources of entertainment that may have played in our venue absent these productions We invested approximately 81 4 million to develop the first original immersive production
and there can be no assurances as to the cost of future immersive productions which we expect to be significant To the extent that any efforts at creating new immersive productions do not result in a viable offering or to the extent that any such productions do not achieve expected levels of popularity among audiences we may not recover the substantial expenses we previously incurred for non capitalized investments or may need to write off all or a portion of capitalized investments In addition any delay in launching such productions could result in the incurrence of operating costs which may not be recouped
We Depend on Licenses from Third Parties for the Performance of Musical Works at Our Venue the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Negative Effect on Our Business and Results of Operations
We have obtained and will be required to obtain public performance licenses from music performing rights organizations commonly known as PROs in connection with the performance of musical works at concerts and certain other live events held at Sphere In exchange for public performance licenses most PROs are paid a per event royalty traditionally calculated either as a percentage of ticket revenue or a per ticket amount The PRO royalty obligation of any individual event is generally paid by or charged to the promoter of the event
If we lose or are unable to obtain these licenses or are unable to obtain them on terms consistent with past practice it may have a negative effect on our business and results of operations An increase in the royalty rate and or the revenue base on which the royalty rate is applied could substantially increase the cost of presenting concerts and certain other live events at our venue If we are no longer able to pass all or a portion of these royalties on to promoters or other venue licensees it may have a negative effect on our business and results of operations
Sphere in Las Vegas has the benefit of easements with respect to the pedestrian bridge to The Venetian Our ability to continue to utilize these and other easements including for advertising and promotional purposes requires us to comply with a number of conditions Certain adjoining property owners have easements over our property which we are required to maintain so long as those property owners meet certain conditions It is possible that we will be unable to continue to access or maintain any easements on terms favorable to us or at all which could have a material negative effect on our business and results of operations
The Success of Our MSG Networks Business Depends on Affiliation Fees We Receive Under Our Affiliation Agreements the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Material Negative Effect on Our Business and Results of Operations
MSG Networks success is dependent upon affiliation relationships with a limited number of Distributors Existing affiliation agreements with major Distributors expire during each of the next several years including during calendar year 2024 and we cannot provide assurances that we will be able to renew these affiliation agreements or obtain terms as attractive as our existing agreements in the event of a renewal Any such non renewal would result in a material negative effect on our affiliation revenues operating income and adjusted operating income For example we were not able to renew our affiliation agreement with Comcast when it expired in September 2021 which caused a reduction in annual affiliation revenue operating income and adjusted operating income
Affiliation fees constitute a significant majority of our MSG Networks revenues Changes in affiliation fee revenues generally result from a combination of changes in Distributor affiliation rates and or changes in subscriber counts Reductions in the license fees that we receive per subscriber or in the number of subscribers for which we are paid including as a result of a loss of or reduction in carriage of our programming networks or a loss of subscribers by one or more of our Distributors have in the past adversely affected e g the non renewal with Comcast and will in the future adversely affect our affiliation fee revenue For example our distribution revenue declined 42 6 million in Fiscal Year 2024 compared to Fiscal Year 2023 Subject to the terms of our affiliation agreements Distributors from time to time introduce market and or modify tiers of programming networks that impact the number of subscribers that receive our programming networks including tiers of programming that may exclude our networks Any loss or reduction in carriage would also decrease the potential audience for our programming which may adversely affect our advertising revenues See
If the Rate of Decline in the Number of Subscribers to Traditional MVPDs Services Increases or These Subscribers Shift to Other Services or Bundles That Do Not Include the Company s Programming Networks There May Be a Material Negative Effect on the Company s Affiliation Revenues
is available on a free authenticated basis to subscribers of participating Distributors including all of MSG Networks major Distributors as well as for purchase by viewers on a DTC basis through monthly and annual subscriptions as well as single game purchases distribution revenue for our MSG Networks segment now includes both affiliation fee revenue earned from Distributors for the right to carry the Company s networks as well as revenue earned from subscriptions and single game purchases on MSG L
Our affiliation agreements generally require us to meet certain content criteria such as minimum thresholds for professional event telecasts throughout the calendar year on our networks The impacts of the NBA and NHL national broadcast agreements including the new NBA agreements that are scheduled to begin with the 2025 2026 NBA season could result in fewer professional event telecasts of our teams made available to us for broadcast and impact our ability to meet these criteria If we do not meet these criteria remedies may be available to our Distributors such as fee reductions rebates or refunds and or termination of these agreements in some cases For example we recorded 10 7 million in Fiscal Year 2022 for affiliate rebates
In addition under certain circumstances an existing affiliation agreement may expire and we and the Distributor may not have finalized negotiations of either a renewal of that agreement or a new agreement for certain periods of time In certain of these circumstances Distributors may continue to carry the service s until the execution of definitive renewal or replacement agreements or until we or the Distributor determine that carriage should cease
Occasionally we may have disputes with Distributors over the terms of our affiliation agreements If not resolved through business discussions such disputes could result in administrative complaints litigation and or actual or threatened termination of an existing agreement The loss of any of our significant Distributors the failure to renew on terms as attractive as our existing agreements or to do so in a timely manner or disputes with our counterparties relating to the interpretation of their agreements with us could result in our inability to generate sufficient revenues to perform our obligations under our agreements or otherwise materially negatively affect our business and results of operations
Given That We Depend on a Limited Number of Distributors for a Significant Portion of Our MSG Networks Revenues Further Industry Consolidation Could Adversely Affect Our Business and Results of Operations
The pay television industry is highly concentrated with a relatively small number of Distributors serving a significant percentage of pay television subscribers that receive our programming networks thereby affording the largest Distributors significant leverage in their relationship with programming networks including ours Substantially all of our affiliation fee revenue comes from our top four Distributors Further consolidation in the industry could reduce the number of Distributors available to distribute our programming networks and increase the negotiating leverage of certain Distributors which could adversely affect our revenue In some cases if a Distributor is acquired the affiliation agreement of the acquiring Distributor will govern following the acquisition In those
circumstances the acquisition of a Distributor that is a party to one or more affiliation agreements with us on terms that are more favorable to us than that of the acquirer could have a material negative impact on our business and results of operations
We May Not Be Able to Adapt to New Content Distribution Platforms or to Changes in Consumer Behavior Resulting From Emerging Technologies Which May Have a Material Negative Effect on Our Business and Results of Operations
We must successfully adapt to technological advances in our industry and the manner in which consumers watch sporting events including the emergence of alternative distribution platforms Our ability to exploit new distribution platforms and viewing technologies may affect our ability to maintain and or grow our business Emerging forms of content distribution provide different economic models and compete with current distribution methods in ways that are not entirely predictable Such competition has reduced and could continue to reduce demand for our programming networks or for the offerings of our Distributors and in turn reduce our revenue from these sources Content providers such as certain broadcast and cable networks and new content developers Distributors and syndicators are distributing programming directly to consumers on a DTC basis In addition to existing subscription DTC streaming services such as Amazon Prime Hulu Netflix Apple TV Disney ESPN Max and Peacock and free advertiser supported streaming television FAST channels that are offered directly to consumers at no cost additional services have launched and more will likely launch in the near term which may include sports focused services that may compete with our networks for viewers and advertising revenue For example ESPN Warner Bros Discovery and Fox have announced their intention to partner on a sports oriented digital distribution platform currently known as Venu Sports that will offer their national sports programming directly to consumers and is expected to launch in fall 2024 DTC distribution of content has contributed to consumers eliminating or downgrading their pay television subscription which results in certain consumers not receiving our programming networks If we are unable to offset this loss of subscribers through incremental distribution of our networks including through MSG Networks own DTC offering or through rate increases or other revenue opportunities our business and results of operations will be adversely affected Gaming television and other console and device manufacturers Distributors and others such as Microsoft Apple and Roku are offering and or developing technology to offer video programming including in some cases various DTC platforms
Such changes have impacted and may continue to impact the revenues we are able to generate from our traditional distribution methods by decreasing the viewership of our programming networks and or by making advertising on our programming networks less valuable to advertisers
In order to respond to these developments we have in the past needed and may in the future need to implement changes to our business models and strategies and there can be no assurance that any such changes will prove to be successful or that the business models and strategies we develop will be as profitable as our current business models and strategies For example in January 2023 we introduced MSG SportsZone a FAST channel and in June 2023 we launched our DTC product MSG but there can be no assurance that we will successfully execute our strategy for such offering Our DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such DTC product or the impact such DTC product may have on our traditional distribution business if any including with respect to renewals of our affiliation agreements with Distributors In addition the success of our DTC product may depend on a number of factors including our ability to i acquire and maintain DTC rights from the professional sports teams and or leagues we currently air on our networks ii appropriately price our offering iii offer competitive content and programming and iv ensure our DTC technology operates efficiently If we fail to adapt to emerging technologies our appeal to Distributors and our targeted audiences might decline which could have a material adverse impact on our business and results of operations
If the Rate of Decline in the Number of Subscribers to Traditional MVPD Services Continues or These Subscribers Shift to Other Services or Bundles That Do Not Include the Company s Programming Networks There May Be a Material Negative Effect on the Company s Distribution Revenues
During the last few years the number of subscribers to traditional MVPD services in the U S has been declining In addition Distributors have introduced marketed and or modified tiers or bundles of programming that have impacted the number of subscribers that receive our programming networks including tiers or bundles of programming that exclude our programming networks and may continue to do so in the future As a result of these factors the Company has experienced a decrease in subscribers in each of the last several fiscal years which has adversely affected our operating results
If traditional MVPD service offerings are not attractive to consumers due to pricing increased competition from DTC and other services dissatisfaction with the quality of traditional MVPD services poor economic conditions or other factors more consumers may i cancel their traditional MVPD service subscriptions or choose not to subscribe to traditional MVPD services ii elect to instead subscribe to DTC services which in some cases may be offered at a lower price point and may not include our programming networks or iii elect to subscribe to smaller bundles of programming which may not include our programming networks If the rate of decline in the number of traditional MVPD service subscribers continues or if subscribers shift to DTC services or smaller bundles of programming that do not include the Company s programming networks this may have a material negative effect on the Company s revenues
Advertising revenues depend on a number of factors many of which are beyond our control such as i team performance ii whether live sports games are being played and the number of live games available for telecast on our programming networks iii the popularity of our programming iv the activities of our competitors including increased competition from other forms of advertising based media such as Internet mobile media other programming networks radio and print media and an increasing shift of advertising expenditures to digital and mobile offerings v shifts in consumer viewing patterns including consumers watching more ad free content non traditional and shorter form video content online and the increased use of ad skipping functionality vi increasing audience fragmentation caused by increased availability of alternative forms of leisure and entertainment activities such as social networking platforms and video games vii consumer budgeting and buying patterns viii the extent of the distribution of our networks ix changes in the audience demographic for our programming x the ability of third parties to successfully and accurately measure audiences due to changes in emerging technologies and otherwise xi the health of the economy in the markets our businesses serve and in the nation as a whole and xii general economic trends in the advertising industry A decline in the economic prospects of advertisers or the economy in general has in the past altered and could in the future alter current or prospective advertisers spending priorities which could cause our revenues and operating results to decline significantly in any given period Even in the absence of a general recession or downturn in the economy an individual business sector that tends to spend more on advertising than other sectors may be forced to reduce its advertising expenditures if that sector experiences a downturn In such case a reduction in advertising expenditures by such a sector may adversely affect our revenues See Operational and Economic Risks
The pricing and volume of advertising has been affected by shifts in spending away from more traditional media toward online and mobile offerings or towards new ways of purchasing advertising such as through automated purchasing dynamic advertising insertion third parties selling local advertising spots and advertising exchanges some or all of which may not be as advantageous to the Company as current advertising methods
In addition we cannot ensure that our programming will achieve favorable ratings Our ratings depend partly upon unpredictable and volatile factors many of which are beyond our control such as team performance whether live sports games are being played viewer preferences the level of distribution of our programming competing programming and the availability of other entertainment options A shift in viewer preferences could cause our advertising revenues to decline as a result of changes to the ratings for our programming and materially negatively affect our business and results of operations
Our MSG Networks Business Depends on Media Rights Agreements With Professional Sports Teams That Have Varying Durations and Terms and Include Significant Obligations and Our Inability to Renew Those Agreements on Acceptable Terms or the Loss of Such Rights for Other Reasons May Have a Material Negative Effect on Our MSG Networks Business and Results of Operations
Our MSG Networks business is dependent upon media rights agreements with professional sports teams Our existing media rights agreements are multi year Upon expiration we may seek renewal of these agreements and if we do we may be outbid by competing programming networks or others for these agreements or the renewal costs could substantially exceed our costs under the current agreements In addition one or more of these teams may seek to establish their own programming offering or join one of our competitor s offerings and in certain circumstances we may not have an opportunity to bid for the media rights
Even if we are able to renew such media rights agreements the Company s results could be adversely affected if our obligations under our media rights agreements prove to be outsized relative to the revenues our MSG Networks segment is able to generate Our media rights agreements with professional sports teams have varying terms and include significant obligations which increase annually without regard to the number of subscribers to our programming networks or the level of our affiliation and or advertising revenues If we are not able to generate sufficient revenues including due to a loss of any of our significant Distributors or failure to renew affiliation agreements on terms as attractive as our existing agreements we may be unable to renew media rights agreements on acceptable terms or to perform our obligations under our existing media rights agreements which could lead to a default under those agreements and the potential loss of such media rights which could materially negatively affect our business and results of operations In recent years certain regional sports networks have experienced financial difficulties For example Diamond Sports Group LLC an unconsolidated subsidiary of Sinclair Broadcast Group Inc which licenses and distributes sports content in a number of regional markets filed for protection under Chapter 11 of the bankruptcy code in March 2023 As a result certain of Diamond Sports Group s media rights agreements have either been rejected in connection with the bankruptcy proceedings or have expired without renewal For example Diamond Sports Group has ended its media rights agreements with a number of NHL NBA and Major League Baseball teams including the Phoenix Suns and the Dallas Stars
Moreover the value of our media rights agreements may also be affected by various league decisions and or league agreements that we may not be able to control including a decision to alter the number of games played during a season or the number of team games that can be selected by national broadcasters which could reduce the number of games available for exclusive broadcast by our networks The value of our media rights could also be affected or we could lose such rights entirely if a team is liquidated undergoes reorganization in bankruptcy or relocates to an area where it is not possible or commercially feasible for us to continue to distribute games Any loss or diminution in the value of rights could impact the extent of the sports coverage offered by us and could materially negatively affect our business and results of operations In addition our affiliation agreements generally include certain remedies in the event our networks fail to include a minimum number of professional event telecasts and accordingly any loss of rights could materially negatively affect our business and results of operations See
The Success of Our MSG Networks Business Depends on Affiliation Fees We Receive Under Our Affiliation Agreements the Loss of Which or Renewal of Which on Less Favorable Terms May Have a Material Negative Effect on Our Business and Results of Operations
The governing bodies of the NBA and the NHL have imposed and may impose in the future various rules regulations guidelines bulletins directives policies and agreements collectively League Rules that we may not be able to control which could affect the value of our media rights agreements including a decision to alter the number of games played during a season or the number of team games that can be selected by national broadcasters which could reduce the number of games available for exclusive broadcast by our networks For example due to the COVID 19 pandemic and related government actions decisions made by the NBA and NHL affected and in the future could affect our ability to produce and distribute live sports games on our networks See Operational and Economic Risks
In addition in July 2024 the NBA finalized new national media rights arrangements which beginning with the 2025 26 NBA season increase the number of team games that can be selected by national broadcasters which could reduce the number of games available for exclusive broadcast by our networks Each league also imposes rules that define the territories in which we may distribute games of the teams in the applicable league Changes to these rules or other League Rules or the adoption of new League Rules could have a material negative effect on our business and results of operations
Our MSG Networks segment has historically been and we expect will continue to be dependent on the popularity of the NBA and NHL teams whose local media rights we control and in varying degrees those teams achieving on court and on ice success which can generate fan enthusiasm resulting in increased viewership and advertising revenues Furthermore success in the regular season may qualify a team for participation in the post season which generates increased excitement and interest in the teams which can improve viewership and advertising revenues
Some of our teams have not participated in the post season for extended periods of time and may not participate in the post season in the future For example the Sabres have not qualified for the post season since the 2010 11 NHL season In addition if a team declines in popularity or fails to generate fan enthusiasm this may negatively impact the terms on which our affiliate agreements are renewed There can be no assurance that any sports team will generate fan enthusiasm or compete in post season play and the failure to do so could result in a material negative effect on our business and results of operations
Our MSG Networks Business Depends on the Appeal of Its Programming Which May Be Unpredictable and Increased Programming Costs May Have a Material Negative Effect on Our Business and Results of Operations
Our MSG Networks business depends in part upon viewer preferences and audience acceptance of the programming on our networks These factors are often unpredictable and subject to influences that are beyond our control such as the quality and appeal of competing programming general economic conditions and the availability of other entertainment options We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity If our programming does not gain or maintain the level of audience acceptance we our advertisers or Distributors expect it could negatively affect advertising or affiliation fee revenues
In addition we rely on third parties for sports and other programming for our networks We compete with other providers of programming to acquire the rights to distribute such programming If we fail to continue to obtain sports and other programming for our networks on reasonable terms for any reason including as a result of competition we could be forced to incur additional costs to acquire such programming or look for or develop alternative programming An increase in our costs associated with programming which may include third party costs to acquire programming and or production costs for original programming may materially negatively affect our business and results of operations
During Fiscal Year 2023 our MSG Networks business completed a transition of its signal transmission method from satellite delivery to a terrestrial internet protocol based transmission method which uses third party IP based fiber transmission systems to transmit our programming services to Distributors Notwithstanding certain back up and redundant systems and facilities maintained by our third party providers transmissions or quality of transmissions may be disrupted including as a result of events that may impair such terrestrial transmission facilities
In addition we are party to an agreement with AMC Networks Inc AMC Networks pursuant to which AMC Networks provides us with certain origination master control and technical services which are necessary to distribute our programming networks If a disruption occurs we may not be able to secure alternate distribution facilities in a timely manner In addition such distribution facilities and or internal or third party services systems or software could be adversely impacted by cybersecurity threats including unauthorized breaches See Risks Related to Cybersecurity and Intellectual Property
We Face Continually Evolving Cybersecurity and Other Technology Related Risks Which Could Result in Loss Disclosure Theft Destruction or Misappropriation of or Access to Our Confidential Information and Cause Disruption of Our Business Damage to Our Brands and Reputation Legal Exposure and Financial Losses
The failure or unavailability of distribution facilities or these internal and third party services systems or software depending upon its severity and duration could have a material negative effect on our business and results of operations
We are highly leveraged with a significant amount of debt and we may continue to incur additional debt in the future As of June 30 2024 the principal balance of our consolidated debt outstanding was approximately 1 4 billion 849 million of which is due prior to June 30 2025 and is classified as short term on our condensed consolidated balance sheets As a result of our indebtedness we are required to make interest and principal payments on our borrowings that are significant in relation to our revenues and cash flows These payments reduce our earnings and cash available for other potential business purposes Furthermore our interest expense could increase if interest rates increase including in connection with rising inflation because our indebtedness bears interest at floating rates or to the extent we have to refinance existing debt with higher cost debt
In September 2019 certain subsidiaries of MSG Networks Inc including MSGN Holdings L P MSGN L P entered into a credit facility consisting of an initial five year 1 1 billion term loan facility and a five year 250 million revolving credit facility the MSG Networks Credit Facilities The outstanding borrowings under the MSG Networks Credit Facilities are due at maturity on October 11 2024 The MSG Networks Credit Facilities are the obligations of our indirect subsidiaries MSGN L P MSGN Eden LLC Regional MSGN Holdings LLC and certain subsidiaries of MSGN L P and none of the Company Sphere Entertainment Group or any of the subsidiaries of Sphere Entertainment Group collectively the Non Credit Parties are party to the MSG Networks Credit Facilities
On December 22 2022 MSG Las Vegas LLC MSG LV entered into a credit agreement providing for a five year 275 million senior secured term loan facility the LV Sphere Term Loan Facility All obligations under the LV Sphere Term Loan Facility are guaranteed by Sphere Entertainment Group None of the Company MSG Networks Inc MSGN L P or any of the subsidiaries of MSGN L P are parties to the LV Sphere Term Loan Facility
Our ability to have sufficient liquidity to fund our operations and refinance our indebtedness is dependent on the ability of Sphere to generate significant positive cash flow There can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform and that Sphere will generate revenue and adjusted operating income in line with our expectations Original immersive productions such as
have not been previously pursued on the scale of Sphere which increases the uncertainty of our operating expectations To the extent that our efforts do not result in viable shows or to the extent that any such productions do not achieve expected levels of popularity among audiences we may not generate the cash flows from operations necessary to fund our operations Our future operating performance to a certain extent is subject to general economic conditions recession fears of recession financial competitive regulatory and other factors that are beyond our control To the extent we do not realize expected cash flows from operations from Sphere we would have to take several actions to improve our financial flexibility and preserve liquidity including significant reductions in both labor and non labor expenses as well as reductions and or deferrals in capital spending Therefore while we currently believe
we will have sufficient liquidity from cash and cash equivalents and cash flows from operations including expected cash flows from operations from Sphere to fund our operations and at a minimum make a required quarterly amortization payment of 20 6 million on the MSG Networks Credit Facilities no assurance can
In addition our ability to make payments on or repay or refinance our debt and to fund our operating and capital expenditures also depends upon our ability to access the credit markets If we are unable to generate sufficient cash flow to service our debt and meet our other commitments we may need to refinance all or a portion of our debt sell material assets or operations or raise additional debt or equity capital which may be dilutive to our stockholders We cannot provide assurance that we could effect any of these actions on a timely basis on commercially reasonable terms or at all or that these actions would be sufficient to meet our capital requirements In addition the terms of our existing or future debt agreements may restrict us from effecting certain or any of these alternatives
Even if our future operating performance is strong limitations on our ability to access the capital or credit markets including as a result of general economic conditions unfavorable terms or general reductions in liquidity may adversely and materially impact our business financial condition and results of operations
The failure to satisfy the covenants including any inability to attain a covenant waiver and other requirements under each credit agreement could trigger a default thereunder acceleration of outstanding debt thereunder and with respect to the LV Sphere Term Loan Facility a demand for payment under the guarantee provided by Sphere Entertainment Group Additionally the LV Sphere Term Loan Facility and the MSG Networks Credit Facilities together the Credit Facilities each restrict MSG LV and MSGN L P respectively from making cash distributions to us unless certain financial covenants are met Any failure to satisfy the covenants under our Credit Facilities could negatively impact our liquidity and could have a negative effect on our businesses
do not restrict us from incurring additional indebtedness including secured indebtedness As of June 30 2024 i the principal balance of the Company s indebtedness excluding subsidiaries was approximately 258 8 million under the 3 50 Convertible Senior Notes and ii the principal balance of indebtedness of the Company s subsidiaries was 1 125 billion all of which is senior secured indebtedness In addition as of June 30 2024 MSGN L P had the ability to utilize approximately 113 million of its 250 0 million revolving credit facility and not have been in violation of the terms of the MSG Networks Credit Facilities The ability of MSGN L P to draw on its revolving credit facilities will depend on its ability to meet certain financial covenants and other conditions This leverage also exposes us to significant risk by limiting our flexibility in planning for or reacting to changes in our business whether through competitive pressure or otherwise the entertainment and video programming industries and the economy at large Although our cash flows could decrease in these scenarios our required payments in respect of indebtedness would not decrease
does not place any limitations on our ability to incur debt or create liens securing indebtedness If we incur secured indebtedness and such secured indebtedness is either accelerated or becomes subject to a bankruptcy liquidation or reorganization our assets would be used to satisfy obligations with respect to the indebtedness secured thereby before any payment could be made on the
If new debt or other liabilities are added to our current debt levels the related risks that we now face could intensify Our Credit Facilities restrict the ability of our subsidiaries to incur additional indebtedness including secured indebtedness but if the facilities mature or are repaid our subsidiaries may not be subject to such restrictions under the terms of any subsequent indebtedness
As described under Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources in this Annual Report on Form 10 K while the conditions with respect to the MSG Networks Credit Facilities raise substantial doubt about the Company s ability to continue as a going concern for the reasons stated under Note 2 Accounting Policies Liquidity and Going Concern to the consolidated financial statements included in Item 8 of this Annual Report on Form 10 K with respect to the lenders recourse under the MSG Networks Credit Facilities we have concluded that the conditions raising substantial doubt about the Company s ability to continue as a going concern have been effectively alleviated as of the date of this Annual Report on Form 10 K and that the Company would be able to continue as a going concern for at least one year beyond the date of issuance of the condensed consolidated financial statements included in this Annual Report on Form 10 K Management will conduct its review of the Company s ability to continue as a going concern prior to issuing the Company s financial statements after each quarterly or annual period There can be no assurances that we will be able to continue to effectively alleviate the conditions with respect to the Company s ability to continue to be a going concern in the future
In addition we have made investments in or otherwise extended loans to one or more businesses that we believe complement enhance or expand our current business or that might otherwise offer us growth opportunities and may make additional investments in or otherwise extend loans to one or more of such parties in the future For example we had previously invested in and extended financing to Holoplot in connection with Sphere s advanced audio system and on April 25 2024 we completed the acquisition of the remaining equity interest in Holoplot that we did not previously own To the extent that such parties do not perform as expected
Although MSG Networks Is Pursuing a Work out of Its Credit Facilities There Can Be No Assurances That It Will Be Successful Any Refinancing May Require an Equity Contribution by Sphere Entertainment Group to MSG Networks and Even if a Refinancing is Successfully Consummated It May Be on Terms Materially Less Favorable to MSG Networks Than the Current Terms
As of June 30 2024 the principal balance of debt outstanding under the MSG Networks Credit Facilities was approximately 849 8 and is classified as short term on our condensed consolidated balance sheets Under the terms of the MSG Networks Credit Facilities a 20 6 million required quarterly amortization payment is due between June 30 2024 and maturity and the remaining outstanding borrowings under the facility of 829 1 million are due at maturity on October 11 2024
MSG Networks will be unable to generate sufficient operating cash flows to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings As of the issuance date of the accompanying consolidated financial statements for the year ended June 30 2024 MSG Networks has not been able to finalize a refinancing of the MSG Networks Credit Facilities with its existing syndicate of lenders Consequently MSG Networks has decided to pursue a refinancing through a work out of the MSG Networks Credit Facilities with its existing syndicate of lenders
If a refinancing of the outstanding borrowings under the MSG Networks Credit Facilities is successfully consummated through a work out or otherwise it is expected to require a cash equity contribution from Sphere Entertainment Group to MSG Networks In addition such refinancing may be on terms that are materially less favorable to MSG Networks than the current terms including providing for covenants for the benefit of existing or new lenders that materially restrict the business of MSG Networks A refinancing may also require MSG Networks Sphere Entertainment Co and or their respective subsidiaries to make concessions as a condition to the refinancing which may have an adverse effect on their respective businesses operating results and financial condition
Although MSG Networks Is Pursuing a Work out of Its Credit Facilities There Can Be No Assurances That It Will Be Successful If MSG Networks Is Unable to Refinance the MSG Networks Credit Facilities Through a Work Out or Otherwise the Outstanding Debt Thereunder Could Be Accelerated and the Lenders Could Foreclose Upon the MSG Networks Business
MSG Networks will be unable to generate sufficient operating cash flows to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings As of the issuance date of the accompanying consolidated financial statements for the year ended June 30 2024 MSG Networks has not been able to finalize a refinancing of the MSG Networks Credit Facilities with its existing syndicate of lenders Consequently MSG Networks has decided to pursue a refinancing through a work out of the MSG Networks Credit Facilities with its existing syndicate of lenders
In the event MSG Networks is unable to successfully refinance the MSG Networks Credit Facilities through a work out or otherwise the lenders would have the right to exercise their remedies under the MSG Networks Credit Facilities which would include but not be limited to declaring an event of default and foreclosing on the MSG Networks business In the event of an exercise of post default rights or remedies the Company believes the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities MSG Networks and its subsidiaries may also decide to seek bankruptcy protection prior to the lenders exercising their rights If lenders exercise remedies or foreclose on the MSG Networks business or if MSG Networks decides to seek bankruptcy protection Sphere Entertainment Co may no longer be entitled to any value in or results of operations from the MSG Networks business
The Terms of Our Indebtedness Outstanding from Time to Time Including Our Credit Facilities Will Restrict Our Current and Future Operations Particularly Our Ability to Respond to Changes or to Take Certain Actions
The Credit Facilities contain and future credit facilities are expected to contain a number of restrictive covenants that impose significant operating and financial restrictions on certain of our subsidiaries and may limit our ability to respond to changes in our business or competitive activities or to otherwise engage in acts that may be in our long term best interest including restrictions on our subsidiaries ability to
In addition the restrictive covenants in the Credit Facilities require certain of our subsidiaries to maintain specified financial ratios and satisfy other financial condition tests Our ability to meet those financial ratios and tests can be affected by events beyond our control and we may be unable to meet them
These restrictions may affect our ability to grow in accordance with our strategy In addition our financial results and our substantial indebtedness could adversely affect the availability and terms of our financing
Borrowings under our facilities are at variable rates of interest and expose us to interest rate risk Interest rates have increased significantly including in connection with rising inflation and as a result our debt service obligations on our variable rate indebtedness have increased significantly even though the amount borrowed remains the same and our net income and cash flows including cash available for servicing our indebtedness have correspondingly decreased Further increases in interest rates will cause additional increases in our debt service obligations In the future we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility However we may not maintain interest rate swaps with respect to all of our variable rate indebtedness and any swaps we enter into may not fully mitigate our interest rate risk
Holders of the 3 50 Convertible Senior Notes will have the right to require us to repurchase their notes upon the occurrence of a fundamental change as defined in the Indenture at a purchase price equal to 100 of the principal amount of the notes to be repurchased plus accrued and unpaid interest if any to but not including the fundamental change repurchase date as defined in the Indenture In addition we will be required to make cash payments in respect of the 3 50 Convertible Senior Notes being converted However we may not have enough available cash or be able to obtain financing at the time we are required to make purchases of notes surrendered therefor or notes being converted In addition our ability to repurchase the notes or to pay cash upon conversion of the notes is limited by the agreements governing our existing indebtedness including the Credit Facilities and may also be limited by law by regulatory authority or by agreements that will govern our future indebtedness Our failure to repurchase 3 50 Convertible Senior Notes at a time when the repurchase is required by the Indenture or to pay cash payable on future conversions of the 3 50 Convertible Senior Notes as required by the Indenture would constitute a default under the Indenture
A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness including the Credit Facilities If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods we may not have sufficient funds to repay the indebtedness and repurchase the 3 50 Convertible Senior Notes or make cash payments upon conversion thereof
unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A Common Stock other than paying cash in lieu of delivering any fractional share we would be required to settle a portion or all of our conversion obligation through the payment of cash which could adversely affect our liquidity In addition even if holders do not elect to convert their
we entered into privately negotiated capped call transactions with hedge counterparties The capped call transactions cover subject to customary anti dilution adjustments substantially similar to those applicable to the
the same number of shares of Class A Common Stock that will initially underlie the notes The capped call transactions are expected generally to reduce potential dilution to our Class A Common Stock and or offset potential cash payments we are required to make in excess of the principal amount of converted notes in each case upon any conversion of notes with such reduction and or offset subject to a cap If the market price per share of our Class A Common Stock as measured under the terms of the capped call transactions exceeds the cap price of the capped call transactions there would nevertheless be dilution and or there would not be an offset of such potential cash payments in each case to the extent that such market price exceeds the cap price of the capped call transactions In addition to the extent any observation period for any converted notes does not correspond to the period during which the market price of our Class A Common Stock is measured under the terms of the capped call transactions there could also be dilution and or a reduced offset of any such cash payments as a result of the different measurement periods
The hedge counterparties and or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A Common Stock and or purchasing or selling our Class A Common Stock or other securities of ours in secondary market transactions prior to the maturity of the
and are likely to do so to the extent we exercise the relevant election under the capped call transactions following any repurchase redemption or conversion of the notes whether upon a fundamental change or otherwise The effect if any of these activities on the market price of our Class A Common Stock or the
will depend in part on market conditions and cannot be ascertained at this time but any of these activities could cause or prevent an increase or a decline in the market price of our Class A Common Stock or the
which could affect the ability of holders to convert the notes and to the extent the activity occurs following conversion or during any observation period related to a conversion of notes it could affect the amount of cash and or the number and value of shares of our Class A Common Stock holders receive upon conversion of the
or their respective affiliates and other financial institutions pursuant to capped call confirmations The hedge counterparties are financial institutions and we will be subject to the risk that any or all of them might default under the capped call transactions
Our exposure to the credit risk of the hedge counterparties will not be secured by any collateral Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions If a hedge counterparty becomes subject to insolvency proceedings we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such hedge counterparty Our exposure will depend on many factors but generally an increase in our exposure will be correlated with an increase in the market price and the volatility of our Class A Common Stock In addition upon a default by a hedge counterparty we may suffer more dilution than we currently anticipate with respect to our Class A Common Stock We can provide no assurances as to the financial stability or viability of the hedge counterparties
The capital and credit markets can experience volatility and disruption Those markets can exert extreme downward pressure on stock prices and upward pressure on the cost of new debt capital and can severely restrict credit availability for most issuers For example the global economy including credit and financial markets has recently experienced extreme volatility and disruptions including severely diminished liquidity and credit availability rising interest and inflation rates declines in consumer confidence declines in economic growth increases in unemployment rates and uncertainty about economic stability If the equity and credit markets continue to deteriorate or the United States enters a recession it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms more costly or more dilutive
Our Sphere business has been characterized by significant expenditures for properties businesses renovations and productions We may require additional financing to fund our planned capital expenditures as well as other obligations and our ongoing operations In the future we may engage in transactions that depend on our ability to obtain funding For example as we extend Sphere beyond Las Vegas our intention is to utilize several options such as joint ventures equity partners a managed venue model and non recourse debt financing There is no assurance that we will be able to successfully complete these plans
Depending upon conditions in the financial markets and or the Company s financial performance we may not be able to raise additional capital on favorable terms or at all If we are unable to pursue our current and future spending programs we may be forced to cancel or scale back those programs Failure to successfully pursue our capital expenditure and other spending plans could negatively affect our ability to compete effectively and have a material negative effect on our business and results of operations
We Have Incurred Substantial Operating Losses Adjusted Operating Losses and Negative Cash Flow and There is No Assurance We Will Have Operating Income Adjusted Operating Income or Positive Cash Flow in the Future
We incurred operating losses of approximately 341 million 273 million and 166 million for Fiscal Years 2024 2023 and 2022 respectively We expect these significant operating losses to continue In addition we have in prior periods incurred operating losses and negative cash flow There is no assurance that we will have operating income adjusted operating income or positive cash flow in the future Significant operating losses may limit our ability to raise necessary financing or to do so on favorable terms as such losses could be taken into account by potential investors and lenders
We Are Required to Assess Our Internal Control Over Financial Reporting on an Annual Basis and Our Management Identified a Material Weakness During Fiscal Year 2022 Which Has Now Been Remediated If We Identify Other Material Weaknesses or Adverse Findings in the Future Our Ability to Report Our Financial Condition or Results of Operations Accurately or Timely May Be Adversely Affected Which May Result in a Loss of Investor Confidence in Our Financial Reports Significant Expenses to Remediate Any Internal Control Deficiencies and Ultimately Have an Adverse Effect on the Market Price of Our Class A Common Stock and the Value of the
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 as amended our management is required to report on and our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation testing and possible remediation If we fail to maintain the adequacy of our internal control over financial reporting we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act of 2002 If we fail to achieve and maintain an effective internal control environment we could suffer misstatements in our financial statements and fail to meet our reporting obligations which would likely cause investors to lose confidence in our reported financial information This could result in significant expenses to remediate any internal control deficiencies and lead to a decline in our stock price
Subsequent to the filing of the Fiscal Year 2021 Form 10 K management of the Company evaluated an immaterial accounting error related to interest costs that should have been capitalized for Sphere in Las Vegas in Fiscal Years 2021 2020 and 2019 and in the fiscal quarter ended September 30 2021 as prescribed by Accounting Standards Codification Topic 835 20 Capitalization of Interest As a result of the accounting error the Company re evaluated the effectiveness of the Company s internal control over financial reporting and identified a material weakness as of June 30 2021 September 30 2021 December 31 2021 and March 31 2022 We undertook certain remediation efforts by implementing additional controls which were operating effectively as of June 30 2022 and as a result our management concluded that the material weakness has been remediated and our internal control over financial reporting was effective as of June 30 2022 A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company s annual or interim financial statements will not be prevented or detected on a timely basis
Our management may be unable to conclude in future periods that our disclosure controls and procedures are effective due to the effects of various factors which may in part include unremediated material weaknesses in internal controls over financial reporting Disclosure controls and procedures include without limitation controls and procedures designed to ensure that information required to be disclosed by a company in those reports is accumulated and communicated to the company s management including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure In addition we may not be able to identify and remediate other control deficiencies including material weaknesses in the future
Our businesses compete in certain respects and to varying degrees for guests advertisers and viewers with other leisure time activities and entertainment options such as television radio motion pictures sporting events music festivals and other live performances restaurants and nightlife venues the Internet social media and social networking platforms and online and mobile services including sites for online content distribution video on demand and other alternative sources of entertainment and information in addition to competing for concerts residencies and performances with other event venues including future venues and arenas for total entertainment dollars in our marketplace
The success of our Sphere business is largely dependent on the success of The Sphere Experience which features first of its kind immersive productions that can run multiple times per day year round and are designed to utilize the full breadth of the venue s next generation technologies The Sphere Experience employs novel and transformative technologies for which there is no established basis of comparison and there is an inherent risk that we may be unable to achieve the level of success we are expecting which could have a material negative impact on our business and results of operations Additionally our Sphere business is also dependent on our ability to continue to attract advertisers and marketing partners and we compete with other venues and companies for signage and digital advertising dollars The degree and extent of competition for advertising dollars will depend on our pricing reach and audience demographics among others Should the popularity of The Sphere Experience or our advertising assets not meet our expectations our revenues from ticket sales concession and merchandise sales and advertising would be adversely affected and we might not be able to replace the lost revenue with revenues from other sources As a result of any of the foregoing we may not be able to generate sufficient revenues to cover our costs which could adversely impact our business and results of operations and the price of our Class A Common Stock and the value of the
In addition our Sphere business is highly sensitive to customer tastes and depends on our ability to continue to attract concert residencies marquee sporting events corporate and other events to our venue competition for which is intense and in turn the ability of performers to attract strong attendance For example Sphere competes with other entertainment options in the Las Vegas area which is a popular entertainment destination
While the Company believes that these next generation venues enable new experiences and innovative opportunities to engage with audiences there can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform We contract with promoters and others to provide performers and events at Sphere and Sphere grounds There may be a limited number of popular artists groups or events that are willing to take advantage of the immersive experiences and next generation technologies which cannot be re used in other venues or that can attract audiences to Sphere and our business would suffer to the extent that we are unable to attract such artists groups and events willing to perform at our venue
In addition we must maintain a competitive pricing structure for events that may be held at Sphere many of which may have alternative venue options available to them in Las Vegas and other cities We have and may continue to invest a substantial amount in The Sphere Experience to continue to attract audiences We cannot assure you that such investments will generate revenues that are sufficient to justify our investment or even that exceed our expenses
Our MSG Networks business competes in certain respects and to varying degrees for viewers and advertisers with other programming networks pay per view video on demand online streaming and on demand services and other content offered by Distributors and others Additional companies some with significant financial resources continue to enter or are seeking to enter the video distribution market either by offering DTC streaming services or selling devices that aggregate viewing of various DTC services which continues to put pressure on an already competitive landscape We also compete for viewers and advertisers with content offered over the Internet social media and social networking platforms mobile media radio motion picture home video and other sources of information and entertainment and advertising services Important competitive factors are the prices we charge for our programming networks the quantity quality in particular the performance of the sports teams whose media rights we control the variety of the programming offered on our networks and the effectiveness of our marketing efforts
New or existing programming networks that are owned by or affiliated with broadcast networks such as NBC ABC CBS or Fox or broadcast station owners such as Sinclair may have a competitive advantage over our networks in obtaining distribution through the bundling of agreements to carry those programming networks with the agreement giving the Distributor the right to carry a broadcast station owned by or affiliated with the network For example regional sports and entertainment networks affiliated with broadcast networks are carried by certain Distributors that do not currently carry our networks Our business depends in part upon viewer preferences and audience acceptance of the programming on our networks These factors are often unpredictable and subject to influences that are beyond our control such as the quality and appeal of competing programming the performance of the sports teams whose media rights we control general economic conditions and the availability of other entertainment options We may not be able to successfully predict interest in proposed new programming and viewer preferences could cause new programming not to be successful or cause our existing programming to decline in popularity If our programming does not gain or maintain the level of audience
acceptance we our advertisers or Distributors expect it could negatively affect advertising or distribution fee revenues An increase in our costs associated with programming including original programming may materially negatively affect our business and results of operations
In June 2023 we launched a DTC streaming product which provides consumers an alternative to accessing our programming through our Distributors but there can be no assurance that we will successfully execute our strategy for such offering Our DTC offering represents a new consumer offering for which we have limited prior experience and we may not be able to successfully predict the demand for such DTC product or the impact such DTC product may have on our traditional distribution business including with respect to renewals of our affiliation agreements with Distributors In addition the success of our DTC product will depend on a number of factors including competition from other DTC products such as offerings from other regional sports networks
The extent to which competitive programming including NBA and NHL games are available on other programming networks and distribution platforms can adversely affect our competitive position The increasing amount of sports programming available on a national basis including pursuant to national media rights arrangements e g NBA on ABC ESPN ESPN TNT and Max ABC ESPN ESPN NBC Peacock and Amazon beginning in 2025 26 and NHL on ABC ESPN Hulu ESPN TNT and Max as part of league controlled sports programming networks e g NBA TV and NHL Network in out of market packages e g NBA League Pass and NHL Center Ice ESPN league and other websites mobile applications and streaming outlets may have an adverse impact on our competitive position as our programming networks compete for distribution and for viewers For example in July 2024 the NBA finalized new national media rights arrangements which beginning with the 2025 26 NBA season increase the number of team games that can be selected by national broadcasters which could reduce the number of games available for exclusive broadcast by our networks The competitive environment in which our MSG Networks business operates may also be affected by technological developments It is difficult to predict the future effect of technology on our competitive position With respect to advertising services factors affecting the degree and extent of competition include prices reach and audience demographics among others Some of our competitors are large companies that have greater financial resources available to them than we do which could impact our viewership and the resulting advertising revenues
The Company s operations and operating results were materially impacted by the COVID 19 pandemic including COVID 19 variants and actions taken in response by governmental authorities and certain professional sports leagues during the fiscal year ended June 30 2021 Fiscal Year 2021
Government regulations enacted in response to the COVID 19 pandemic or another pandemic or health emergency could impact in the future the revenue we derive and or the expenses we incur from events that we choose to host such that events that were historically profitable would instead result in losses It is unclear to what extent concerns with respect to pandemics such as a resurgence of COVID 19 or other future pandemics could result in new government mandated capacity or other restrictions or vaccination mask requirements or impact the use of and or demand for Sphere in Las Vegas impact demand for our sponsorship and advertising assets deter our employees and vendors from working at Sphere in Las Vegas which may lead to difficulties in staffing deter artists from touring or result in professional sports leagues suspending cancelling or otherwise reducing the number of games scheduled in the regular reason or playoffs which has in the past and could in the future have a material impact on the distribution and or advertising revenues of our MSG Networks segment or otherwise materially impact our operations
For example as a result of the COVID 19 pandemic both the NBA and the NHL reduced the number of regular season games for their 2020 21 seasons resulting in MSG Networks airing substantially fewer NBA and NHL telecasts during Fiscal Year 2021 as compared with Fiscal Year 2019 the last full fiscal year not impacted by COVID 19 as the 2019 20 seasons were temporarily suspended and subsequently shortened Consequently MSG Networks experienced a decrease in revenues in Fiscal Year 2021 including a material decrease in advertising revenue The absence of live sports games also resulted in a decrease in certain MSG Networks expenses in Fiscal Year 2021 including rights fees variable production expenses and advertising sales commissions MSG Networks has aired full season telecast schedules since Fiscal Year 2022 In addition in April 2020 the Company temporarily suspended construction of Sphere in Las Vegas due to COVID 19 related factors that were outside of its control including supply chain issues and resumed full construction with a lengthened timetable in order to better preserve cash through the COVID 19 pandemic Although Sphere was not open during the pandemic if it had been its operations would have been suspended for a period of time and similar to other venues its operations would have been subject to safety protocols and social distancing upon reopening
Our business is particularly sensitive to reductions in travel and discretionary consumer spending A pandemic such as COVID 19 or the fear of a new pandemic or public health emergency has in the past impeded and could in the future impede economic activity in impacted regions and globally over the long term leading to a decline in discretionary spending on entertainment and sports events and other leisure activities which has in the past resulted and could in the future result in long term effects on our business To the extent effects of the COVID 19 pandemic or another pandemic or public health emergency adversely affect our business and financial results they may also have the effect of heightening many of the other risks described in this Risk Factors section such as those
Our Business Has Been Adversely Impacted and May in the Future Be Materially Adversely Impacted by an Economic Downturn Recession Financial Instability Inflation or Changes in Consumer Tastes and Preferences
Our business depends upon the ability and willingness of consumers and businesses to purchase tickets and license suites at Sphere spend on food and beverages and merchandise subscribe to packages of programming that includes our networks and drive continued advertising marketing partnership and affiliate fee revenues and these revenues are sensitive to general economic conditions recession fears of recession and consumer behavior Further the live entertainment industry is often affected by changes in consumer tastes national regional and local economic conditions discretionary spending priorities demographic trends traffic patterns and the type number and location of competing businesses These risks are exacerbated in our business in light of the fact that we only have one venue in Las Vegas which is dependent on tourism travel for its success
Consumer and corporate spending has in the past declined and may in the future decline at any time for reasons beyond our control The risks associated with our businesses generally become more acute in periods of a slowing economy or recession which may be accompanied by reductions in corporate sponsorship and advertising and decreases in attendance at events at our venue among other things In addition inflation which has significantly risen has increased and may continue to increase operational costs including labor costs and continued increases in interest rates in response to concerns about inflation may have the effect of further increasing economic uncertainty and heightening these risks As a result instability and weakness of the U S and global economies including due to the effects caused by disruptions to financial markets inflation recession high unemployment geopolitical events including any prolonged effects caused by the COVID 19 pandemic or another future pandemic and the negative effects on consumers and businesses discretionary spending have in the past materially negatively affected and may in the future materially negatively affect our business and results of operations A prolonged period of reduced consumer or corporate spending including with respect to advertising such as during the COVID 19 pandemic has in the past and could in the future have an adverse effect on our business and our results of operations See Operational and Economic Risks
The Sphere business currently operates only in Las Vegas with one venue and as a result is subject to significantly greater degrees of risk than competitors with more operating properties or that operate in more markets MSG Networks programming networks are widely distributed throughout New York State and certain nearby areas
Therefore the Company is particularly vulnerable to adverse events including acts of terrorism natural disasters epidemics pandemics weather conditions labor market disruptions and government actions and economic conditions in Las Vegas and New York State and surrounding areas
The success of our businesses is dependent upon the willingness and ability of patrons to attend events at our venue The venue we operate like all prominent places of public assembly could be the target of terrorist activities including acts of domestic terrorism or other actions that discourage attendance Any such activity or threatened activity at or near one of our venue or other similar venues including those located elsewhere could result in reduced attendance at our venue and a material negative effect on our business and results of operations If our venue was unable to operate for an extended period of time our business and operations would be materially adversely affected Similarly a major epidemic or pandemic such as the COVID 19 pandemic or the threat or perceived threat of such an event could adversely affect attendance at our events and venues by discouraging public assembly at our events and venue Moreover the costs of protecting against such incidents including the costs of implementing additional protective measures for the health and safety of our guests could reduce the profitability of our operations See Operational and Economic Risks
Weather or other conditions including natural disasters in locations which we own or operate venues may affect patron attendance as well as sales of food and beverages and merchandise among other things Weather conditions may also require us to cancel or postpone events Weather or other conditions may prevent us or our Distributors from providing our programming to customers or reduce advertising expenditures Any of these events may have a material negative effect on our business and results of operations and any such events may harm our ability to obtain or renew insurance coverage on favorable terms or at all
We May Pursue Acquisitions and Other Strategic Transactions and or Investments to Complement or Expand Our Business That May Not Be Successful We Have Significant Investments in Businesses We Do Not Control
From time to time we may explore opportunities to purchase or invest in other businesses venues or assets that we believe will complement enhance or expand our current business or that might otherwise offer us growth opportunities including opportunities that may differ from the Company s current businesses Any transactions that we are able to identify and complete may involve risks including the commitment of significant capital the incurrence of indebtedness the payment of advances the diversion of management s attention and resources from our existing business to develop and integrate the acquired or combined business the inability to successfully integrate such business or assets into our operations litigation or other claims in connection with acquisitions or against companies we invest in or acquire our lack of control over certain companies including joint ventures and other minority investments the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful At times we have had and may in the future have significant investments in businesses that we account for under the equity method of accounting Certain of these investments have generated operating losses in the past and certain have required additional investments from us in the form of equity or loans For example our investment in Holoplot was substantially reduced by our share of the entity s operating losses before we purchased the remainder of the business in April 2024 There can be no assurance that these investments will become profitable individually or in the aggregate or that they will not require material additional funding from us in the future
We may not control the day to day operations of these investments We have in the past written down and to the extent that these investments are not successful in the future we may write down all or a portion of such investments Additionally these businesses may be subject to laws rules and other circumstances and have risks in their operations which may be similar to or different from those to which we are subject Any of the foregoing risks could result in a material negative effect on our business and results of operations or adversely impact the value of our investments
Our business is subject to the general powers of federal state and local governments as well as foreign governmental authorities Certain aspects of our MSG Networks business are also subject to certain rules regulations and agreements of the NBA and NHL Some FCC regulations apply to our MSG Networks business directly and other FCC regulations although imposed on Distributors affect programming networks indirectly
Sphere like all public spaces is subject to building and health codes and fire regulations imposed by state and local government as well as zoning and outdoor advertising and signage regulations We also require a number of licenses to operate including but not limited to occupancy permits exhibition licenses food and beverage permits liquor licenses signage entitlements and other authorizations Failure to receive or retain or the suspension of liquor licenses or permits could interrupt or terminate our ability to serve alcoholic beverages at our venue Additional regulation relating to liquor licenses may limit our activities in the future or significantly increase the cost of compliance or both We are subject to statutes that generally provide that serving alcohol to a visibly intoxicated or minor patron is a violation of the law and may provide for strict liability for certain damages arising out of such violations Our liability insurance coverage may not be adequate or available to cover any or all such potential liability Our failure to maintain these permits or licenses could have a material negative effect on our business and results of operations
As a result of government mandated assembly limitations and closures implemented in response to the COVID 19 pandemic MSG Networks aired substantially fewer games in Fiscal Year 2021 There can be no assurance that some or all of these restrictions will not be imposed again in the future due to another pandemic or public health emergency We are unable to predict what the long term effects of these events including renewed government regulations or requirements will be For example future governmental regulations adopted in response to a pandemic may impact the revenue we derive and or the expenses we incur from the events that we choose to host such that events that were historically profitable would instead result in losses See Operational and Economic Risks
We and our venue are subject to environmental laws and regulations relating to the use disposal storage emission and release of hazardous and non hazardous substances as well as zoning and noise level restrictions which may affect among other things the operations of our venue Compliance with these regulations and the associated costs may be heightened as a result of the purchase construction or renovation of a venue Additionally certain laws and regulations could hold us strictly jointly and severally responsible for the remediation of hazardous substance contamination at our facilities or at third party waste disposal sites as well as for any personal injury or property damage related to any contamination Our commercial general liability and or the pollution legal liability insurance coverage may not be adequate or available to cover any or all such potential liability
Legislative enactments court actions and federal and state regulatory proceedings could materially affect our programming business by modifying the rates terms and conditions under which we offer our content or programming networks to Distributors and the public or otherwise materially affect the range of our activities or strategic business alternatives We cannot predict the likelihood results or impact on our business of any such legislative judicial or regulatory actions Furthermore to the extent that regulations and laws either presently in force or proposed hinder or stimulate the growth of Distributors our business could be affected The U S Congress and the FCC currently have under consideration and may in the future adopt amend or repeal laws regulations and policies regarding a wide variety of matters that could directly or indirectly affect our business The regulation of Distributors and programming networks is subject to the political process and has been in constant flux over the past two decades Further material changes in the law and regulatory requirements may be proposed or adopted in the future Our business and our results of operations may be materially negatively affected by future legislation new regulation or deregulation
We are subject to data privacy and protection laws regulations policies and contractual obligations that apply to the collection transmission storage processing and use of personal information or personal data which among other things impose certain requirements relating to the privacy and security of personal information The variety of laws and regulations governing data privacy and protection and the use of the internet as a commercial medium are rapidly evolving extensive and complex and may include provisions and obligations that are inconsistent with one another or uncertain in their scope or application
The data protection landscape is rapidly evolving in the United States As our operations and business grow we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities For example California has passed a comprehensive data privacy law the CCPA and a number of other states including New Jersey Virginia Colorado Utah and Connecticut have also passed similar laws and various additional states may do so in the near future Additionally the CPRA imposes additional data protection obligations on covered businesses including additional consumer rights procedures and obligations limitations on data uses new audit requirements for higher risk data and constraints on certain uses of sensitive data The majority of the CPRA provisions went into effect on January 1 2023 and additional compliance investment and potential business process changes may be required Further there are several legislative proposals in the United States at both the federal and state level that could impose new privacy and security obligations We cannot yet determine the impact that these future laws and regulations may have on our business As new privacy and security related laws and regulations are implemented the time and resources needed for us to comply with such laws and regulations as well as our potential liability for non compliance with such laws and regulations may increase
In addition governmental authorities and private litigants continue to bring actions against companies for online collection use dissemination and security practices that are unfair or deceptive We may incur significant legal expenses or reputational damage for data privacy or security claims regardless of whether we are found to be liable
Our business is and may in the future be subject to a variety of other laws and regulations including licensing permitting working conditions labor immigration and employment laws health safety and sanitation requirements and compliance with the Americans with Disabilities Act and related state and local statutes
Any changes to the legal and regulatory framework applicable to our business could have an adverse impact on our businesses and our failure to comply with applicable governmental laws and regulations or to maintain necessary permits or licenses could result in liability or government actions that could have a material negative effect on our business and results of operations
Our revenues and expenses have been seasonal and may continue to be seasonal For example our MSG Networks segment generally continues to expect to earn a higher share of its annual revenues in the second and third quarters of its fiscal year as a result of MSG Networks advertising revenue being largely derived from the sale of inventory in its live NBA and NHL professional sports programming Therefore our operating results and cash flows reflect significant variation from period to period and will continue to do so in the future Consequently period to period comparisons of our operating results or cash flows may not necessarily be meaningful and the operating results or cash flows of one period are not indicative of our financial performance during a full fiscal year This variability may adversely affect our business results of operations and financial condition
In the event of labor market disruptions due to renewed effects of the COVID 19 pandemic or other future pandemics and otherwise we could face difficulty in maintaining staffing at our Sphere venue and retaining talent in our corporate departments If we are unable to attract and retain qualified people or to do so on reasonable terms Sphere could be short staffed or become more expensive to operate and our ability to meet our guests demand could be limited any of which could materially adversely affect our business and results of operations
Our business is dependent upon the efforts of unionized workers As of June 30 2024 approximately 18 of our employees were subject to CBAs Approximately 5 of those union employees are subject to CBAs that expired as of June 30 2024 and approximately 39 are subject to CBAs that will expire by June 30 2025 if they are not extended prior thereto Any labor disputes such as strikes or lockouts with the unions with which we have CBAs could have a material negative effect on our business and results of operations including our ability to produce or present immersive productions concerts programming theatrical productions sporting events and other events For example members of the Writers Guild of America and SAG AFTRA commenced work stoppages in May and July 2023 respectively which lasted several months If these or other work stoppages by unions involved in the production of original immersive productions occur and we are unable to secure waivers from the guild or union concerned it could adversely affect our business
Additionally NBA and NHL players are covered by CBAs and we may be impacted by union relationships of both such leagues Both the NBA and the NHL have experienced labor difficulties in the past and may have labor issues in the future such as player strikes or management lockouts For example the NBA has experienced labor difficulties including a lockout during the 2011 12 NBA season which resulted in a regular season that was shortened from 82 games to 66 games In addition the NHL has also experienced labor difficulties including a lockout beginning in September 2004 that resulted in the cancellation of the entire 2004 05 NHL season and a lockout during the 2012 13 NHL season which resulted in a regular season that was shortened from 82 games to 48 games
If any NBA or NHL games are cancelled because of any such labor difficulties the loss of revenue including from impacts to MSG Networks ability to produce or present programming would have a negative impact on our business and results of operations
There Is a Risk of Injuries and Accidents in Connection with Sphere Which Has in the Past and Could in the Future Subject Us to Personal Injury or Other Claims We Are Subject to the Risk of Adverse Outcomes in Other Types of Litigation
There are inherent risks associated with producing and hosting events and operating maintaining renovating or constructing our venues including as a result of Sphere s unique features As a result personal injuries accidents and other incidents which may negatively affect guest satisfaction have occurred and may occur from time to time which have in the past subjected and could in the future subject us to claims and liabilities
These risks may not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance policy Incidents in connection with events at Sphere could also reduce attendance at our events and may have a negative impact on our revenue and results of operations Although we seek to obtain contractual indemnities for events at our venues that we do not promote and we also maintain insurance policies that provide coverage for incidents in the ordinary course of business there can be no assurance that such indemnities or insurance will be adequate at all times and in all circumstances or that we will be able to continue to obtain or renew such insurance policies on favorable terms or at all
From time to time the Company and its subsidiaries are involved in various legal proceedings including proceedings or lawsuits brought by governmental agencies stockholders customers employees private parties and other stakeholders The outcome of litigation is inherently unpredictable and regardless of the merits of the claims litigation may be expensive time consuming disruptive to our operations harmful to our reputation and distracting to management As a result we may incur liability from litigation including in connection with settling such litigation which could be material and for which we may not have available or adequate insurance coverage or be subject to other forms of non monetary relief which may adversely affect the Company By its nature the outcome of litigation is difficult to assess and quantify and its continuing defense is costly The liabilities and any defense costs we incur in connection with any such litigation could have an adverse effect on our business and results of operations
We have operations and own property outside of the United States We continue to explore international markets for our next generation Sphere venues As a result our business is subject to certain risks inherent in international business many of which are beyond our control These risks include
anti corruption laws and regulations such as the U S Foreign Corrupt Practices Act and the U K Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations and
We Face Continually Evolving Cybersecurity and Other Technology Related Risks Which Could Result in Loss Disclosure Theft Destruction or Misappropriation of or Access to Our Confidential Information and Cause Disruption of Our Business Damage to Our Brands and Reputation Legal Exposure and Financial Losses
Through our operations we collect and store including by electronic means certain personal proprietary and other sensitive information including payment card information that is provided to us through purchases registration on our websites mobile applications or otherwise in communication or interaction with us These activities require the use of online services and centralized data storage including through third party service providers Data maintained in electronic form is subject to the risk of security incidents including breach compromise intrusion tampering theft destruction misappropriation or other malicious activity The increased use of mobile and cloud technologies heightens these and other operational risks as do hybrid work arrangements Our ability to safeguard such personal and other sensitive information including information regarding the Company and our customers sponsors partners Distributors advertisers and employees independent contractors and vendors is important to our business We take significant steps to protect our stored information including the implementation of systems and processes to thwart malicious activity These protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated See
Despite our efforts the risks of a security incident cannot be entirely eliminated and our information technology and other systems that maintain and transmit consumer sponsor partner Distributor advertiser Company employee and other confidential and proprietary information may be compromised due to employee error or other circumstances such as malware or ransomware viruses hacking and phishing attacks denial of service attacks business email compromises or otherwise A compromise of our or our vendors systems could affect the security of information on our network or that of a third party service provider Additionally outside parties may attempt to fraudulently induce employees vendors or users to disclose sensitive proprietary or confidential information in order to gain access to data and systems Given the increasing sophistication of bad actors and complexity of the techniques used to obtain unauthorized access or disable systems a security incident could potentially persist for an extended period of time before being detected We may not be able to anticipate the incident or respond adequately or timely and the extent of a particular incident and the steps that we may need to take to investigate the incident may not be immediately clear As a result our or our customers or affiliates sensitive proprietary and or confidential information may be lost disclosed accessed or taken without consent
We also continue to review and enhance our security measures in light of the constantly evolving techniques used to gain unauthorized access to networks data software and systems We have expended and expect to continue to expend significant expenses on an ongoing basis in order to review and enhance our security measures and to address any actual or potential security incidents that arise but these measures may be ineffective and we may be subject to legal or regulatory action as well as financial losses and we may not have insurance coverage for any or all such losses If we experience an actual or perceived security incident our ability to conduct business may be interrupted or impaired we may incur damage to our systems we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property Unauthorized access to or security breaches of our systems could result in the loss of data loss of business severe reputational damage adversely affecting customer or investor confidence diversion of management s attention regulatory investigations and orders litigation indemnity obligations damages for contract breach penalties for violation of applicable laws or regulations and significant costs for remediation that may include liability for stolen or lost assets or information and repair of system damage that may have been caused incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities In addition in the event of a security incident changes in legislation may increase the risk of potential
litigation For example the CCPA which provides a private right of action in addition to statutory damages for California residents whose sensitive personal information is breached as a result of a business violation of its duty to reasonably secure such information took effect on January 1 2020 and was expanded by the CPRA which took effect in January 2023 A number of other states have passed similar laws and additional states may do so in the near future Our insurance coverage may not be adequate to cover the costs of a data breach indemnification obligations or other liabilities
We also routinely transmit and receive personal confidential and proprietary information by email and other electronic means We have discussed and worked with customers sponsors partners employees directors independent contractors and vendors to secure transmission capabilities and protect against cyber incidents but we do not have and may be unable to put in place secure capabilities with all of our customers sponsors partners employees directors independent contractors and vendors and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information An interception misuse or mishandling of personal confidential or proprietary information being sent to or received from a client vendor service provider counterparty or other third party could result in legal liability regulatory action and reputational harm
In addition new regulations require us to disclose information about material cybersecurity incidents on a timely basis including those that may not have been resolved or fully investigated at the time of disclosure or in some instances we may have obligations to notify relevant stakeholders of security breaches Such mandatory disclosures are costly could provide information to threat actors could lead to negative publicity may cause our customers to lose confidence in the effectiveness of our security measures and may require us to expend significant capital and other resources to respond to or alleviate problems caused by an actual or perceived security breach
The Interruption or Unavailability of Third Party Facilities Systems and or Software Upon Which We Rely May Have a Material Negative Effect on Our Business Financial Condition and Results of Operations
We rely upon various internal and third party software and systems in the operation of our business including with respect to ticket sales credit card processing email marketing point of sale transactions database inventory human resource management and financial systems and other systems used to present Sphere events and immersive productions advertising or signage such as audio and video With respect to third party software or systems certain of these arrangements are not covered by long term agreements System interruption and the lack of integration and redundancy in the information systems and infrastructure both of our own websites and other computer systems and of affiliate and third party software computer networks applications and other communications systems service providers on which we rely may adversely affect our ability to operate websites applications process and fulfill transactions respond to customer inquiries present events and generally maintain cost efficient operations Such interruptions could occur as a result of a number of factors including design defects the age of the technology network failures technology modernization initiatives malfunctions in maintenance updates or security patches natural disaster malicious actions such as hacking or acts of terrorism or war or human error Any such damage or disruptions could also compromise the security of our information systems and networks The failure or unavailability of these internal or third party services or systems depending upon its severity and duration could have a material negative effect on our business and results of operations See also
We Face Continually Evolving Cybersecurity and Other Technology Related Risks Which Could Result in Loss Disclosure Theft Destruction or Misappropriation of or Access to Our Confidential Information and Cause Disruption of Our Business Damage to Our Brands and Reputation Legal Exposure and Financial Losses
While we have backup systems and offsite data centers for certain aspects of our operations disaster recovery planning by its nature cannot be for all eventualities In addition we may not have adequate insurance coverage to compensate for any or all losses from a major interruption If any of these adverse events were to occur it could have a material negative effect our business financial condition and results of operations
We Rely Upon Cloud Computing Services to Operate Certain Aspects of Our Business and Any Disruption of or Interference With Our Use of These Services Would Impact Our Operations and Our Business Would Be Adversely Impacted
Cloud computing services provide a distributed computing infrastructure platform for business operations We have established our software and computer systems so as to utilize data processing storage capabilities and other services provided by third parties Those third parties facilities are vulnerable to damage or interruption from among other things design defects the age of the technology network failures technology modernization initiatives malfunctions in maintenance updates or security patches cybersecurity attacks terrorist attacks natural disasters power outages and similar events or acts of misconduct We have experienced and we expect that in the future we will experience interruptions delays and outages in service and availability from third party service providers from time to time due to a variety of factors including infrastructure changes human or software errors website hosting disruptions and capacity constraints Given this along with the fact that we cannot easily switch our cloud operations to another cloud provider without significant costs or at all any disruption of or interference with our use of cloud providers would impact our operations and our business
From time to time third parties may assert against us alleged intellectual property infringement claims e g copyright trademark and patent or other claims relating to our productions brands programming technologies digital products and or content or other content or material some of which may be important to our business In addition our productions and or programming could potentially subject us to claims of defamation violation of rights of privacy or publicity or similar types of allegations Any such claims regardless of their merit or outcome could cause us to incur significant costs that could harm our results of operations We may not be indemnified against or have insurance coverage for claims or costs of these types In addition if we are unable to continue use of certain intellectual property rights our business and results of operations could be materially negatively impacted
The success of our business depends in part on our ability to maintain and monetize our intellectual property rights including the technology being developed for Sphere MSG Networks including our DTC product our brand logos our programming technologies digital content and other content that is material to our business Theft of our intellectual property including content could have a material negative effect on our business and results of operations because it may reduce the revenue that we are able to receive from the legitimate exploitation of such intellectual property undermine lawful distribution channels and limit our ability to control the marketing of our content and inhibit our ability to recoup or profit from the costs incurred to create such content Litigation may be necessary to enforce our intellectual property rights or protect our trade secrets Any litigation of this nature regardless of the outcome could cause us to incur significant costs as well as subject us to the other inherent risks of litigation discussed above
We have entered into various agreements with MSG Entertainment related to the MSGE Distribution and with MSG Sports with respect to the 2020 Entertainment Distribution and MSG Networks has various agreements with MSG Sports in connection with the 2015 Sports Distribution including among others a distribution agreement a tax disaffiliation agreement a services agreement an employee matters agreement and certain other arrangements including other support services These agreements include the allocation of employee benefits taxes and certain other liabilities and obligations attributable to periods prior to at and after the applicable distribution In connection with the 2015 Sports Distribution the 2020 Entertainment Distribution and the MSGE Distribution we provided MSG Sports and MSG Entertainment respectively with indemnities with respect to liabilities arising out of our business and MSG Sports and MSG Entertainment respectively provided us with indemnities with respect to liabilities arising out of the business retained by them MSG Networks media rights agreements with MSG Sports provide us with the exclusive live local media rights to Knicks and Rangers games Rights fees under these media rights agreements amounted to approximately 174 0 million for Fiscal Year 2024 The stated contractual rights fees under such rights agreements increase annually and are subject to adjustments in certain circumstances including if MSG Sports does not make available a minimum number of exclusive live games in any year
Each of the Company MSG Sports and MSG Entertainment rely on the others to perform their respective obligations under these agreements If MSG Sports or MSG Entertainment were to breach or become unable to satisfy its respective material obligations under these agreements including a failure to satisfy its indemnification or other financial obligations or these agreements otherwise terminate or expire and we do not enter into replacement agreements we could suffer operational difficulties and or significant losses
We received an opinion from Sullivan Cromwell LLP substantially to the effect that among other things the MSGE Distribution should qualify as a tax free distribution under the Internal Revenue Code the Code The opinion is not binding on the Internal Revenue Service the IRS or the courts Certain transactions related to the MSGE Distribution that are not addressed by the opinion could result in the recognition of income or gain by us The opinion relied on factual representations and reasonable assumptions which if incorrect or inaccurate may jeopardize the ability to rely on such opinion
If the MSGE Distribution does not qualify for tax free treatment for U S federal income tax purposes then in general we would recognize taxable gain in an amount equal to the excess of the fair market value of MSG Entertainment common stock distributed in the MSGE Distribution over our tax basis therein i e as if we had sold such MSG Entertainment common stock in a taxable sale for its fair market value In addition the receipt by our stockholders of common stock of MSG Entertainment would be a taxable distribution and each U S holder that received MSG Entertainment common stock in the MSGE Distribution would be treated as if the U S holder had received a distribution equal to the fair market value of MSG Entertainment common stock that was distributed to it which generally would be treated first as a taxable dividend to the extent of such holder s pro rata share of our earnings and profits then as a non taxable return of capital to the extent of the holder s tax basis in our common stock and thereafter as capital gain with respect to any remaining value It is expected that the amount of any such taxes to us and our stockholders would be substantial See
We have entered into a Tax Disaffiliation Agreement with MSG Entertainment the Entertainment Tax Disaffiliation Agreement which sets out each party s rights and obligations with respect to federal state local or foreign taxes for periods before and after the MSGE Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits Pursuant to the Entertainment Tax Disaffiliation Agreement we are required to indemnify MSG Entertainment for losses and taxes of MSG Entertainment resulting from the breach of certain covenants and for certain taxable gain in connection with the MSGE Distribution including as a result of certain acquisitions of our stock or assets If we are required to indemnify MSG Entertainment under the circumstances set forth in the Entertainment Tax Disaffiliation Agreement we may be subject to substantial liabilities which could materially adversely affect our financial position
MSG Sports received an opinion from Sullivan Cromwell LLP substantially to the effect that among other things the 2020 Entertainment Distribution qualified as a tax free distribution under the Code The opinion is not binding on the IRS or the courts Certain transactions related to the 2020 Entertainment Distribution that are not addressed by the opinion could result in the recognition of income or gain by MSG Sports The opinion relied on factual representations and reasonable assumptions which if incorrect or inaccurate may jeopardize the ability to rely on such opinion
If the 2020 Entertainment Distribution does not qualify for tax free treatment for U S federal income tax purposes then in general MSG Sports would recognize taxable gain in an amount equal to the excess of the fair market value of our common stock distributed in the 2020 Entertainment Distribution over MSG Sports tax basis therein i e as if it had sold such common stock in a taxable sale for its fair market value In addition the receipt by MSG Sports stockholders of common stock of our Company would be a taxable distribution and each U S holder that received our common stock in the 2020 Entertainment Distribution would be treated as if the U S holder had received a distribution equal to the fair market value of our common stock that was distributed to it which generally would be treated first as a taxable dividend to the extent of such holder s pro rata share of MSG Sports earnings and profits then as a non taxable return of capital to the extent of the holder s tax basis in its MSG Sports common stock and thereafter as capital gain with respect to any remaining value It is expected that the amount of any such taxes to MSG Sports stockholders and MSG Sports would be substantial See
We have entered into a Tax Disaffiliation Agreement with MSG Sports the Sports Tax Disaffiliation Agreement which sets out each party s rights and obligations with respect to federal state local or foreign taxes for periods before and after the 2020 Entertainment Distribution and related matters such as the filing of tax returns and the conduct of IRS and other audits Pursuant to the Sports Tax Disaffiliation Agreement we are required to indemnify MSG Sports for losses and taxes of MSG Sports resulting from the breach of certain covenants and for certain taxable gain recognized by MSG Sports including as a result of certain acquisitions of our stock or assets If we are required to indemnify MSG Sports under the circumstances set forth in the Sports Tax Disaffiliation Agreement we may be subject to substantial liabilities which could materially adversely affect our financial position
We have not made a determination as to whether we are deemed to be a U S real property holding corporation a USRPHC as defined in section 897 c 2 of the Code In general we would be considered a USRPHC if on any applicable determination date the fair market value of our United States real property interests equals or exceeds 50 of the aggregate fair market value of our worldwide real property interests and our other assets used or held for use in a trade or business all as determined for U S federal income tax purposes However because the determination of whether we are a USRPHC turns on the relative fair market value of our United States real property interests and our other assets and because the USRPHC rules are complex and the determination of whether we are a USRPHC depends on facts and circumstances that may be beyond our control we can give no assurance as to our USRPHC status If we are treated as a USRPHC certain adverse U S federal income tax consequences might apply to non U S holders that hold our
We Are Controlled by the Dolan Family As a Result of Their Control the Dolan Family Has the Ability to Prevent or Cause a Change in Control or Approve Prevent or Influence Certain Actions by the Company
As of June 30 2024 certain members of the Dolan family including certain trusts for the benefit of members of the Dolan family collectively the Dolan Family Group collectively owned 100 of our Class B Common Stock approximately 6 5 of our outstanding Class A Common Stock inclusive of options exercisable within 60 days after June 30 2023 and approximately 72 3 of the total voting power of all our outstanding common stock in matters other than the election of directors The members of the Dolan Family Group holding Class B Common Stock are parties to a Stockholders Agreement which has the effect of causing the voting power of the holders of our Class B Common Stock to be cast as a block with respect to all matters to be voted on by holders of our Class B Common Stock Under the Stockholders Agreement the shares of Class B Common Stock owned by members of the Dolan Family Group representing all the outstanding Class B Common Stock are to be voted on all matters in accordance with the determination of the Dolan Family Committee as defined below except that the decisions of the Dolan Family Committee are non binding with respect to the Class B Common Stock owned by certain Dolan family trusts that collectively own approximately 40 5 of the outstanding Class B Common Stock Excluded Trusts The Dolan Family Committee consists of Charles F Dolan and his six children James L Dolan Thomas C Dolan Patrick F Dolan Kathleen M Dolan Marianne Dolan Weber and Deborah A Dolan Sweeney The Dolan Family Committee generally acts by majority vote except that approval of a going private transaction must be approved by a two thirds vote and approval of a change in control transaction must be approved by not less than all but one vote The voting members of the Dolan Family Committee are James L Dolan Thomas C Dolan Kathleen M Dolan Deborah A Dolan Sweeney and Marianne Dolan Weber with each member having one vote other than James L Dolan who has two votes Because James L Dolan has two votes he has the ability to block Dolan Family Committee approval of any Company change in control transaction Shares of Class B Common Stock owned by Excluded Trusts will on all matters be voted on in accordance with the determination of the Excluded Trusts holding a majority of the Class B Common Stock held by all Excluded Trusts except in the case of a vote on a going private transaction or a change in control transaction in which case a vote of the trusts holding two thirds of the Class B Common Stock owned by Excluded Trusts is required
The Dolan Family Group is able to prevent a change in control of our Company and no person interested in acquiring us would be able to do so without obtaining the consent of the Dolan Family Group The Dolan Family Group by virtue of its stock ownership has the power to elect all of our directors subject to election by holders of Class B Common Stock and is able collectively to control stockholder decisions on matters on which holders of all classes of our common stock vote together as a single class These matters could include the amendment of some provisions of our certificate of incorporation and the approval of fundamental corporate transactions
Members of the Dolan Family Group have entered into the Stockholders Agreement relating among other things to the voting of their shares of our Class B Common Stock As a result we are a controlled company under the corporate governance rules of NYSE As a controlled company we have the right to elect not to comply with the corporate governance rules of NYSE requiring i a majority of independent directors on our Board of Directors ii an independent corporate governance and nominating committee and iii an independent compensation committee Our Board of Directors has elected for the Company to be treated as a controlled company under NYSE corporate governance rules and not to comply with the NYSE requirement for a majority independent board of directors
and for an independent corporate governance and nominating committee because of our status as a controlled company Nevertheless our Board of Directors has elected to comply with the NYSE requirement for an independent compensation committee
We have entered into registration rights agreements with Charles F Dolan members of his family certain Dolan family interests and the Dolan Family Foundation that provide them with demand and piggyback registration rights with respect to approximately 6 9 million shares of Class A Common Stock including shares issuable upon conversion of shares of Class B Common Stock
Sales of a substantial number of shares of Class A Common Stock including sales pursuant to these registration rights agreements could adversely affect the market price of the Class A Common Stock and could impair our future ability to raise capital through an offering of our equity securities
We Share Certain Directors Officers and Employees with MSG Sports MSG Entertainment and or AMC Networks Which Means Those Individuals Do Not Devote Their Full Time and Attention to Our Affairs and the Overlap May Give Rise to Conflicts
Our Executive Chairman and Chief Executive Officer James L Dolan also serves as the Executive Chairman and Chief Executive Officer of MSG Entertainment and MSG Sports and as Non Executive Chairman of AMC Networks Furthermore nine members of our Board of Directors including James L Dolan also serve as directors of MSG Entertainment ten members of our Board of Directors including James L Dolan also serve as directors of MSG Sports and six members of our Board of Directors including James L Dolan also serve as directors of AMC Networks Charles F Dolan serves as Chairman Emeritus of AMC Networks concurrently with his service on our Board of Directors and Kristin A Dolan serves as Chief Executive Officer of AMC Networks concurrently with her service on our Board of Directors Our Executive Vice President David Granville Smith also serves as Executive Vice President of MSG Sports and AMC Networks Our Vice Chairman Gregg G Seibert also serves as the Vice Chairman of MSG Sports MSG Entertainment and AMC Networks our Executive Vice President and General Counsel Laura Franco also serves as MSG Entertainment s Executive Vice President and General Counsel and our Secretary Mark C Cresitello also serves as Senior Vice President Deputy General Counsel and Secretary of MSG Sports and Secretary of MSG Entertainment As a result these individuals do not devote their full time and attention to the Company s affairs The overlapping directors officers and employees may have actual or apparent conflicts of interest with respect to matters involving or affecting each company For example there is potential for a conflict of interest when we on the one hand and MSG Sports MSG Entertainment and or AMC Networks and their respective subsidiaries and successors on the other hand look at certain acquisitions and other corporate opportunities that may be suitable for more than one of the companies Also conflicts may arise if there are issues or disputes under the commercial arrangements that exist between MSG Sports MSG Entertainment or AMC Networks each referred to as an Other Entity and us In addition certain of our directors officers and employees hold MSG Sports MSG Entertainment and or AMC Networks stock stock options and or restricted stock units These ownership interests could create actual apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our Company and an Other Entity For a discussion of certain procedures we have implemented to help ameliorate such potential conflicts that may arise see our Definitive Proxy Statement filed with the SEC on October 25 2023
Our Overlapping Directors and Officers with MSG Sports MSG Entertainment and or AMC Networks May Result in the Diversion of Corporate Opportunities to MSG Sports MSG Entertainment and or AMC Networks and Other Conflicts and Provisions in Our Amended and Restated Certificate of Incorporation May Provide Us No Remedy in That Circumstance
The Company s amended and restated certificate of incorporation acknowledges that directors and officers of the Company the Overlap Persons may also be serving as directors officers employees consultants or agents of an Other Entity and that the Company may engage in material business transactions with such Other Entities The Company has renounced its rights to certain business opportunities and the Company s amended and restated certificate of incorporation provides that no Overlap Person will be liable to the Company or its stockholders for breach of any fiduciary duty that would otherwise occur by reason of the fact that any such individual directs a corporate opportunity other than certain limited types of opportunities set forth in our amended and restated certificate of incorporation to one or more of the Other Entities instead of the Company or does not refer or communicate information regarding such corporate opportunities to the Company These provisions in our amended and restated certificate of incorporation also expressly validate certain contracts agreements arrangements and transactions and amendments modifications or terminations thereof between the Company and the Other Entities and to the fullest extent permitted by law provided that the actions of the Overlap Person in connection therewith are not breaches of fiduciary duties owed to the Company any of its subsidiaries or their respective stockholders See the Sphere Entertainment Co Policy Concerning Certain Matters Relating to Madison Square Garden Entertainment Corp Madison Square Garden Sports Corp and AMC Networks Inc including Responsibilities of Overlapping Directors and Officers filed as Exhibit 10 33 to this Form 10 K for more information
All companies utilizing technology are subject to the risk of breaches of or unauthorized access to their computer systems The Company maintains a cyber risk management program designed to assess identify and manage cybersecurity threats The Company s cyber risk management program has been integrated into our overall risk management program The Audit Committee of our Board of Directors and our management are involved in the oversight of our risk management program of which cybersecurity represents an important component We have established policies and processes for assessing identifying and managing material risks from cybersecurity threats and incidents Our policies and processes include among other things
The Company also requires that all third party vendors that have access to or handle sensitive information undergo a risk based vendor security assessment We also maintain controls and procedures that are designed to promptly escalate certain cybersecurity incidents so that decisions regarding public disclosure and reporting of such incidents can be made by management and the Audit Committee of our Board of Directors in a timely manner There can be no guarantee that our policies and processes will be properly followed in every instance or that those policies and processes will be effective
Our cyber risk management program is based on recognized best practices and standards for cybersecurity and information technology and aims to identify and address cybersecurity risks through a comprehensive cross functional approach The Company has established a cybersecurity leadership response team consisting of members of senior management including the Chief Security Officer CSO of MSG Entertainment who provides services to the Company the Company s Chief Financial Officer CFO and the Company s General Counsel GC as well as a tactical incident response team comprised of employees from the threat management department
The CSO is primarily responsible for leading the tactical incident response team including the implementation of defense capabilities and risk mitigation strategies and communicating with senior management and the cybersecurity leadership response team The CSO has over 20 years of security operations information technology and cybersecurity experience He has served as Executive Vice President and Chief Security Officer at MSG Entertainment since April 2023 and prior to the MSGE Distribution held senior roles at the Company including serving as Executive Vice President and Chief Security Officer from 2021 to April 2023 and Senior Vice President and Chief Security Officer from 2020 to 2021 and served as MSG Sports Senior Vice President and Chief Security Officer from 2018 to 2020 prior to the 2020 Entertainment Distribution He is supported by his direct reports and their teams
The cybersecurity leadership response team also includes other senior members from the legal internal audit communications and threat management departments This leadership response team meets as needed to review various cybersecurity and data privacy matters as escalated by the tactical incident response team and receives periodic updates from the tactical incident response team on such matters The tactical incident response team is responsible for maintaining processes to assess identify and manage material risks from cybersecurity threats and has primary responsibility for executing the response to any cybersecurity incident In addition the CSO and or the tactical incident response team have identified third party vendors that can assist as needed with responding to any cybersecurity incident and determine if members of the cybersecurity leadership response team or other employees or vendors should be involved in the Company s response
Our Audit Committee is responsible for overseeing the Company s risk management on behalf of our Board of Directors which includes overseeing the Company s management of its cybersecurity and data privacy The CSO or a senior member of his team reports annually to the Audit Committee regarding the Company s information security and cybersecurity risks In addition the Company s CFO and GC communicate with the Company s Audit Committee or its chair upon the occurrence of specified types of cybersecurity related events in accordance with the Company s incident response policy The GC the CFO and the Vice President Internal Audit SOX also attend quarterly meetings of the Audit Committee to provide quarterly reports with updates on among other things cybersecurity risks facing the Company The Audit Committee reports to the Board of Directors at least annually regarding its responsibilities and actions taken throughout the year which includes any significant activities regarding its oversight of risks from cybersecurity threats
We Face Continually Evolving Cybersecurity and Other Technology Related Risks Which Could Result in Loss Disclosure Theft Destruction or Misappropriation of or Access to Our Confidential Information and Cause Disruption of Our Business Damage to Our Brands and Reputation Legal Exposure and Financial Losses
We also lease approximately 810 000 square feet in Las Vegas Nevada under a ground lease for the land where Sphere in Las Vegas is located and own approximately 230 000 square feet of property in Stratford London See Item 1 Business Our Business Sphere In addition we lease approximately 14 000 square feet in Las Vegas Nevada related to office space and approximately 153 000 square feet in Burbank California where Sphere Studios has office space and content creation and testing facilities
Sphere in Las Vegas has the benefit of easements with respect to the pedestrian bridge to The Venetian Our ability to continue to utilize these and other easements requires us to comply with certain conditions Moreover certain adjoining property owners have easements over our property which we are required to maintain so long as those property owners meet certain conditions
Nine of these complaints involved allegations of materially incomplete and misleading information set forth in the joint proxy statement prospectus filed by the Company and MSG Networks Inc in connection with the Networks Merger As a result of supplemental disclosures made by the Company and MSG Networks Inc on July 1 2021 all of the disclosure actions were voluntarily dismissed with prejudice prior to or shortly following the consummation of the Networks Merger
On September 10 2021 the Court of Chancery of the State of Delaware the Court entered an order consolidating two derivative complaints filed by purported Company stockholders The consolidated action is captioned
C A No 2021 0468 KSJM the MSG Entertainment Litigation The consolidated plaintiffs filed their Verified Consolidated Derivative Complaint on October 11 2021 The complaint which named the Company as only a nominal defendant retained all of the derivative claims and alleged that the members of the board of directors and controlling stockholders violated their fiduciary duties in the course of negotiating and approving the Networks Merger Plaintiffs sought among other relief an award of damages to the Company including interest and plaintiffs attorneys fees Pursuant to the indemnity rights in its bylaws and Delaware law the Company advanced the costs incurred by defendants in this action and defendants asserted indemnification rights in respect of any adverse judgment or settlement of the action
On March 14 2023 the parties to the MSG Entertainment Litigation reached an agreement in principle to settle the MSG Entertainment Litigation without admitting liability on the terms and conditions set forth in a binding term sheet which was incorporated into a long form settlement agreement the MSGE Settlement Agreement that was filed with the Court on April 20 2023 The MSGE Settlement Agreement provided for among other things the final dismissal of the MSG Entertainment Litigation in exchange for a settlement payment to the Company of approximately 85 million subject to customary reduction for attorneys fees and expenses in an amount to be determined by the Court The settlement s amount was fully funded by the other defendants insurers The MSGE Settlement Agreement was approved by the Court on August 14 2023 which constituted the final judgment in the action
C A No 2021 0575 KSJM the MSG Networks Litigation The consolidated plaintiffs filed their Verified Consolidated Stockholder Class Action Complaint on October 29 2021 The complaint asserted claims on behalf of a putative class of former MSG Networks Inc stockholders against each member of the board of directors of MSG Networks Inc and the controlling stockholders prior to the Networks Merger Plaintiffs alleged that the MSG Networks Inc board of directors and controlling stockholders breached their fiduciary duties in negotiating and approving the Networks Merger The Company was not named as a defendant but was subpoenaed to produce documents and testimony related to the Networks Merger Plaintiffs sought among other relief monetary damages for the putative class and plaintiffs attorneys fees Pursuant to the indemnity rights in its bylaws and Delaware law the Company advanced
On April 6 2023 the parties to the MSG Networks Litigation reached an agreement in principle to settle the MSG Networks Litigation without admitting liability on the terms and conditions set forth in a binding term sheet which was incorporated into a long form settlement agreement the MSGN Settlement Agreement that was filed with the Court on May 18 2023 The MSGN Settlement Agreement provided for among other things the final dismissal of the MSG Networks Litigation in exchange for a settlement payment to the plaintiffs and the class of approximately 48 5 million
June 30 2024 approximately 18 million has been accrued for by the Company in Accounts payable accrued and other current liabilities reduced from 20 5 million accrued as of March 31 2024 in connection with the aforementioned settlement
The Company is a defendant in various other lawsuits Although the outcome of these other lawsuits cannot be predicted with certainty including the extent of available insurance if any management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company
The following graph compares the relative performance of our Class A Common Stock the Russell 2000 Index and the Bloomberg Americas Entertainment Index This graph covers the period from April 20 2020 through June 30 2024 The comparison assumes an investment of 100 on April 20 2020 and reinvestment of dividends The stock price performance included in this graph is not necessarily indicative of future stock performance The Russell 2000 Index and the Bloomberg Americas Entertainment Index are included for comparative purposes only They do not necessarily reflect management s opinion that such indices are an appropriate measure of the relative performance of the stock involved and they are not intended to forecast or be indicative of possible future performance of our common stock
This performance graph shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 as amended the Exchange Act or incorporated by reference into any of our filings under the Securities Act of 1933 as amended or the Exchange Act except as expressly set forth by specific reference in such filing
As of June 28 2024 there were 649 holders of record of our Class A Common Stock There is no public trading market for our Class B common stock As of June 28 2024 there were 14 holders of record of our Class B Common Stock
On March 31 2020 the Company s Board of Directors authorized a share repurchase program to repurchase up to 350 million of the Company s Class A Common Stock The program was re authorized by the Company s Board of Directors on March 29 2023 Under the authorization shares of Class A Common Stock may be purchased from time to time in open market transactions in accordance with applicable insider trading and other securities laws and regulations The timing and amount of purchases will depend on market conditions and other factors No shares have been repurchased to date
The information required by this Item is incorporated by reference to the definitive Proxy Statement for our 2024 Annual Meeting of Stockholders which is expected to be filed with the SEC within 120 days of our fiscal year end
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 our future operating and future financial performance including i the ability of MSG Networks to successfully pursue a work out with the lenders of its existing debt ii the success of Sphere and The Sphere Experience iii
vi our execution of the strategy for and the success of MSG Networks DTC and authenticated streaming product MSG 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 substantial amount of debt we have incurred the ability of our subsidiaries to make payments on or repay or refinance such debt under their respective credit facilities including MSG Networks ability to successfully pursue a work out with the lenders of its existing debt and if successful the terms of such work out the implications of a default under those credit facilities our ability to make payments on our 3 50 Convertible Senior Notes as defined below and our ability to obtain additional financing to the extent required on terms favorable to us or at all
the popularity of The Sphere Experience as well as our ability to continue to attract advertisers and marketing partners and audiences to attend and artists to perform at residencies concerts and other events at Sphere in Las Vegas
the successful development of The Sphere Experience and related original immersive productions and the investments associated with such development as well as investment in personnel content and technology for Sphere
our ability to successfully design construct finance and operate new Sphere venues and the investments costs and timing associated with those efforts including obtaining financing the impact of inflation and any construction delays and or cost overruns
the demand for MSG Networks programming among Distributors and the number of subscribers thereto and our ability to enter into and renew affiliation agreements with Distributors or to do so on favorable terms as well as the impact of consolidation among Distributors
our ability to successfully execute MSG Networks strategy for its DTC and authenticated streaming product MSG the success of such offering and our ability to adapt to new content distribution platforms or changes in consumer behavior resulting from emerging technologies
our ability to effectively manage any impacts of future pandemics or public health emergencies as well as renewed actions taken in response by governmental authorities or certain professional sports leagues including ensuring compliance with rules and regulations imposed upon our venues to the extent applicable
any economic social or political actions such as boycotts protests work stoppages or campaigns by labor organizations including the unions representing players and officials of the NBA and the NHL artists or employees involved in our productions or other work stoppages that may impact us or our business partners
business reputational and litigation risk if there is a cyber or other security incident resulting in loss disclosure or misappropriation of stored personal information disruption of our Sphere or MSG Networks businesses or disclosure of confidential information or other breaches of our information security
the impact of governmental regulations or laws changes in these regulations or laws or how those regulations and laws are interpreted as well as our ability to maintain necessary permits licenses and easements
These forward looking statements are subject to a number of risks uncertainties and assumptions including those described in Risk Factors Moreover we operate in a very competitive and rapidly changing environment New risks emerge from time to time It is not possible for our management to predict all risks nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements we may make In light of these risks uncertainties and assumptions the forward looking events and circumstances discussed in this Form 10 K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward looking statements
You should not rely upon forward looking statements as predictions of future events We cannot guarantee that the future results levels of activity performance or events and circumstances reflected in the forward looking statements will be achieved or occur Moreover except as required by law neither we nor any other person assumes responsibility for the accuracy and completeness of the forward looking statements We undertake no obligation to update publicly any forward looking statements for any reason after the date of this Form 10 K to conform these statements to actual results or to changes in our expectations
This MD A is provided as a supplement to and should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Item 8 of this Form 10 K to help provide an understanding of our financial condition changes in financial condition and results of operations
This section provides a general description of our business as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends
This section provides a discussion of our financial condition and liquidity as well as an analysis of our cash flows for Fiscal Years 2024 2023 and 2022 The discussion of our financial condition and liquidity includes summaries of our primary sources of liquidity our contractual obligations and off balance sheet arrangements that existed at June 30 2024
This section cross references a discussion of critical accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application Our critical accounting policies and recently issued accounting pronouncements are discussed in Items 7 and 8 respectively of this Form 10 K
The Company is a premier live entertainment and media company comprised of two reportable segments Sphere and MSG Networks Sphere is a next generation entertainment medium and MSG Networks operates two regional sports and entertainment networks as well as a DTC and authenticated streaming product
a next generation entertainment medium powered by cutting edge technologies to create multi sensory experiences at an unparalleled scale The Company s first Sphere opened in Las Vegas on September 29 2023 The venue can accommodate up to 20 000 guests and can host a wide variety of events year round including The Sphere Experience
an immersive content studio dedicated to creating multi sensory experiences exclusively for Sphere Sphere Studios is home to a team of creative production technology and software experts who provide full in house creative and production services The studio campus in Burbank includes a 68 000 square foot development facility as well as Big Dome a 28 000 square foot 100 foot high custom dome with a quarter sized version of the screen at Sphere in Las Vegas that serves as a specialized screening production facility and lab for content at Sphere
This segment is comprised of the Company s regional sports and entertainment networks MSG Network and MSG Sportsnet as well as its DTC streaming product MSG MSG Networks serves the New York Designated Market Area as well as other portions of New York New Jersey Connecticut and Pennsylvania and features a wide range of sports content including exclusive live local games and other programming of the Knicks of the NBA and the Rangers the Islanders the Devils and the Sabres of the NHL as well as significant coverage of the Giants and the Bills of the NFL
For The Sphere Experience we recognize revenues from the sale of tickets to our audiences We sell tickets to the public through our box office via our websites and ticketing agencies The amount of revenue we earn from ticket sales depends on the number of shows and the mix of events that we promote the available venue capacity the extent to which we can sell to fully utilize the capacity and our ticket prices
Under standard suite licenses the licensees pay an annual license fee which varies depending on the location of the suite The license fee includes for each seat in the suite tickets for events at Sphere in Las Vegas for which tickets are sold to the general public subject to certain exceptions In addition suite holders separately pay for food and beverage service in their suites at Sphere in Las Vegas
For entertainment events held at Sphere that we do not produce promote or co promote we typically earn revenue from venue license fees charged to the third party promoter or producer of the event including live entertainment marquee sporting and corporate events The amount of license fees we charge varies by the size of the production and the number of days utilized among other factors Our fees typically include both the cost of renting Sphere in Las Vegas and costs for providing event staff such as front of house and back of house staff including stagehands electricians laborers box office staff ushers and security as well as production services such as staging lighting and sound
We earn or may in the future earn revenues through the sale of advertising signage space and sponsorship rights in connection with Sphere The Sphere Experience and third party live entertainment events including advertising displayed on the Exosphere
Sponsorship agreements may require us to use the name logos and other trademarks of sponsors in our advertising and in promotions for Sphere The Sphere Experience and other live entertainment events Sponsorship arrangements may be exclusive within a particular sponsorship category or non exclusive and generally permit a sponsor to use the name logos and other trademarks of Sphere The Sphere Experience and other events in connection with their own advertising and in promotions in our venue or in the community
For all public and ticketed events held in Sphere in Las Vegas we also earn additional revenues on substantially all tickets sold whether we promote co promote the event or license the venue to a third party These revenues are earned in the form of certain fees and assessments including the facility fees we charge
We sell food and beverages during substantially all events held at Sphere in Las Vegas In addition to concession style sales of food and beverages which represent the majority of our concession revenues we also generate revenue from catering for our suites at Sphere in Las Vegas
We earn revenues from the sale of merchandise related to The Sphere Experience and other live entertainment events that take place at Sphere The majority of our merchandise revenues are generated through on site sales during performances of The Sphere Experience and other live events Typically revenues from our merchandise sales at our non proprietary events relate to sales of merchandise provided by the artist the producer or promoter of the event and are generally subject to a revenue sharing arrangement and are generally recorded on a net basis as agent
See Note 2 Summary of Significant Accounting Policies to the consolidated financial statements included in Item 8 of this Form 10 K for further details regarding our accounting policies on revenue recognition
The Sphere segment incurs expenses related to day of event costs associated with events costs to produce The Sphere Experience and costs associated with the promotion of events through various advertising campaigns including production costs for Exosphere advertising Additionally it incurs corporate and supporting department operating costs including charges under the transition services agreement with MSG Entertainment the MSGE TSA and other operating expenses such as insurance utilities repairs and maintenance labor related to the overall management of the Sphere segment non capitalizable content development and technology costs associated with the Company s Sphere initiative and depreciation and amortization expense related to certain corporate property equipment and leasehold improvements
For days in which the Company promotes an event or licenses Sphere in Las Vegas to a third party promoter under a license fee arrangement the event is charged the variable costs associated with such event including box office staff stagehands ticket takers ushers security and other similar expenses In situations where we license Sphere in Las Vegas to a third party promoter under a license fee arrangement day of event costs are typically included in the license fees charged to the promoter
The Company incurs certain costs during the production phase of original immersive productions which are part of The Sphere Experience that are directly related to production activities Such costs include but are not limited to fees paid to writers directors and producers as well as video and music production costs and production specific overhead Production costs are generally deferred when incurred and are subsequently amortized over the run of a production in line with the corresponding proportional revenue
The Company incurs significant costs promoting The Sphere Experience and other events held at Sphere through various advertising campaigns including advertising on social and digital platforms television outdoor platforms and radio and in newspapers In light of the intense competition for entertainment events such expenditures are a necessity to drive interest in our productions and encourage members of the public to purchase tickets to our shows
The Company incurs in house and third party production costs to create content for companies to advertise on the Exosphere Production costs are generally deferred when incurred and are subsequently expensed when the advertisement runs on the Exosphere in line with the corresponding proportional revenue
The Company s selling general and administrative expenses primarily consist of administrative costs including compensation professional fees advertising sales commissions as well as sales and marketing costs including non event related advertising expenses Operating expenses also include corporate overhead costs and venue operating expenses Venue operating expenses include the non event related costs of operating Sphere and include such costs as real estate taxes insurance utilities repairs and maintenance and labor related to the overall management of the venue
See Note 2 Summary of Significant Accounting Policies to the consolidated financial statements included in Item 8 of this Form 10 K for further details regarding our accounting policies on direct operating expenses
MSG Networks advertising revenue is largely derived from the sale of inventory in its live professional sports programming As such a disproportionate share of this revenue is earned in the second and third fiscal quarters In certain advertising arrangements the Company guarantees specific viewer ratings for its programming
Direct operating expenses primarily include the cost of professional team rights acquired under media rights agreements to telecast various sporting events on our networks and other direct programming and production related costs of our networks
MSG Networks is a party to long term media rights agreements with the Knicks and the Rangers which provide the Company with the exclusive live media rights to the teams games in their local markets In addition MSG Networks has multi year media rights agreements with the Islanders Devils and Sabres The media rights acquired under these agreements to telecast various sporting events and other programming for exhibition on our networks are typically expensed on a straight line basis over the applicable annual contract or license period We negotiate directly with the teams to determine the fee and other provisions of the media rights agreements Media rights fees for sports programming are influenced by among other things the size and demographics of the geographic area in which the programming is distributed and the popularity and or the competitiveness of a team
Other direct programming and production related costs include but are not limited to the salaries of on air personalities producers directors technicians writers and other creative staff as well as expenses associated with location costs remote facilities and maintaining studios origination and transmission services and facilities
The Company s selling general and administrative expenses primarily consist of administrative costs including compensation professional fees advertising sales commissions as well as sales and marketing costs including non event related advertising expenses Selling general and administrative expenses for periods prior to the MSGE Distribution include certain corporate overhead expenses that do not meet the criteria for inclusion in discontinued operations
The Networks Advertising Sales Representation Agreement was terminated effective as of December 31 2022 Starting January 1 2023 all costs incurred by MSG Networks to sell advertising that was previously performed by MSG Entertainment are included in selling general and administrative expenses
The operating results of our Sphere segment are largely dependent on our ability to continue to attract i audiences to The Sphere Experience ii advertisers and marketing partners and iii guests to attend and artists to perform at residencies concerts and other events at our venue The operating results of our MSG Networks segment are largely dependent on i the affiliation agreements MSG Networks negotiates with Distributors ii the number of subscribers of certain Distributors iii the success of MSG MSG Networks DTC and authenticated streaming product and iv the advertising rates we charge advertisers Certain of these factors in turn depend on the popularity and or performance of the professional sports teams whose games we broadcast on our networks
Our Company s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers Weak economic conditions may lead to lower demand for our entertainment offerings including The Sphere Experience and programming content which would also negatively affect concession and merchandise sales and could lead to lower levels of advertising sponsorship and venue signage These conditions may also affect the number of immersive productions concerts residencies and other events that take place in the future An economic downturn could adversely affect our business and results of operations
The Company continues to explore additional opportunities to expand our presence in the entertainment industry both domestically and internationally Any new investment may not initially contribute to operating income but is intended to contribute to the success of the Company over time Our results will also be affected by investments in and the success of new immersive productions
On April 20 2023 the MSGE Distribution Date the Company distributed approximately 67 of the outstanding common stock of MSG Entertainment to its stockholders with the Company retaining approximately 33 of the outstanding common stock of MSG Entertainment in the form of MSG Entertainment Class A common stock immediately following the MSGE Distribution Following the MSGE Distribution Date the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment excluding the Sphere business In the MSGE Distribution stockholders of the Company received a one share of MSG Entertainment s Class A common stock par value 0 01 per share for every share of the Company s Class Common Stock held of record as of the close of business New York City time on the Record Date and b one share of MSG Entertainment s Class B common stock par value 0 01 per share for every share of the Company s Class B Common Stock held of record as of the close of business New York City time on the Record Date As of June 30 2024 following the sales of portions of the MSGE Retained Interest and the repayment of the delayed draw term loan with MSG Entertainment using a portion of the MSGE Retained Interest the Company no longer holds any of the outstanding common stock of MSG Entertainment
As of April 20 2023 the MSG Entertainment business met the criteria for discontinued operations and was classified as a discontinued operation See Note 3 Discontinued Operations to the consolidated financial statements included in Item 8 of this Form 10 K for further details regarding the MSGE Distribution
On May 3 2023 the Company completed the sale of its 66 9 majority interest in Tao Group Hospitality to a subsidiary of Mohari Hospitality Limited a global investment company focused on the luxury lifestyle and hospitality sectors
Since March 31 2023 the Tao Group Hospitality segment met the criteria for discontinued operations and was classified as a discontinued operation See Note 3 Discontinued Operations to the consolidated financial statements included in Item 8 of this Form 10 K for further details regarding the Tao Group Hospitality Disposition
The MSGE Distribution and Tao Group Hospitality Disposition both qualified for discontinued operations presentation under accounting principles generally accepted in the United States of America GAAP during Fiscal Year 2023 As such the Company s historical results for all periods presented have been recast to exclude the operations of each disposed business In addition results from continuing operations for these periods 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 periods after the MSGE Distribution reflect the Company s results on a standalone basis including the Company s actual corporate overhead
On June 26 2024 the Board of Directors approved a change in the Company s fiscal year end from June 30 to December 31 effective December 31 2024 The Company plans to report its financial results for the six month transition period of July 1 2024 through December 31 2024 on an Annual Report on Form 10 K T and to thereafter file reports for the twelve month period ending December 31 of each year beginning with the twelve month period ending December 31 2025 Prior to filing the transition report the Company will file its Quarterly Report on Form 10 Q for the quarter ending September 30 2024
to i the Company discontinuing the capitalization of interest expense during the second quarter of Fiscal Year 2024 as assets were placed in service following the opening of the Sphere in Las Vegas in September 2023 and ii interest expense on the 3 50 Convertible Senior Notes which were issued in December 2023
Other income net for Fiscal Year 2024 was 35 197 primarily due to a realized gain of 62 647 related to the settlement of litigation related to the merger between a subsidiary of the Company and MSG Networks Inc the Networks Merger partially offset by a realized loss of 19 027 related to the sale of the remaining portion of the MSGE Retained Interest during the first quarter of Fiscal Year 2024 as compared to Other income net 536 887 in the prior year related to unrealized gains of 341 039 and realized gains of 204 676 associated with the Company s partial sale of the MSGE Retained Interest
me tax benefit from continuing operations for Fiscal Year 2024 of 135 592 differs from income tax benefit derived from applying the statutory federal rate of 21 to the pretax loss primarily due to i tax benefit of 60 877 related to the state rate change used to measure the deferred taxes ii income tax benefit of 13 757 related to the nontaxable gain on the repayment of all amounts outstanding under the delayed draw term loan facility the DDTL Facility and iii tax benefit of 13 337 related to state and local taxes partially offset by tax expense of 29 189 related to an increase in the valuation allowance
Income tax expense from continuing operations for Fiscal Year 2023 of 103 403 differs from income tax expense derived from applying the statutory federal rate of 21 to the pretax income primarily due to i tax expense of 35 656 related to state and local taxes ii tax expense of 4 814 related to nondeductible officers compensation and iii tax expense related to excess share based compensation of 4 678 partially offset by a decrease in the valuation allowance of 2 053
to the consolidated financial statements included in Item 8 of this Form 10 K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate
The Company evaluates segment performance based on several factors of which the key financial measure is adjusted operating income loss a non GAAP financial measure We define adjusted operating income loss as operating income loss excluding
The Company 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 The Company eliminates merger and acquisition related costs when applicable because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non recurring nature thereby enhancing comparability In addition management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company s operating performance given that in accordance with GAAP gains and losses related to the
remeasurement of liabilities under the Company s Executive Deferred Compensation Plan are recognized in Operating income loss whereas gains and losses related to the remeasurement of the assets under the Company s Executive Deferred Compensation Plan which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities are recognized in Other income expense net which is not reflected in Operating income loss
The Company believes AOI is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis AOI 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 AOI measures as the most important indicators of its business performance and evaluates management s effectiveness with specific reference to these indicators
AOI 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 with GAAP Since AOI 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 AOI
For periods through the MSGE Distribution share based compensation includes expenses related to corporate employees that the Company does not expect to incur in future periods but which do not meet the criteria for inclusion in discontinued operations
The increase in event related revenues was primarily due to revenues from concerts and to a lesser extent revenues from one corporate keynote event and two marquee sporting events held at Sphere in Las Vegas
The increase in revenues from sponsorship signage Exosphere advertising and suite license fee revenues primarily reflects advertising campaigns on the venue s Exosphere which began in September 2023 and to a lesser extent suite license fee revenues which reflects the opening of Sphere in Las Vegas on September 29 2023
The increase in event related direct operating expenses was primarily due to expenses from concerts and to a lesser extent expenses from one corporate keynote event and two marquee sporting events held at Sphere in Las Vegas
The increase in direct operating expenses from sponsorship signage Exosphere advertising and suite license fees primarily reflects expenses related to advertising campaigns on the venue s Exosphere which began in September 2023
Selling general and administrative expenses increased 67 379 or 21 for Fiscal Year 2024 to 393 039 as compared to Fiscal Year 2023 The increase was primarily due to the impact of the MSGE TSA higher employee compensation and related benefits and other cost increases
The overall increase was partially offset by the absence of certain corporate expenses that were included in the results for the pre MSGE Distribution period July 1 2022 through April 20 2023 in Fiscal Year 2023 While the Company did not incur these corporate costs after the MSGE Distribution Date April 20 2023 and does not expect to incur these corporate costs in future periods they did not meet the criteria for inclusion in discontinued operations for all periods prior to the MSGE Distribution Date
Operating loss for Fiscal Year 2024 increased 110 834 to 480 384 as compared to an operating loss of 369 550 in Fiscal Year 2023 The increased operating loss was primarily due to the increase in direct operating expenses selling general and administrative expenses higher depreciation and amortization and an increase in impairment and other losses net offset by an increase in revenues and a decrease in restructuring charges
Adjusted operating loss for Fiscal Year 2024 decreased 230 866 to 61 543 as compared to Fiscal Year 2023 The decreased adjusted operating loss was primarily due to an increase in revenues partially offset by an increase in direct operating expenses and selling general and administrative expenses excluding share based compensation expense and merger and acquisition related costs net of insurance recoveries
The tables below set forth for the periods presented certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company s MSG Networks segment
a As a result of the MSGE Distribution on April 20 2023 which is presented as discontinued operations under GAAP prior period results of the MSG Networks segment have been recast to exclude expenses of approximately 8 800 for Fiscal Year
related to the MSG Networks Advertising Sales Representation Agreement with MSG Entertainment which was terminated effective as of December 31 2022 A portion of these expenses were absorbed directly by MSG Networks following the termination of the advertising sales representation agreement and are reflected in MSG Networks results beginning January 1 2023
MSG is available on a free authenticated basis to subscribers of participating Distributors including all of MSG Networks major Distributors as well as for purchase by viewers on a DTC basis through monthly and annual subscriptions as well as single game purchases As a result i distribution revenue as presented above includes both affiliation fee revenue earned from Distributors for the right to carry the Company s networks as well as revenue earned from subscriptions and single game purchases on MSG ii advertising revenue as presented above includes the impact of MSG advertising revenue and iii total subscribers as discussed below includes both subscribers of Distributors as well as monthly and annual subscribers of MSG
For Fiscal Year 2024 distribution revenue decreased 42 551 primarily due to a decrease in subscribers of approximately 12 5 and the absence of a favorable affiliate adjustment of approximately 2 300 recorded in the prior year partially offset by the impact of higher affiliation rates in the current year period
For Fiscal Year 2024 advertising revenue increased 1 622 primarily due to higher advertising revenue related to MSG partially offset by lower per game advertising revenue related to live professional sports telecasts on the linear networks and lower advertising revenue from branded content
For Fiscal Year 2024 right fees expense increased 2 077 primarily due to the impact of annual contractual rate increases substantially offset by reductions resulting from fewer NBA and NHL games made available to MSG Networks for exclusive broadcast
primarily due to i lower professional fees of 59 221 inclusive of litigation related insurance recoveries associated with the Networks Merger in the current year ii lower advertising and marketing costs of 10 625 and iii lower employee compensation and related benefits of 8 891
For Fiscal Year 2024 operating income increased 42 635 or 44 to 139 143 as compared to the prior year The increase in operating income was primarily due to the decrease in selling general and administrative expenses partially offset by the decrease in revenues and to a lesser extent the increase in direct operating expenses
For Fiscal Year 2024 adjusted operating income decreased 27 615 or 16 to 142 274 as compared to the prior year primarily due to the decrease in revenues and to a lesser extent the increase in direct operating expenses partially offset by the decrease in selling general and administrative expenses excluding share based compensation expense and merger and acquisition related costs
Analysis of our results of operations for Fiscal Year 2023 including a comparison of Fiscal Year 2023 to Fiscal Year 2022 is included in the Company s Annual Report on Form 10 K for Fiscal Year 2023 filed on August 22 2023
As of June 30 2024 the Company s unrestricted cash and cash equivalents balance was 559 757 as compared to 680 575 as of March 31 2024 Included in unrestricted cash and cash equivalents as of June 30 2024 was 1 72 619 in advance cash proceeds primarily from ticket sales a majority of which the Company expects to pay to artists and promoters and 2 117 807 of cash and cash equivalents at MSG Networks which is not available for distribution to the Company in order to maintain compliance with the covenants under the MSG Networks Credit Facilities as defined below which for the avoidance of doubt remain available to be used in connection with the work out of such facilities as discussed below In addition as of June 30 2024 the Company had 417 087 of accounts payable accrued and other current liabilities including 156 234 of capital expenditure accruals primarily related to Sphere construction a significant portion of which is in dispute and which the Company does not expect to pay
Our primary sources of liquidity are cash and cash equivalents and cash flows from the operations of our businesses The Company s uses of cash over the next 12 months beyond the issuance date of the accompanying consolidated financial statements included in Item 8 of this Form 10 K the issuance date and thereafter are expected to be substantial and include working capital related items including funding our operations capital spending including the creation of additional original content for Sphere required debt service payments payments we expect MSG Networks to make in connection with the work out of its indebtedness and investments and related loans and advances that we may fund from time to time We may also use cash to repurchase our common stock Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of our businesses the optimal allocation of cash resources and the timing of cash flow generation To the extent that we desire to access alternative sources of funding through the capital and credit markets market conditions could adversely impact our ability to do so at that time
Our ability to have sufficient liquidity to fund our operations and refinance our indebtedness is dependent on the ability of Sphere to generate significant positive cash flow Although Sphere has been embraced by guests artists promoters advertisers and marketing partners and we anticipate that Sphere will generate substantial revenue and adjusted operating income on an annual basis over time there can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform Original immersive productions such as
have not been previously pursued on the scale of Sphere which increases the uncertainty of our operating expectations To the extent that our efforts do not result in viable shows or to the extent that any such productions do not achieve expected levels of popularity among audiences we may not generate the cash flows from operations necessary to fund our operations To the extent we do not realize expected cash flows from operations from Sphere we would have to take several actions to improve our financial flexibility and preserve liquidity including significant reductions in both labor and non labor expenses as well as reductions and or deferrals in capital spending Therefore while we currently believe
we will have sufficient liquidity from cash and cash equivalents and cash flows from operations including expected cash flows from operations from Sphere to fund our operations and at a minimum make a required quarterly amortization payment of 20 625 on the MSG Networks Credit Facilities as described below no assurance can be provided that our liquidity will be sufficient in the event any of the preceding uncertainties facing Sphere are realized over the next 12 months beyond the issuance date See Part I
The principal balance of the Company s total debt outstanding as of June 30 2024 was 1 383 500 including 849 750 of debt under the MSG Networks Credit Facilities which is classified as short term on the consolidated balance sheets Prior to maturity of the MSG Networks Credit Facilities in October 2024 MSG Networks expects to make a 20 625 required quarterly amortization payment on the MSG Networks Credit Facilities The remaining outstanding borrowings under the MSG Networks Credit Facilities of 829 125 are scheduled to mature in October 2024 which is within one year of the issuance date However MSG Networks will be unable to generate sufficient operating cash flows prior to the maturity to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings
As of the issuance date MSG Networks has not been able to finalize refinancing the MSG Networks Credit Facilities with its existing syndicate of lenders Consequently MSG Networks has decided to pursue a work out of the MSG Networks Credit Facilities with its existing syndicate of lenders The Company has been advised that a cash equity contribution from Sphere Entertainment Group to MSG Networks will be required in connection with a work out If a contribution is made it is not expected to adversely impact Sphere Entertainment Co s ability to fund its operations
In the event MSG Networks is unable to successfully refinance the MSG Networks Credit Facilities through a work out or otherwise the lenders could exercise their remedies under the MSG Networks Credit Facilities which would include but not be limited to declaring an event of default and foreclosing on the MSGN Collateral MSG Networks and its subsidiaries could also seek bankruptcy protection prior to the lenders exercising their rights under the MSG Networks Credit Facilities However as of the issuance date MSG Networks and its subsidiaries do not intend to seek such bankruptcy protection See Part I
Although MSG Networks Is Pursuing a Work out of Its Credit Facilities There Can Be No Assurances That It Will Be Successful If MSG Networks Is Unable to Refinance the MSG Networks Credit Facilities Through a Work Out or Otherwise the Outstanding Debt Thereunder Could Be Accelerated and the Lenders Could Foreclose Upon the MSG Networks Business
Sphere Entertainment Co Sphere Entertainment Group and the subsidiaries of Sphere Entertainment Group collectively the Non Credit Parties are not legally obligated to fund the outstanding borrowings under the MSG Networks Credit Facilities nor are the assets of the Non Credit Parties pledged as security under the MSG Networks Credit Facilities In the event of an exercise of post default rights and remedies the Company believes the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities While this condition raises
to the consolidated financial statements included in Item 8 of this Form 10 K for a discussion of the MSG Networks Credit Facilities the LV Sphere Term Loan Facility and the 3 50 Convertible Senior Notes
For additional information regarding the Company s capital expenditures including those related to Sphere in Las Vegas see Note 19 Segment Information to the consolidated financial statements included in Item 8 of this Form 10 K
On March 31 2020 the Company s Board of Directors authorized a share repurchase program to repurchase up to 350 000 of the Company s Class A Common Stock The program was re authorized by the Company s Board of Directors on March 29 2023 Under the authorization shares of Class A Common Stock may be purchased from time to time in open market transactions in accordance with applicable insider trading and other securities laws and regulations The timing and amount of purchases will depend on market conditions and other factors No shares have been repurchased under the share repurchase program to date
The Company opened Sphere in Las Vegas in September 2023 See Part I Item 1 Our Business Sphere in this Form 10 K The venue has a number of revenue streams including The Sphere Experience which includes original immersive productions advertising and marketing partnerships and concert residencies corporate and marquee sporting events each of which the Company expects to become significant over time As a result we anticipate that Sphere in Las Vegas will generate substantial revenue and adjusted operating income on an annual basis over time
In February 2018 we announced the purchase of land in Stratford London which we expected would become home to a future Sphere The Company submitted planning applications to the local planning authority in March 2019 On November 21 2023 the Company announced it no longer plans to allocate resources towards the development of a Sphere in the United Kingdom In connection with this decision we recorded an impairment charge of 116 5 million in the quarter ended December 31 2023
We will continue to explore additional domestic and international markets where we believe Sphere venues can be successful The Company s intention for any future venues is to utilize several options such as joint ventures equity partners a managed venue model and non recourse debt financing
See Note 13 Credit Facilities and Convertible Notes to the consolidated financial statements included in Item 8 of this Form 10 K for discussions of the Company s debt obligations and various financing arrangements
MSGN L P MSGN Eden LLC an indirect subsidiary of the Company and the general partner of MSGN L P Regional MSGN Holdings LLC an indirect subsidiary of the Company and the limited partner of MSGN L P collectively with MSGN Eden LLC the MSGN Holdings Entities and certain subsidiaries of MSGN L P have senior secured credit facilities pursuant to a credit agreement as amended and restated on October 11 2019 the MSGN Credit Agreement consisting of i an initia
of the MSGN Revolving Credit Facility is available for the issuance of letters of credit As of June 30 2024 there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility
Upon a payment default in respect of principal interest or other amounts due and payable under the MSGN Credit Agreement or related loan documents default interest will accrue on all overdue amounts at an ad
etermined based on a total net leverage ratio in respect of the average daily unused commitments under the MSGN Revolving Credit Facility MSGN L P will also be required to pay customary letter of credit fees as well as fronting fees to banks that issue letters of credit The interest rate on the MSGN Term Loan Facility as of June 30 2024 was 7 44
Subject to customary notice and minimum amount conditions MSGN L P may voluntarily repay outstanding loans under the MSGN Credit Agreement at any time in whole or in part without premium or penalty except for customary breakage costs with respect to Eurodollar loans The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31 2020 through September 30 2024 with a final maturity date of October 11 2024 MSGN L P is required to make mandatory prepayments in certain circumstances including without limitation from the net cash proceeds of certain sales of assets including MSGN Collateral or casualty insurance and or condemnation recoveries subject to certain reinvestment repair or replacement rights and the incurrence of certain indebtedness subject to certain exceptions
In addition to the financial covenants discussed above the MSGN Credit Agreement and the related security agreement contain certain customary representations and warranties affirmative covenants and events of default The MSGN Credit Agreement contains certain restrictions on the ability of MSGN L P and its restricted subsidiaries to take certain actions as provided in and subject to various exceptions and baskets set forth in the MSGN Credit Agreement including the following i incurring additional indebtedness and contingent liabilities ii creating liens on certain assets iii making investments loans or advances in or to other persons iv paying dividends and distributions or repurchasing capital stock v changing their lines of business vi engaging in certain transactions with affiliates vii amending specified material agreements viii merging or consolidating ix making certain dispositions and x entering into agreements that restrict the granting of liens The MSGN Holdings Entities are also subject to customary passive holding company covenants
All obligations under the MSGN Credit Agreement are guaranteed by the MSGN Holdings Entities and MSGN L P s existing and future direct and indirect domestic subsidiaries that are not designated as excluded subsidiaries or unrestricted subsidiaries the MSGN Subsidiary Guarantors and together with the MSGN Holdings Entities the MSGN Guarantors All obligations under the MSGN Credit Agreement including the guarantees of those obligations are secured by certain assets of MSGN L P and each MSGN Guarantor collectively MSGN Collateral including but not limited to a pledge of the equity interests in MSGN L P held directly by the MSGN Holdings Entities and the equity interests in each MSGN Subsidiary Guarantor held directly or indirectly by MSGN L P
On December 22 2022 MSG LV an indirect wholly owned subsidiary of the Company entered into a credit agreement with JP Morgan Chase Bank N A as administrative agent and the lenders party thereto providing for a five year 275 000 senior secured term loan facility as amended the LV Sphere Term Loan Facility
Borrowings under the LV Sphere Term Loan Facility bear interest at a floating rate which at the option of MSG LV may be either i a base rate plus a margin of 3 375 per annum or ii adjusted Term SOFR i e Term SOFR plus 0 10 plus a margin of 4 375 per annum The interest rate on the LV Sphere Term Loan Facility
The LV Sphere Term Loan Facility will mature on December 22 2027 The principal obligations under the LV Sphere Term Loan Facility are due at the maturity of the facility with no amortization payments prior to maturity Under certain circumstances MSG LV is required to make mandatory prepayments on the loan including prepayments in an amount equal to the net cash proceeds of casualty insurance and or condemnation recoveries subject to certain reinvestment repair or replacement rights subject to certain exceptions
The LV Sphere Term Loan Facility and related guaranty by Sphere Entertainment Group include financial covenants requiring MSG LV to maintain a specified minimum debt service coverage ratio and requiring Sphere Entertainment Group to maintain a specified minimum liquidity level The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31 2023 on a historical basis and on a prospective basis Both the historical and prospective debt service coverage ratios are required to be at least 1 35 1 00 In addition among other conditions MSG LV is not permitted to make distributions to Sphere Entertainment Group unless the historical and prospective debt service coverage ratios are at least 1 50 1 00 The minimum liquidity level for Sphere Entertainment Group is set at 50 000 with 25 000 required to be held in cash or cash equivalents and is tested as of the last day of each fiscal quarter based on Sphere Entertainment Group s unencumbered liquidity consisting of cash and cash equivalents and available lines of credit as of such date
In addition to the covenants described above the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements contain certain customary representations and warranties affirmative and negative covenants and events of default The LV Sphere Term Loan Facility contains certain restrictions on the ability of MSG LV and Sphere Entertainment Group to take certain actions as provided in and subject to various exceptions and baskets set forth in the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements including the following i incur additional indebtedness ii make investments loans or advances in or to other persons iii pay dividends and distributions which will restrict the ability of MSG LV to make cash distributions to the Company iv change its lines of business v engage in certain transactions with affiliates vi amend organizational documents vii merge or consolidate and viii make certain dispositions
All obligations under the LV Sphere Term Loan Facility are guaranteed by Sphere Entertainment Group All obligations under the LV Sphere Term Loan Facility including the guarantees of those obligations are secured by all of the assets of MSG LV and certain assets of Sphere Entertainment Group including but not limited to MSG LV s leasehold interest in the land on which Sphere in Las Vegas is located and a pledge of all of the equity interests held directly by Sphere Entertainment Group in MSG LV
On December 8 2023 the Company completed the Offering of 258 750 in aggregate principal amount of its 3 50 Convertible Senior Notes which amount includes the full exercise of the initial purchasers option to purchase additional 3 50 Convertible Senior Notes
The Company used 14 309 of the net proceeds from the Offering to fund the cost of entering into the capped call transactions described below with the remaining net proceeds from the Offering designated for general corporate purposes including capital for Sphere related growth initiatives The capped call transactions met all of the applicable criteria for equity classification in accordance with ASC Subtopic 815 10 15 74 a
On December 8 2023 the Company entered into an Indenture the Indenture with U S Bank Trust Company National Association as trustee the Trustee relating to the 3 50 Convertible Senior Notes The 3 50 Convertible Senior Notes constitute a senior general unsecured obligation of the Company
The 3 50 Convertible Senior Notes bear interest at a rate of 3 50 per year payable semi annually in arrears on June 1 and December 1 of each year beginning on June 1 2024 The 3 50 Convertible Senior Notes will mature on December 1 2028 unless earlier redeemed repurchased or converted
Subject to the terms of the Indenture the 3 50 Convertible Senior Notes may be converted at an initial conversion rate of 28 1591 shares of Class A Common Stock per 1 000 principal amount of 3 50 Convertible Senior Notes equivalent to an initial conversion price of approximately 35 51 per share of Class A Common Stock Upon conversion of the 3 50 Convertible Senior Notes the Company will pay or deliver as the case may be cash shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock at the Company s election in accordance with the Indenture Holders of the 3 50 Convertible Senior Notes may convert their 3 50 Convertible Senior Notes at their option at any time on or after September 1 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date Holders of the 3 50 Convertible Senior Notes will also have the right to convert the 3 50 Convertible Senior Notes prior to September 1 2028 but only upon the occurrence of specified events described in the Indenture The conversion rate is subject to anti dilution adjustments if certain events occur
Prior to December 6 2026 the 3 50 Convertible Senior Notes will not be redeemable On or after December 6 2026 the Company may redeem for cash all or part of the 3 50 Convertible Senior Notes subject to certain exceptions at its option if the last reported sale price of the Class A Common Stock has been at least 130 of the conversion price then in effect for at least 20 trading days whether or not consecutive during any period of 30 consecutive trading days including the last trading day of such period ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 of the principal amount of the 3 50 Convertible Senior Notes to be redeemed plus accrued and unpaid interest to but not including the redemption date No sinking fund is provided for the 3 50 Convertible Senior Notes
If certain corporate events occur or the Company delivers a notice of redemption prior to the maturity date of the 3 50 Convertible Senior Notes and a holder elects to convert its 3 50 Convertible Senior Notes in connection with such corporate event or notice of redemption as the case may be the Company will under certain circumstances increase the conversion rate for the 3 50 Convertible Senior Notes so surrendered for conversion by a number of additional shares of Class A Common Stock in accordance with the Indenture No adjustment to the conversion rate will be made if the price paid or deemed to be paid per share of Class A Common Stock in such corporate event or redemption as the case may be is either less than 28 41 per share or exceeds 280 00 per share
If a specified Fundamental Change as defined in the Indenture occurs prior to the maturity date of the 3 50 Convertible Senior Notes under certain circumstances each holder may require the Company to repurchase all or part of its 3 50 Convertible Senior Notes at a repurchase price equal to 100 of the principal amount plus accrued and unpaid interest to but not including the repurchase date
Under the Indenture the 3 50 Convertible Senior Notes may be accelerated upon the occurrence of certain events of default In the case of an event of default with respect to the 3 50 Convertible Senior Notes arising from specified events of bankruptcy or insolvency of the Company 100 of the principal of and accrued and unpaid interest on the 3 50 Convertible Senior Notes will automatically become due and payable If any other event of default with respect to the 3 50 Convertible Senior Notes under the Indenture occurs or is continuing the Trustee or holders of at least 25 in aggregate principal amount of the then outstanding 3 50 Convertible Senior Notes may declare the principal amount of the 3 50 Convertible Senior Notes to be immediately due and payable
On December 5 2023 in connection with the pricing of the 3 50 Convertible Senior Notes and on December 6 2023 in connection with the exercise in full by the initial purchasers of their option to purchase additional 3 50 Convertible Senior Notes the Company entered into capped call transactions with certain of the initial purchasers of the 3 50 Convertible Senior Notes or their respective affiliates and other financial institutions pursuant to capped call confirmations The capped call transactions are expected generally to reduce the potential dilution to the Class A Common Stock upon any conversion of the 3 50 Convertible Senior Notes and or offset any cash payments the Company is required to make in excess of the principal amount of converted 3 50 Convertible Senior Notes as the case may be with such reduction and or offset subject to a cap based on a cap price initially equal to approximately 42 62 per share which represents a premium of approximately 50 over the last reported sale price of the Class A Common Stock of 28 41 per share on the NYSE on December 5 2023 and is subject to certain adjustments under the terms of the capped call transactions
The Company uses letters of credit to support its business operations As of June 30 2024 there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility The Company has letters of credit relating to operating leases which are supported by cash and cash equivalents that are classified as restricted
As of June 30 2024 cash cash equivalents and restricted cash totaled 573 233 as compared to 429 114 as of June 30 2023 and 760 312 as of June 30 2022 The following table summarizes the Company s cash flow activities for Fiscal Years 2024 2023 and 2022
primarily due to a net loss in the current year period driven by higher direct operating expenses and selling general and administrative expenses as compared to net income in the prior year as well as changes in working capital assets and liabilities which included fewer collections from customers and related parties a larger amount of payments to vendors and related parties and fewer cash collections related to deferred revenue as compared to the corresponding prior year
primarily due to a decrease in capital expenditures and capitalized interest for Sphere in Las Vegas after the assets were placed in service during the first quarter of Fiscal Year 2024 as well as the proceeds from the sale of MSGE Retained Interest offset by the absence of proceeds received from sales of investments and dispositions of Tao Group Hospitality Boston Calling Events LLC and the corporate aircraft as compared to the corresponding prior year
a Includes contractually obligated minimum lease payments for operating leases having an initial noncancellable term in excess of one year for various office space and equipment These commitments are presented exclusive of the imputed interest used to reflect the payment s present value See
b See Note 13 Credit Facilities and Convertible Notes to the consolidated financial statements included in Item 8 of this Form 10 K for more information surrounding the principal repayments required under the credit agreements
c Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain See Note 14 Pension Plans and Other Postretirement Benefit Plan to the consolidated financial statements included in Item 8 of this Form 10 K for more information on the future funding requirements under our pension obligations
Our MSG Networks segment generally earns a higher share of its annual revenues in the second and third quarters of its fiscal year as a result of MSG Networks advertising revenue being largely derived from the sale of inventory in its live NBA and NHL professional sports programming
Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions
The preparation of the Company s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events These estimates and the underlying assumptions affect the amounts of assets and liabilities reported disclosures about contingent assets and liabilities and reported amounts of revenues and expenses Management believes its use of estimates in the consolidated financial statements to be reasonable The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following
The Company may enter into arrangements with multiple performance obligations such as multi year sponsorship agreements which may derive revenues for the Company as well as MSG Entertainment and MSG Sports within a single arrangement The Company may also derive revenue from similar types of arrangements which are entered into by MSG Entertainment or MSG Sports Payment terms for such arrangements can vary by contract but payments are generally due in installments throughout the contractual term The performance obligations included in each sponsorship agreement vary and may include advertising and other benefits such as but not limited to signage at Sphere digital advertising event or property specific advertising as well as non advertising benefits such as suite licenses and event tickets To the extent the Company s multi year arrangements provide for performance obligations that are consistent over the multi year contractual term such performance obligations generally meet the definition of a series as provided for under the accounting guidance If performance obligations are concluded to meet the definition of a series the contractual fees for all years during the contract term are aggregated and the related revenue is recognized proportionately as the underlying performance obligations are satisfied
The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company s satisfaction of its respective performance obligation The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation The Company s process for determining its estimated standalone selling prices involves management s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include but are not limited to prices charged for similar performance obligations the Company s ongoing pricing strategy and policies and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations
The Company may incur costs such as commissions to obtain its multi year sponsorship agreements The Company assesses such costs for capitalization on a contract by contract basis To the extent costs are capitalized the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract The contract asset is amortized over the estimated useful life
In assessing the recoverability of the Company s long lived and indefinite lived assets when there is an indicator of potential impairment the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets These estimates and assumptions could have a significant impact on whether an impairment charge is recognized as well as the magnitude of any such charge Fair value estimates are made at a specific point in time based on relevant information These estimates are subjective in nature and involve significant uncertainties and judgments and therefore cannot be determined with precision Changes in assumptions could significantly affect the estimates If these estimates or material related assumptions change in the future the Company may be required to record impairment charges related to its long lived and or indefinite lived assets
and at any time upon the occurrence of certain events or substantive changes in circumstances The Company performs its goodwill impairment test at the reporting unit level As of June 30 2024 the Company had two reportable segments and two reporting units Sphere and MSG Networks consistent with the way management makes decisions and allocates resources to the business
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 values of the Company s reporting units are primarily determined using discounted cash flows comparable market transactions or other acceptable valuation techniques including the cost approach These valuations are based on estimates and assumptions including projected future cash flows discount rates cost based assumptions 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 not to exceed the carrying amount of goodwill
The Company elected to perform the qualitative assessment of impairment for all of the Company s reporting units for the Fiscal Year 2024 annual impairment test These assessments considered factors such as
During the first quarter of Fiscal Year 2024 the Company performed its most recent annual impairment test of goodwill for the MSG Networks reporting unit and determined that there were no impairments of goodwill as of the impairment test date Based on the impairment test the Company s MSG Networks reporting unit had a sufficient safety margin representing the excess of the estimated fair value of the reporting unit derived from the most recent quantitative assessment less its carrying value including goodwill allocated to the reporting unit The Company believes that if the fair value of the reporting unit exceeds its carrying value by greater than 10 a sufficient safety margin has been realized
For periods prior to the MSGE Distribution including at the date of the annual goodwill impairment test Sphere was included with the MSG Entertainment business in a combined reporting unit for purposes of goodwill impairment testing No impairment of goodwill was identified for this reporting unit as of the annual impairment test date In connection with the MSGE Distribution the goodwill balance associated with this reporting unit was allocated between MSG Entertainment discontinued operations and Sphere based upon a relative fair value approach resulting in 32 299 of goodwill attributed to Sphere Goodwill attributed to the MSG Entertainment business is included in the carrying value of MSG Entertainment discontinued operations
For other long lived assets including right of use lease assets and intangible assets that are amortized the Company evaluates assets for recoverability when there is an indication of potential impairment Amortizable intangible assets and other long lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent from cash flows from other assets and liabilities In determining whether an impairment of long lived assets has occurred the Company considers both qualitative and quantitative factors The quantitative analysis involves estimating the undiscounted future cash flows directly related to that asset group and comparing the resulting value against the carrying value of the asset group If the carrying value of the asset group is greater than the sum of the undiscounted future cash flows an impairment loss is recognized for the difference between the carrying value of the asset group and its estimated fair value
The Company has recognized intangible assets for affiliate relationships as a result of purchase accounting and has determined that these intangible assets have finite lives The Company also recognized intangible assets subject to amortization during Fiscal Year 2024 as a result of the acquisition of Holoplot Refer to Note
The useful lives of the Company s long lived assets are based on estimates of the period over which the Company expects the assets to be of economic benefit to the Company In estimating the useful lives the Company considers factors such as but not limited to risk of obsolescence anticipated use plans of the Company and applicable laws In light of these facts and circumstances the Company has determined that its estimated useful lives are appropriate
The Company through its subsidiaries MSG LV and MSG Networks is subject to potential interest rate risk exposure related to borrowings incurred under their respective credit facilities Changes in interest rates may increase interest expense payments with respect to any borrowings incurred under these credit facilities The effect of a hypothetical 200 basis point increase in floating interest rate prevailing as of June 30 2024 and continuing for a full year would increase the Company s interest expense on the outstanding amounts under the credit facilities by 22 495
The Company is exposed to market risk resulting from foreign currency fluctuations primarily to the British pound sterling through the land we own in London We may evaluate and decide to the extent reasonable and practical to reduce the translation risk of foreign currency fluctuations by entering into foreign currency forward exchange contracts with financial institutions If we were to enter into such hedging transactions the market risk resulting from foreign currency fluctuations is unlikely to be entirely eliminated We do not plan to enter into derivative financial instrument transactions for foreign currency speculative purposes
During Fiscal Year 2024 the GBP USD exchange rate ranged from 1 2078 to 1 3137 as compared to GBP USD exchange rate of 1 2651 as of June 30 2024 a fluctuation of ranging from 5 to 6 As of June 30 2024 a uniform hypothetical 10 fluctuation in the GBP USD exchange rate would have resulted in a change of 3 081 in the Company s net asset value
Following the acquisition of Holoplot on April 25 2024 which is based in Berlin Germany we are also exposed to market risk resulting from foreign currency fluctuations related to the Euro During Fiscal Year 2024 the EUR USD exchange rate ranged from 1 0467 to 1 1239 as compared to EUR USD exchange rate of 1 0717 on June 30 2024 a fluctuation ranging from 2 to 5 As of June 30 2024 a uniform hypothetical 10 fluctuation in the EUR USD exchange rate would have resulted in a change of 383 in the Company s net asset value
The Company utilizes actuarial methods to calculate pension and other postretirement benefit obligations and the related net periodic benefit cost which are based on actuarial assumptions Key assumptions the discount rates and the expected long term rate of return on plan assets are important elements of the plans expense and liability measurement and we evaluate these key assumptions annually Other assumptions include demographic factors such as mortality retirement age and turnover The actuarial assumptions used by the Company may differ materially from actual results due to various factors including but not limited to changing economic and market conditions Differences between actual and expected occurrences could significantly impact the actual amount of net periodic benefit cost and the benefit obligation recorded by the Company Material changes in the costs of the plans may occur in the future due to changes in these assumptions changes in the number of the plan participants changes in the level of benefits provided changes in asset levels and changes in legislation Our assumptions reflect our historical experience and our best estimate regarding future expectations
Accumulated and projected benefit obligations reflect the present value of future cash payments for benefits We use the Willis Towers Watson U S Rate Link 40 90 Discount Rate Model which is developed by examining the yields on selected highly rated corporate bonds to discount these benefit payments on a plan by plan basis to select a rate at which we believe each plan s benefits could be effectively settled Additionally the Company measures service and interest costs by applying the specific spot rates along that yield curve to the plans liability cash flows Spot Rate Approach The Company believes the Spot Rate Approach provides a more accurate measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates on the yield curve
Lower discount rates increase the present value of benefit obligations and will usually increase the subsequent year s net periodic benefit cost The weighted average discount rates used to determine benefit obligations as of June 30 2024 for the Company s Pension Plans and Postretirement Plan were 5 51 and 5 40 respectively A 25 basis point decrease in each of these assumed discount rates would increase the projected benefit obligations for the Company s Pension Plans and Postretirement Plan at June 30 2024 by 850 and 20 respectively
The weighted average discount rates used to determine service cost interest cost and the projected benefit obligation components of net periodic benefit cost were 5 52 5 40 and 5 33 respectively for Fiscal Year 2024 for the Company s Pension Plans The weighted average discount rates used to determine service cost interest cost and the projected benefit obligation components of net periodic benefit cost were 5 39 5 47 and 5 41 respectively for Fiscal Year 2024 for the Company s Postretirement Plan A 25 basis point decrease in these assumed discount rates would increase the total net periodic benefit cost for the Company s Pension Plans by 40 and would result in no impact to the net periodic benefit cost for the Company s Postretirement
The expected long term return on plan assets is based on a periodic review and modeling of the plans asset allocation structures over a long term horizon Expectations of returns for each asset class are the most important of the assumptions used in the review and modeling and are based on comprehensive reviews of historical data forward looking economic outlook and economic financial market theory The expected long term rate of return was selected from within the reasonable range of rates determined by a historical real returns net of inflation for the asset classes covered by the investment policy and b projections of inflation over the long term period during which benefits are payable to plan participants The weighted average expected long term rate of return on plan assets for the Company s funded pension plans was 5 65 for Fiscal Year 2024
Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under the Company s funded plans Adverse market performance in the future could result in lower rates of return for these assets than projected by the Company which could increase the Company s funding requirements related to these plans as well as negatively affect the Company s operating results by increasing the net periodic benefit cost A 25 basis point decrease in the long term return on pension plan assets assumption would increase net periodic pension benefit cost by 40 for Fiscal Year 2024
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 under the Exchange Act as of the end of the period covered by this report Based upon that evaluation the Company s Chief Executive Officer and Chief Financial Officer concluded that as of June 30 2024 the Company s disclosure controls and procedures were effective
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a 15 f under the Exchange Act The Company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the Company s assets that could have a material effect on the financial statements
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Under the supervision and with the participation of management including the Company s Chief Executive Officer and Chief Financial Officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on the results of this evaluation our management concluded that our internal control over financial reporting was effective as of June 30 2024 The e
ffectiveness of our internal control over financial reporting as of June 30 2024 has been audited by Deloitte Touche LLP an independent registered public accounting firm as stated in their report which is included herein
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 under the Exchange Act during the fiscal quarter ended June 30 2024 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
Information relating to our directors executive officers corporate governance and insider trading policies and procedures will be included in the proxy statement for the 2024 annual meeting of the Company s stockholders which is expected to be filed within 120 days of our fiscal year end and is incorporated herein by reference
Information relating to executive compensation will be included in the proxy statement for the 2024 annual meeting of the Company s stockholders which is expected to be filed within 120 days of our fiscal year end and is incorporated herein by reference
Information relating to the beneficial ownership of our common stock will be included in the proxy statement for the 2024 annual meeting of the Company s stockholders which is expected to be filed within 120 days of our fiscal year end and is incorporated herein by reference
Information relating to certain relationships and related transactions and director independence will be included in the proxy statement for the 2024 annual meeting of the Company s stockholders which is expected to be filed within 120 days of our fiscal year end and is incorporated herein by reference
Information relating to principal accountant fees and services will be included in the proxy statement for the 2024 annual meeting of the Company s stockholders which is expected to be filed within 120 days of our fiscal year end and is incorporated herein by reference
Distribution Agreement dated as of March 29 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc incorporated by reference to Exhibit 2 1 to the Company s Current Report on form 8 K filed on March 30 2023
Contribution Agreement dated as of March 29 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Sphere Entertainment Group LLC formerly MSG Entertainment Group LLC and Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc incorporated by reference to Exhibit 2 2 to the Company s Current Report on Form 8 K filed on March 30 2023
Agreement and Plan of Merger dated as of March 25 2021 by and among Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Broadway Sub Inc and MSG Networks Inc incorporated by reference to Exhibit 2 1 to the Company s Current Report on Form 8 K filed on March 26 2021
Distribution Agreement dated as of March 31 2020 between Madison Square Garden Sports Corp formerly The Madison Square Garden Company and Sphere Entertainment Co formerly MSG Entertainment Spinco Inc incorporated by reference to Exhibit 2 1 to Amendment No 3 to the Company s Registration Statement on Form 10 filed on April 1 2020
Contribution Agreement dated as of March 31 2020 among Madison Square Garden Sports Corp formerly The Madison Square Garden Company Sphere Entertainment Group LLC formerly MSG Sports Entertainment LLC and Sphere Entertainment Co formerly MSG Entertainment Spinco Inc incorporated by reference to Exhibit 2 2 to Amendment No 3 to the Company s Registration Statement on Form 10 filed on April 1 2020
Amended and Restated Certificate of Incorporation of Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp incorporated by reference to Exhibit 3 1 to the Company s Current Report on Form 8 K filed on April 23 2020
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp dated April 20 2023 incorporated by reference to Exhibit 3 1 to the Company s Current Report on Form 8 K filed on April 24 2023
Registration Rights Agreement dated as of April 3 2020 by and among Sphere Entertainment Co formerly MSG Entertainment Spinco Inc and The Charles F Dolan Children Trusts incorporated by reference to Exhibit 4 1 to the Company s Current Report on Form 8 K filed on April 23 2020
Registration Rights Agreement dated as of April 3 2020 by and among Sphere Entertainment Co formerly MSG Entertainment Spinco Inc and The Dolan Family Affiliates incorporated by reference to Exhibit 4 2 to the Company s Current Report on Form 8 K filed on April 23 2020
Registration Rights Agreement dated as of January 13 2010 by and among MSG Networks Inc formerly known as Madison Square Garden Inc and the Charles F Dolan Children Trusts incorporated by reference to Exhibit 4 4 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Registration Rights Agreement dated as of January 13 2010 by and among MSG Networks Inc formerly known as Madison Square Garden Inc and the Dolan Family Affiliates incorporated by reference to Exhibit 4 5 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Indenture dated as of December 8 2023 by and between the Company and U S Bank Trust Company National Association N A as trustee incorporated by reference to Exhibit 4 1 to the Company s Current Report on Form 8 K filed on December 8 2023
Form of Global Note representing Sphere Entertainment Co s 3 50 Convertible Senior Notes due 2028 included as Exhibit A to the Indenture filed as Exhibit 4 6 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2024 incorporated by reference to Exhibit 4 2 to the Company s Current Report on Form 8 K filed on December 8 2023
Transition Services Agreement dated as of March 29 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on March 30 2023
Tax Disaffiliation Agreement dated as of March 29 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc incorporated by reference to Exhibit 10 2 to the Company s Current Report on Form 8 K filed on March 30 2023
Tax Disaffiliation Agreement dated as of March 31 2020 between Madison Square Garden Sports Corp formerly The Madison Square Garden Company and Sphere Entertainment Co formerly MSG Entertainment Spinco Inc incorporated by reference to Exhibit 10 2 to Amendment No 3 to the Company s Registration Statement on Form 10 filed on April 1 2020
Tax Disaffiliation Agreement dated as of September 11 2015 between MSG Networks Inc and Madison Square Garden Sports Corp formerly known as The Madison Square Garden Company incorporated by reference to Exhibit 10 3 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Distribution Agreement dated as of September 11 2015 between MSG Networks Inc and Madison Square Garden Sports Corp formerly known as The Madison Square Garden Company incorporated by reference to Exhibit 10 4 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Employee Matters Agreement dated March 29 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc incorporated by reference to Exhibit 10 3 to the Company s Current Report on Form 8 K filed on March 30 2023
Employee Matters Agreement dated as of March 31 2020 between Madison Square Garden Sports Corp formerly The Madison Square Garden Company and Sphere Entertainment Co formerly MSG Entertainment Spinco Inc incorporated by reference to Exhibit 10 3 to Amendment No 3 to the Company s Registration Statement on Form 10 filed on April 1 2020
Employee Matters Agreement dated as of September 11 2015 between MSG Networks Inc and Madison Square Garden Sports Corp formerly known as The Madison Square Garden Company incorporated by reference to Exhibit 10 6 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp 2020 Employee Stock Plan as amended incorporated by reference to Annex B to the Company s Definitive Proxy Statement on Schedule 14A filed on October 25 2023
Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp 2020 Stock Plan for Non Employee Directors as amended incorporated by reference to Annex C to the Company s Definitive Proxy Statement on Schedule 14A filed on October 25 2023
Form of Indemnification Agreement between Sphere Entertainment Co formerly MSG Entertainment Spinco Inc and its Directors and Officers incorporated by reference to Exhibit 10 9 to the Company s Registration Statement on Form 10 filed on March 6 2020
Form of Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Non Employee Director Award Agreement incorporated by reference to Exhibit 10 10 to Amendment No 1 to the Company s Registration Statement on Form 10 filed on March 18 2020
Form of Sphere Entertainment Co Restricted Stock Units Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Exhibit 10 6 to the Company s Current Report on Form 8 K filed on April 24 2023
Form of Sphere Entertainment Co Performance Restricted Stock Units Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Exhibit 10 9 to the Company s Current Report on Form 8 K filed on April 24 2023
Form of Sphere Entertainment Co Option Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Exhibit 10 7 to the Company s Current Report on Form 8 K filed on April 24 2023
Form of Sphere Entertainment Co Performance Option Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Exhibit 10 10 to the Company s Current Report on Form 8 K filed on April 24 2023
Form of Sphere Entertainment Co Off Cycle Performance Stock Option Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed on November 8 2023
Form of Sphere Entertainment Co Performance Vesting Stock Option Agreement under the 2020 Employee Stock Plan as amended incorporated by reference to Annex B of Exhibit 10 1 to the Company s Current Report on Form 8 K filed on July 3 2024
Form of Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Option Agreement in respect of Madison Square Garden Sports Corp Options incorporated by reference to Exhibit 10 16 to the Company s Registration Statement on Form 10 filed on March 6 2020
Form of Sphere Entertainment Co Restricted Stock Units Agreement in respect of Restricted Stock Units granted under the MSG Networks Inc 2010 Employee Stock Plan incorporated by reference to Exhibit 10 5 to the Company s Current Report on Form 8 K filed on April 24 2023
Form of Sphere Entertainment Co Performance Restricted Stock Units Agreement in respect of Performance Restricted Stock Units granted under the MSG Networks Inc 2010 Employee Stock Plan incorporated by reference to Exhibit 10 8 to the Company s Current Report on Form 8 K filed on April 24 2023
Employment Agreement dated as of June 30 2024 between Sphere Entertainment Co and James L Dolan incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on July 3 2024
Employment Agreement dated as of December 27 2021 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and James L Dolan as amended and restated as of April 20 2023 incorporated by reference to Exhibit 10 2 to the Company s Current Report on Form 8 K filed on April 24 2023
Employment Agreement dated as of December 8 2023 between Sphere Entertainment Co and David F Byrnes incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on December 8 2023
Employment Agreement dated as of January 5 2024 between Sphere Entertainment Co and Jennifer Koester incorporated by reference to Exhibit 10 4 to the Company s Quarterly Report on Form 10 Q for the quarter ended December 31 2023 filed on February 5 2024
Employment Agreement dated as of August 27 2021 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Andrea Greenberg incorporated by reference to Exhibit 10 4 to the Company s Quarterly Report on Form 10 Q for the quarter ended September 30 2021 filed on November 9 2021
Employment Agreement dated as of June 15 2023 between Sphere Entertainment Co and David Granville Smith incorporated by reference to Exhibit 10 28 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2023 filed on August 22 2023
Employment Agreement dated as of December 18 2023 between Sphere Entertainment Co and Laura Franco incorporated by reference to Exhibit 10 3 to the Company s Quarterly Report on Form 10 Q filed on February 5 2024
Employment Agreement dated as of April 20 2023 between Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and Gregory Brunner incorporated by reference to Exhibit 10 4 to the Company s Current Report on Form 8 K filed on April 24 2023
Sphere Entertainment Co Policy Concerning Certain Matters Relating to Madison Square Garden Entertainment Corp Madison Square Garden Sports Corp and AMC Networks Inc Including Responsibilities of Overlapping Directors and Officers incorporated by reference to Exhibit 10 31 to the Company s Annual Report on Form 10 K filed on August 22 2023
Construction Agreement dated as of May 31 2019 by and between MSG Las Vegas LLC and Hunt Construction Group Inc incorporated by reference to Exhibit 10 18 to Amendment No 1 to the Company s Registration Statement on Form 10 filed on March 18 2020
Ground Lease Agreement dated July 16 2018 by and among Sands Arena Landlord LLC Venetian Casino Resort LLC MSG Las Vegas LLC and Sphere Entertainment Group LLC formerly MSG Sports Entertainment LLC incorporated by reference to Exhibit 10 19 to Amendment No 1 to the Company s Registration Statement on Form 10 filed on March 18 2020
First Amendment to Ground Lease dated November 14 2018 by and among Sands Arena Landlord LLC Venetian Casino Resort LLC MSG Las Vegas LLC and Sphere Entertainment Group LLC formerly MSG Sports Entertainment LLC incorporated by reference to Exhibit 10 20 to Amendment No 1 to the Company s Registration Statement on Form 10 filed on March 18 2020
Letter Agreement amending Ground Lease Agreement dated July 16 2018 by and between Sands Arena Landlord LLC and MSG Las Vegas LLC dated October 30 2020 incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q for the quarter ended December 31 2021 filed on February 12 2021
Credit Agreement dated as of December 22 2022 among MSG Las Vegas LLC the lenders party thereto and JPMorgan Chase Bank N A as administrative agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on December 22 2022
Pledge and Security Agreement dated as of December 22 2022 by and between MSG Las Vegas LLC and JPMorgan Chase Bank N A incorporated by reference to Exhibit 10 2 to the Company s Current Report on Form 8 K filed on December 22 2022
First Amendment to Pledge and Security Agreement dated as of December 22 2022 by and between MSG Las Vegas LLC and JPMorgan Chase Bank N A dated as of January 25 2024 incorporated by reference to Exhibit 10 5 to the Company s Quarterly Report on Form 10 Q filed on February 5 2024
Guaranty Agreement dated as of December 22 2022 by Sphere Entertainment Group LLC formerly MSG Entertainment Group LLC in favor of JPMorgan Chase Bank N A on behalf of the lenders incorporated by reference to Exhibit 10 3 to the Company s Current Report on Form 8 K filed on December 22 2022
Pledge Agreement dated as of December 22 2022 by Sphere Entertainment Group LLC MSG Entertainment Group LLC in favor of JPMorgan Chase Bank N A on behalf of the lenders incorporated by reference to Exhibit 10 4 to the Company s Current Report on Form 8 K filed on December 22 2022
Credit Agreement dated as of September 28 2015 by and among MSGN Holdings L P certain subsidiaries of MSGN Holdings L P identified therein MSGN Eden LLC MSGN Regional Holdings LLC and JPMorgan Chase Bank N A as administrative agent collateral agent and a letter of credit issuer and the lenders party thereto incorporated by reference to Exhibit 10 74 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Amended and Restated Credit Agreement dated as of October 11 2019 by and among MSGN Holdings L P certain subsidiaries of MSGN Holdings L P identified therein MSGN Eden LLC Regional MSGN Holdings LLC and JP Morgan Chase Bank N A as administrative agent and the lenders party thereto incorporated by reference to Exhibit 10 75 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
Amendment No 1 to Amended and Restated Credit Agreement dated as of October 11 2019 by and among MSGN Holdings L P certain subsidiaries of MSGN Holdings L P identified therein MSGN Eden LLC Regional MSGN Holdings LLC and JP Morgan Chase Bank N A as administrative agent and the lenders party thereto dated as of November 5 2021 incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q for the quarter ended December 31 2021 filed on February 9 2022
Amendment No 2 to Amended and Restated Credit Agreement dated as of October 11 2019 by and among MSGN Holdings L P certain subsidiaries of MSGN Holdings L P identified therein MSGN Eden LLC Regional MSGN Holdings LLC and JP Morgan Chase Bank N A as administrative agent and the lenders party thereto dated as of May 30 2023 incorporated by reference to Exhibit 10 44 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2023 filed on August 22 2023
Security Agreement dated as of September 28 2015 by and among MSGN Holdings L P certain subsidiaries of MSGN Holdings L P identified therein MSGN Eden LLC MSGN Regional Holdings LLC and JPMorgan Chase Bank N A as collateral agent thereto incorporated by reference to Exhibit 10 76 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2021 filed on August 23 2021
NBA Transaction Agreement dated as of April 18 2023 by and among Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Madison Square Garden Entertainment Corp formerly MSGE Spinco Inc and certain other parties thereto incorporated by reference to Exhibit 10 5 to the Company s Quarterly Report on Form 10 Q for the quarter ended March 31 2023 filed on May 10 2023
NBA Transaction Agreement dated as of April 15 2020 among Madison Square Garden Sports Corp formerly The Madison Square Garden Company Sphere Entertainment Co formerly MSG Entertainment Spinco Inc and certain other parties thereto incorporated by reference to Exhibit 10 59 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2020 filed on August 31 2020
NHL Transaction Agreement dated as of April 15 2020 among Madison Square Garden Sports Corp formerly The Madison Square Garden Company Sphere Entertainment Co formerly MSG Entertainment Spinco Inc and certain other parties thereto incorporated by reference to Exhibit 10 60 to the Company s Annual Report on Form 10 K for the fiscal year ended June 30 2020 filed on August 31 2020
MSG Networks Voting and Support Agreement dated as of March 25 2021 by and among Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp and certain stockholders of MSG Networks Inc that are signatories thereto incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on March 26 2021
Sphere Entertainment Co formerly Madison Square Garden Entertainment Corp Voting and Support Agreement dated as of March 25 2021 by and among MSG Networks Inc and certain stockholders of Madison Square Garden Entertainment Corp that are signatories thereto incorporated by reference to Exhibit 10 2 to the Company s Current Report on Form 8 K filed on March 26 2021
Transaction Agreement dated as of April 17 2023 by and among TAO Group Sub Holdings LLC Disco Holdings Intermediate LLC TAO Group Holdings LLC Hakkasan USA Inc and others incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on April 17 2023
Employment Agreement dated as of April 20 2023 between Sphere Entertainment Co and Gautam Ranji incorporated by reference to Exhibit 10 3 to the Company s Current Report on Form 8 K filed on April 24 2023
Separation Agreement dated as of November 3 2023 between Sphere Entertainment Co and Gautam Ranji incorporated by reference to Exhibit 10 2 to the Company s Quarterly Report on Form 10 Q filed on November 8 2023
The following materials from Sphere Entertainment Co Annual Report on Form 10 K for the fiscal year ended June 30 2024 formatted in Inline Extensible Business Reporting Language iXBRL i consolidated balance sheets ii consolidated and combined statements of operations iii consolidated and combined statements of comprehensive income loss iv consolidated and combined statements of cash flows v consolidated and combined statements of equity and redeemable noncontrolling interests and vi notes to consolidated and combined financial statements
Certain confidential information identified by bracketed asterisks has been omitted from this exhibit pursuant to Item 601 b 10 of Regulation S K because it is both i not material and ii would be competitively harmful to the Registrant if publicly disclosed
Furnished herewith These exhibits shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section Such exhibits shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934
Pursuant to the requirements of the Section 13 or 15 d the Securities Exchange Act of 1934 as amended the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 14
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints David F Byrnes Greg Brunner and Mark C Cresitello and each of them as such person s true and lawful attorneys in fact and agents with full power of substitution and resubstitution for such person in such person s name place and stead in any and all capacities to sign this report and file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys in fact and agents or any of them may lawfully do or cause to be done by virtue hereof
We have audited the accompanying consolidated balance sheets of Sphere Entertainment Co and its subsidiaries the Company as of June 30 2024 and 2023 the related consolidated statements of operations comprehensive loss income cash flows and equity and redeemable noncontrolling interests for each of the three years in the period ended June 30 2024 and the related notes and the financial statement Schedule II listed in the Index at Item 15 collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of June 30 2024 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 14 2024 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matters below providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate
The Dolan family including trusts for the benefit of members of the Dolan family collectively the Dolan Family Group as of June 30 2024 is the majority beneficial owner of the Company Madison Square Garden Entertainment Corp MSG Entertainment Madison Square Garden Sports Corp MSG Sports AMC Networks Inc and other related entities In addition there are certain overlapping directors and executive officers between the companies Each of these entities has been identified as a related party at June 30 2024
Subsequent to the distribution on April 20 2023 of approximately 67 of the outstanding common stock of MSG Entertainment the MSG Entertainment Distribution the Company is party to a number of transactions with related parties including but not limited to agreements for media rights and business operations services with MSG Sports certain sponsorship rights with MSG Entertainment and MSG Sports sponsorship related account management services with MSG Entertainment and certain services agreements with MSG Entertainment which include certain shared executive support costs for the Company s Executive Chairman and Chief Executive Officer the Company s Executive Vice President and the Company s Vice Chairman
We identified the evaluation of the Company s identification of related parties and related party transactions as a critical audit matter This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management s procedures performed to identify related parties and related party transactions of the Company
We tested the effectiveness of internal controls over the Company s related party process including controls over the identification of the Company s related party relationships and transactions the authorization and approval of transactions with related parties the allocation of revenues and operating expenses among related parties and the accounting classification and disclosure of relationships and transactions with related parties in the financial statements
Inquired with executive officers including the Company s internal legal counsel key members of management including non finance and accounting personnel and the Audit Committee of the Board of Directors regarding related party transactions
Read agreements and contracts with and between related parties and in certain cases third parties and evaluated whether authorization and approvals were obtained and the terms and other information about transactions are consistent with explanations from inquiries and other audit evidence obtained about the business purpose of the transactions
For new and amended revenue arrangements among related parties evaluated the reasonableness of management s allocation of the transaction price to each performance obligation identified in the arrangement
As of June 30 2024 the legal entities that comprise the MSG Networks reportable segment MSG Networks have approximately 850 million of debt under the MSG Networks Credit Facilities as defined in Note 13 to the financial statements that is scheduled to mature in October 2024 and is classified as short term on the Company s consolidated balance sheet MSG Networks will be unable to generate sufficient operating cash flows prior to the maturity to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings
The MSG Networks Credit Facilities are guaranteed by the MSGN Guarantors and secured by the MSGN Collateral as defined in Note 13 to the financial statements In the event MSG Networks is unable to successfully refinance the MSG Networks Credit Facilities through a work out or otherwise the lenders could exercise their remedies under the MSG Networks Credit
Facilities which would include but not be limited to declaring an event of default and foreclosing on the MSGN Collateral MSG Networks and its subsidiaries could also seek bankruptcy protection prior to the lenders exercising their rights under the MSG Networks Credit Facilities However as of the date the financial statements were issued MSG Networks does not intend to seek such bankruptcy protection The Company has concluded that Sphere Entertainment Co Sphere Entertainment Group and the subsidiaries of Sphere Entertainment Group collectively the Non Credit Parties are not legally obligated to fund the outstanding borrowings under the MSG Networks Credit Facilities nor are the assets of the Non Credit Parties pledged as security under the MSG Networks Credit Facilities In the event of an exercise of post default rights and remedies the Company believes the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities
Auditing the Company s conclusion that substantial doubt about the Company s ability to continue as a going concern has been effectively alleviated including management s conclusion that the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities involved a high degree of auditor judgment and an increased extent of effort
We obtained the forecast used by the Company in its analysis of its ability to continue as a going concern and evaluated whether the significant assumptions used were reasonable considering the Company s recent performance and its forecasting process and evidence obtained in other areas of the audit
We evaluated the Company s conclusion regarding the rights and remedies of the lenders to the MSG Networks Credit Facilities including management s conclusion that the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities
We made inquiries of executive officers including the Company s internal legal counsel key members of management and the Audit Committee regarding their understanding of the rights and remedies of the lenders to the MSG Networks Credit Facilities and the related conclusion reached in the Company s analysis of its ability to continue as a going concern
We read the Company s minutes from meetings of the Board of Directors and related committees of the Board of Directors and assessed whether any contradictory evidence existed with respect to management s plans included in the Company s analysis of its ability to continue as a going concern
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements as of and for the year ended June 30 2024 of the Company and our report dated August 14 2024 expressed an unqualified opinion on those consolidated financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Sphere Entertainment Co together with its subsidiaries the Company or Sphere Entertainment is a premier live entertainment and media company comprised of two reportable segments Sphere and MSG Networks Sphere is a next generation entertainment medium and MSG Networks operates two regional sports and entertainment networks as well as a direct to consumer DTC and authenticated streaming product
a next generation entertainment medium powered by cutting edge technologies to create multi sensory experiences at an unparalleled scale The Company s first Sphere opened in Las Vegas on September 29 2023 The venue can accommodate up to 20 000 guests and can host a wide variety of events year round including The Sphere Experience
an immersive content studio dedicated to creating multi sensory live entertainment experiences exclusively for Sphere Sphere Studios is home to a team of creative production technology and software experts who provide full in house creative and production services The studio campus in Burbank includes a 68 000 square foot development facility as well as Big Dome a 28 000 square foot 100 foot high custom dome with a quarter sized version of the interior display plane at Sphere in Las Vegas that serves as a specialized screening production facility and lab for content at Sphere The entire exterior surface of Sphere referred to as the Exosphere
This segment is comprised of the Company s regional sports and entertainment networks MSG Network and MSG Sportsnet as well as its DTC and authenticated streaming product MSG MSG Networks serves the New York designated market area as well as other portions of New York New Jersey Connecticut and Pennsylvania and features a wide range of sports content including exclusive live local games and other programming of the New York Knicks the Knicks of the National Basketball Association the NBA and the New York Rangers the Rangers New York Islanders the Islanders New Jersey Devils the Devils and Buffalo Sabres the Sabres of the National Hockey League the NHL as well as significant coverage of the New York Giants the Giants and the Buffalo Bills the Bills of the National Football League the NFL
The Company formerly Madison Square Garden Entertainment Corp was incorporated on November 21 2019 as a direct wholly owned subsidiary of MSG Sports On April 17 2020 MSG Sports distributed all outstanding common stock of the Company to MSG Sports stockholders the 2020 Entertainment Distribution
On April 20 2023 the MSGE Distribution Date the Company distributed approximately 67 of the outstanding common stock of Madison Square Garden Entertainment Corp MSG Entertainment to its stockholders the MSGE Distribution with the Company retaining approximately 33 of the outstanding common stock of MSG Entertainment in the form of MSG Entertainment Class A common stock immediately following the MSGE Distribution the MSGE Retained Interest Following the MSGE Distribution Date the Company retained the Sphere and MSG Networks businesses and MSG Entertainment now owns the traditional live entertainment business previously owned and operated by the Company through its Entertainment business segment excluding the Sphere business In the MSGE Distribution stockholders of the Company received a one share of MSG Entertainment s Class A common stock par value 0 01 per share for every share of the Company s Class A common stock par value 0 01 per share Class A Common Stock held of record as of the close of business New York City time on April 14 2023 the Record Date and b one share of MSG Entertainment s Class B common stock par value 0 01 per share for every share of the Company s Class B common stock par value 0 01 per share Class B Common Stock held of record as of the close of business New York City time on the Record Date
As of June 30 2024 following the sales of portions of the MSGE Retained Interest and the repayment of the delayed draw term loan with MSG Entertainment using a portion of the MSGE Retained Interest the Company no longer holds any of the outstanding common stock of MSG Entertainment See Note 7 Investments and Note 13 Credit Facilities and Convertible Notes for more information about the MSGE Retained Interest
On May 3 2023 the Company completed the sale of its 66 9 majority interest in TAO Group Sub Holdings LLC Tao Group Hospitality to a subsidiary of Mohari Hospitality Limited a global investment company focused on the luxury lifestyle and hospitality sectors the Tao Group Hospitality Disposition
Since March 31 2023 the Tao Group Hospitality segment met the criteria for discontinued operations and was classified as a discontinued operation See Note 3 Discontinued Operations for more information about the Tao Group Hospitality Disposition
In these consolidated financial statements the fiscal years ended June 30 2024 2023 and 2022 are referred to as Fiscal Year 2024 Fiscal Year 2023 and Fiscal Year 2022 respectively On June 26 2024 the Board of Directors approved a change in the Company s fiscal year end from June 30 to December 31 effective December 31 2024 The Company plans to report its financial results for the six month transition period of July 1 2024 through December 31 2024 on an Annual Report on Form 10 K T and to thereafter file reports for the twelve month period ending December 31 of each year beginning with the twelve month period ending December 31 2025 Prior to filing the transition report the Company will file its Quarterly Report on Form 10 Q for the quarter ending September 30 2024
For purposes of comparability certain prior period amounts have been reclassified to conform to the current year presentation in accordance with accounting principles generally accepted in the United States of America GAAP
The consolidated financial statements of the Company include the accounts of Sphere Entertainment Co and its subsidiaries They also historically included accounts of Tao Group Hospitality MSG Entertainment and Boston Calling Events LLC BCE until their dispositions on May 3 2023 April 20 2023 and December 2 2022 respectively Both Tao Group Hospitality and MSG Entertainment met the criteria to be reported as discontinued operations during the quarters ended March 31 2023 and June 30 2023 respectively All significant intercompany transactions and balances have been eliminated in consolidation
Prior to their disposition Tao Group Hospitality and BCE were consolidated with the equity owned by other stockholders shown as redeemable or nonredeemable noncontrolling interests of discontinued operations in the accompanying consolidated balance sheets and the other stockholders portion of net earnings loss and other comprehensive income loss shown as net income loss or comprehensive income loss attributable to redeemable or nonredeemable noncontrolling interests from discontinued operations in the accompanying consolidated statements of operations and consolidated statements of comprehensive income loss respectively
The acquisition method of accounting for business combinations requires management to use significant estimates and assumptions including fair value estimates as of the business combination date and to refine those estimates as necessary during the measurement period defined as the period not to exceed one year in which the Company is allowed to adjust the provisional amounts recognized for a business combination
Under the acquisition method of accounting the Company recognizes separately from goodwill the identifiable assets acquired the liabilities assumed and any noncontrolling interests in an acquiree generally at the acquisition date fair value The Company measures goodwill as of the acquisition date as the excess of consideration transferred which is also measured at fair value over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed Costs that the Company incurs to complete a business combination such as investment banking legal and other professional fees are not considered part of consideration and the Company charges these costs to selling general and administrative expense as they are incurred In addition the Company recognizes measurement period adjustments in the period in which the amount is determined including the effect on
Interests held by third parties in consolidated majority owned subsidiaries are presented as noncontrolling interests which represent the noncontrolling stockholders interests in the underlying net assets of the Company s consolidated majority owned subsidiaries Noncontrolling interests that are not redeemable are reported in the equity section of the consolidated balance sheets Noncontrolling interests where the Company may be required to repurchase the noncontrolling interest under put options or other contractual redemption requirements that are not solely within the Company s control are reported in the consolidated balance sheets between liabilities and equity as redeemable noncontrolling interests
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events These estimates and the underlying assumptions affect the amounts of assets and liabilities reported disclosures about contingent assets and liabilities and reported amounts of revenues and expenses Such estimates include the provision for credit losses valuation of investments goodwill intangible assets deferred production content costs other long lived assets deferred tax assets pension and other postretirement benefit obligations and the related net periodic benefit cost ultimate revenue as described below and other liabilities In addition estimates are used in revenue recognition rights fees performance and share based compensation depreciation and amortization litigation matters and other matters Management believes its use of estimates in the financial statements to be reasonable
Management evaluates its estimates on an ongoing basis using historical experience and other factors including the general economic environment and actions it may take in the future The Company adjusts such estimates when facts and circumstances dictate However these estimates may involve significant uncertainties and judgments and cannot be determined with precision In addition these estimates are based on management s best judgment at a point in time and as such these estimates may ultimately differ from actual results Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company s control could be material and would be reflected in the Company s financial statements in future periods
The Company recognizes revenue when or as performance obligations under the terms of a contract are satisfied which generally occurs when or as control of promised goods or services are transferred to customers Revenue is measured as the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services transaction price To the extent the transaction price includes variable consideration the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which the Company expects to be entitled Variable consideration is included in the transaction price if in the Company s judgment it is probable that a significant future reversal of cumulative revenue under the contract will not occur Estimates of variable consideration and the determination of whether to include such estimated amounts in the transaction price are based largely on an assessment of the Company s anticipated performance and all information that is reasonably available The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes these amounts from revenues
In addition the Company defers certain costs to fulfill the Company s contracts with customers to the extent such costs relate directly to the contracts are expected to generate resources that will be used to satisfy the Company s performance obligations under the contracts and are expected to be recovered through revenue generated under the contracts Contract fulfillment costs are expensed as the Company satisfies the related performance obligations
The Company may enter into arrangements with multiple performance obligations such as multi year sponsorship agreements which may derive revenues for the Company as well as MSG Entertainment and MSG Sports within a single arrangement The Company may also derive revenue from similar types of arrangements which are entered into by MSG Entertainment or MSG Sports Payment terms for such arrangements can vary by contract but payments are generally due in installments throughout the contractual term The performance obligations included in each sponsorship agreement vary and may include advertising and other benefits such as but not limited to signage at Sphere advertising on the Exosphere digital advertising or event or property specific advertising as well as non advertising benefits such as suite licenses and event tickets To the extent the Company s multi year arrangements provide for performance obligations that are consistent over the multi year contractual term such performance obligations generally meet the definition of a series as provided for under the accounting guidance If performance obligations are concluded to meet the definition of
The timing of revenue recognition for each performance obligation is dependent upon the facts and circumstances surrounding the Company s satisfaction of its respective performance obligation The Company allocates the transaction price for such arrangements to each performance obligation within the arrangement based on the estimated relative standalone selling price of the performance obligation The Company s process for determining its estimated standalone selling prices involves management s judgment and considers multiple factors including company specific and market specific factors that may vary depending upon the unique facts and circumstances related to each performance obligation Key factors considered by the Company in developing an estimated standalone selling price for its performance obligations include but are not limited to prices charged for similar performance obligations the Company s ongoing pricing strategy and policies and consideration of pricing of similar performance obligations sold in other arrangements with multiple performance obligations
The Company may incur costs such as commissions to obtain its multi year sponsorship agreements The Company assesses such costs for capitalization on a contract by contract basis To the extent costs are capitalized the Company estimates the useful life of the related contract asset which may be the underlying contract term or the estimated customer life depending on the facts and circumstances surrounding the contract The contract asset is amortized over the estimated useful life
The Company reports revenue on a gross or net basis based on management s assessment of whether the Company acts as a principal or agent in the transaction The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service before transfer to the customer When the Company concludes that it controls the good or service before transfer to the customer the Company is considered a principal in the transaction and records revenue on a gross basis When the Company concludes that it does not control the good or service before transfer to the customer but arranges for another entity to provide the good or service the Company acts as an agent and records revenue on a net basis in the amount it earns for its agency service
Amounts collected in advance of the Company s satisfaction of its contractual performance obligations are recorded as a contract liability within Deferred revenue and are recognized as the Company satisfies the related performance obligations Amounts collected in advance of events for which the Company is not the promoter or co promoter do not represent contract liabilities and are recorded as collections due to promoters within Accounts payable accrued and other current liabilities on the accompanying consolidated balance sheets Amounts recognized as revenue for which the Company has a right to consideration for goods or services transferred to customers and for which the Company does not have an unconditional right to bill as of the reporting date are recorded as contract assets Contract assets are transferred to accounts receivable once the Company s right to consideration becomes unconditional
Direct operating expenses for the Sphere segment may include but are not limited to event costs related to the presentation and production of the Company s live entertainment sporting events and immersive productions maintenance and other operating expenses
Direct operating expenses for the MSG Networks segment primarily represent media rights fees and other direct programming and production costs such as the salaries of on air personalities producers directors technicians writers and other creative staff as well as expenses associated with location costs remote facilities and maintaining studios origination and transmission services and facilities The professional team media rights acquired under media rights agreements to telecast various sporting events and other programming for exhibition on the segment s networks are typically expensed on a straight line basis over the applicable annual contract or license period
The Company defers certain costs during the production phase of its original immersive productions for Sphere that are directly related to production activities Such costs include but are not limited to fees paid to writers directors and producers as well as video and music production costs and production specific overhead For purposes of evaluating the recognition of amortization and any potential impairment deferred immersive production costs are classified based on their predominant monetization strategy The determination of the predominant monetization strategy is made at the commencement of production and is based on the means by which the Company expects to derive third party revenues from use of the content
The Company s primary monetization strategy and classification for its current content is on an individual production basis which the Company defines as content where the lifetime value is predominantly derived from third party revenues that are directly attributable to the specific production The classification of content only changes if there is a significant change to the production s monetization strategy relative to management s initial assessment
Deferred immersive production costs are amortized beginning in the month the production debuts in the same ratio that current period actual revenue bears to estimated remaining unrecognized ultimate revenue as of the beginning of the current fiscal year Estimates of ultimate revenues are prepared on an individual production basis and are reviewed regularly by management and revised where necessary to reflect the most current information Ultimate revenues reflect management s estimates of future revenue over a period not to exceed ten years following the premiere of the production Deferred immersive production costs are subject to recoverability assessments whenever there is an indication of potential impairment
The MSG Networks segment enters into nonmonetary transactions primarily with its Distributors as defined below that involve the exchange of products or services such as advertising and promotional benefits for the segment s services For arrangements that are subject to sales based and usage based royalty guidance MSG Networks measures noncash consideration that it receives at fair value as the sale or usage occurs For other arrangements the MSG Networks segment measures the estimated fair value of the noncash consideration that it receives at contract inception If the MSG Networks segment cannot reasonably estimate the fair value of the noncash consideration the segment measures the fair value of the consideration indirectly by reference to the standalone selling price of the services promised to the customer in exchange for the consideration as revenues Nonmonetary transactions for the MSG Networks segment are included in advertising costs which are classified in selling general and administrative expenses on the accompanying consolidated statements of operations as noted above
The Company s provision for income taxes is based on current period income changes in deferred tax assets and liabilities and changes in estimates with regard to uncertain tax positions Deferred tax assets are subject to an ongoing assessment of realizability In assessing the realizability of deferred tax assets management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized The Company s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow for the realization of its deductible temporary differences If such estimates and related assumptions change in the future the Company may be required to record valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company s consolidated statements of operations
The Company measures the cost of employee services received in exchange for an award of equity based instruments based on the grant date fair value of the award Share based compensation cost is recognized in earnings over the period during which an employee is required to provide service in exchange for the award except for restricted stock units granted to non employee directors which unless otherwise provided under the applicable award agreement are fully vested and are expensed at the grant date
Basic earnings per share EPS attributable to the Company s common stockholders is based upon net income loss attributable to the Company s common stockholders divided by the weighted average number of common shares outstanding during the period Diluted EPS reflects the effect of the assumed vesting of restricted stock units and exercise of stock options only in the periods in which such effect would have been dilutive through the application of the treasury stock method For the periods when a net loss is reported the computation of diluted EPS equals the basic EPS calculation since common stock equivalents would be antidilutive due
to losses from continuing operations Holders of Class A common stock and Class B common stock are entitled to receive dividends equally on a per share basis if and when such dividends are declared As the holders of Class A and Class B common stock are entitled to identical dividend and liquidation rights the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net earnings loss per share attributable to common stockholders are therefore the same for both Class A and Class B common stock on both an individual and combined basis
The Company considers the balance of its investment in funds that substantially hold highly liquid securities that mature within three months or less from the date the fund purchases these securities to be cash equivalents The carrying amount of cash and cash equivalents either approximates fair value due to the short term maturity of these instruments or is at fair value Checks outstanding in excess of related book balances are included in accounts payable accrued and other current liabilities in the accompanying consolidated balance sheets The Company presents the change in these book cash overdrafts as cash flows from operating activities
The Company s restricted cash includes cash deposited in escrow accounts The Company has deposited cash in interest bearing escrow accounts related to credit support debt facilities and collateral to its operating leases workers compensation and general liability insurance obligations
Accounts receivable is recorded at net realizable value The Company maintains an allowance for credit losses to reserve for potentially uncollectible receivables The allowance for credit losses is estimated based on the Company s consideration of credit risk and analysis of receivables aging specific identification of certain receivables that are at risk of not being paid past collection experience and other factors The Company recognized an allowance of 10 and 171 as of June 30 2024 and 2023 respectively
The Company s investments are primarily accounted for using the equity method of accounting and are carried at cost plus or minus the Company s share of net earnings or losses of the investment subject to certain other adjustments The cost of equity method investments includes transaction costs of the acquisition As required by GAAP to the extent that there is a basis difference between the cost and the underlying equity in the net assets of an equity investment the Company allocates such differences between tangible and intangible assets The Company s share of net earnings or losses of the investment inclusive of amortization expense for intangible assets associated with the investment is reflected in Other income expense net
within the Company s consolidated statements of operations Dividends received from the investee reduce the carrying amount of the investment Due to the timing of receiving financial information from certain of its nonconsolidated affiliates the Company records its share of net earnings or losses of such affiliates on a three month lag basis with the exception of the amortization expense of intangible assets which are recorded currently
The Company elected the fair value option in accounting for the MSGE Retained Interest and as such did not report the impact to the consolidated statements of operations on a lag for this investment Initial recognition of this asset required measurement of an unrealized gain or loss when comparing the book value of the investment to fair value As a result the Company initially and subsequently measured and recorded changes in the fair value of the MSGE Retained Interest based upon the quoted market price of the MSGE stock on the New York Stock Exchange on a periodic basis within Other income expense net in the accompanying consolidated statements of operations The Company sold the entirety of the MSGE Retained Interest as of September 30 2023 and as a result no longer holds any of the outstanding common stock of MSG Entertainment
In addition to equity method investments the Company also has other equity investments without readily determinable fair values The Company measures equity investments without readily determinable fair values at cost less any impairment adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer Changes in observable price are reflected within Other income expense net in the accompanying consolidated statements of operations
The Company reviews its investments periodically to determine whether a decline in fair value below the cost basis is other than temporary The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company s carrying value future prospects of the investee and the Company s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value In addition the Company considers other factors such as general market conditions industry conditions and analysts ratings If the decline in fair value is deemed to be other than temporary the cost basis of the investment is written down to fair value and the loss is realized as a component of net income
ditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and recorded at cost The useful lives of the Company s long lived assets are based on estimates of the period over which the Company expects the assets to be of economic benefit to the Company In estimating the useful lives the Company considers factors such as but not limited to risk of obsolescence anticipated use plans of the Company and applicable laws and permit requirements Depreciation starts on the date when the asset is available for its intended use Construction in progress assets are not depreciated until available for their intended use Costs of maintenance and repairs are expensed as incurred
In assessing the recoverability of the Company s long lived assets the Company must make estimates and assumptions regarding future cash flows and other factors to determine the fair value of the respective assets These estimates and assumptions could have a significant impact on whether an impairment charge is recognized and the magnitude of any such charge Fair value estimates are made based on relevant information at a specific point in time and are subjective in nature and involve significant uncertainties and judgments If these estimates or assumptions change materially the Company may be re
and at any time upon the occurrence of certain events or changes in circumstances 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 Company would identify potential impairment by comparing the fair value of a reporting unit with its carrying amount including goodwill The Company generally determines the fair value of a reporting unit using an income approach such as the discounted cash flow method or other acceptable valuation techniques including the cost approach in instances when it does not perform the qualitative assessment of goodwill The amount of an impairment loss is measured as the amount by which a reporting unit s carrying value exceeds its fair value not to exceed the carrying amount of goodwill
For other long lived assets including property and equipment right of use lease assets and intangible assets that are amortized the Company evaluates assets for recoverability when there is an indication of potential impairment If the undiscounted cash flows from a group of assets being evaluated are less than the carrying value of that group of assets the fair value of the asset group is determined and the carrying value of the asset group is written down to fair value The Company generally determines the fair value of a finite lived intangible asset using an income approach such as the discounted cash flow method
The Company s leases primarily consist of a ground lease for the land on which the Sphere in Las Vegas has been constructed corporate office space storage and office and other equipment The Company determines whether an arrangement contains a lease at the inception of the arrangement If a lease is determined to exist the lease term is assessed based on the date when the underlying asset is made available by the lessor for the Company s use The Company s assessment of the lease term reflects the non cancellable term of the lease inclusive of any rent free periods and or periods covered by early termination options which the Company is reasonably certain not to exercise as well as periods covered by renewal options which the Company is reasonably certain to exercise The Company s lease agreements do not contain material residual value guarantees or material restrictive covenants
The Company determines lease classification as either operating or finance at lease commencement which governs the pattern of expense recognition and the presentation reflected in the consolidated statements of operations and statements of cash flows over the lease term
For leases with a term exceeding 12 months a lease liability is recorded on the Company s consolidated balance sheets at lease commencement reflecting the present value of the fixed minimum payment obligations over the lease term A corresponding right of use ROU asset equal to the initial lease liability is also recorded adjusted for any prepaid rent and or initial direct costs incurred in connection with execution of the lease and reduced by any lease incentives received In addition the ROU asset is adjusted to reflect any above or below market lease terms under acquired lease contracts
The Company includes fixed payment obligations related to non lease components in the measurement of ROU assets and lease liabilities as the Company has elected to account for lease and non lease components together as a single lease component ROU assets associated with finance leases are presented separate from ROU assets associated with operating leases and are included within Property and equipment net on the Company s consolidated balance sheets For purposes of measuring the present value of the Company s fixed payment obligations for a given lease the Company uses its incremental borrowing rate determined based on information available at lease commencement as rates implicit in the underlying leasing arrangements are typically not readily determinable The Company s incremental borrowing rate reflects the rate it would pay to borrow on a secured basis and incorporates the term and economic environment surrounding the associated lease
For operating leases fixed lease payments are recognized as lease expense on a straight line basis over the lease term For finance leases the initial ROU asset is depreciated on a straight line basis over the lease term along with recognition of interest expense associated with accretion of the lease liability which is ultimately reduced by the related fixed payments For leases with a term of 12 months or less short term leases any fixed lease payments are recognized on a straight line basis over the lease term and are not recognized on the consolidated balance sheets Variable lease costs for both operating and finance leases if any are recognized as incurred and such costs are excluded from lease balances recorded on the consolidated balance sheets
For significant long term construction projects and immersive content productions the Company begins to capitalize qualified interest cost once activities necessary to get the asset ready for its intended use have commenced The Company calculates qualified interest capitalization using the average amount of accumulated expenditures during the period the asset is being prepared for its intended use and a capitalization rate which is derived from the Company s weighted average borrowing rate during such time in the absence of specific borrowings related to the significant long term construction projects The Company ceases capitalization on any portions substantially completed and ready for their intended use
Liabilities for loss contingencies arising from claims assessments litigation fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated
The fair values of these earn out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates For each transaction the Company estimates the fair value of contingent earn out payments as part of the initial purchase price and records the estimated fair value of contingent consideration that the Company expects to pay to the former owners as a liability in Accrued and other current liabilities and Other liabilities on the consolidated balance sheets
The Company measures its contingent earn out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level III of the fair value hierarchy which can result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn out obligation Ultimately the liability will be equivalent to the amount paid and the difference between the fair value estimate and amount paid will be recorded in earnings as operating expense
Prior to the MSGE Distribution the Company sponsored certain employee benefit pension plans and postretirement plans On the MSGE Distribution Date the sponsorship of certain of these plans were transferred to MSG Entertainment The Company accounts for the transferred defined benefit pension plans under the guidance of ASC Topic 715
Accordingly for the defined benefit pension plan liabilities prior to the MSGE Distribution Date the consolidated financial statements reflected the full impact of such transferred plans on both the consolidated statements of operations and consolidated balance sheets presented within discontinued operations and the Company recorded an asset or liability of discontinued operations to recognize the funded status of the defined benefit pension plans other than multiemployer plans as well as a liability of discontinued operations only for any required contributions to the defined benefit pension plans that were accrued and unpaid at the balance sheet date The related pension expenses attributed to the Company were based primarily on pension eligible compensation of active participants
After the MSGE Distribution Date the Company has both remaining funded and unfunded defined benefit plans The expense recognized by the Company is determined using certain assumptions including the expected long term rate of return and discount rates among others The Company recognizes the funded status of its defined benefit pension plans other than multiemployer plans and the other postretirement benefit plan as an asset or liability in the consolidated balance sheets and recognizes changes in the funded status in the year in which the changes occur through other comprehensive income loss
Actuarial gains and losses that have not yet been recognized through the consolidated statements of operations are recorded in accumulated other comprehensive income loss until they are amortized as a component of net periodic benefit cost through other comprehensive income loss
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity s pricing based upon their own market assumptions The fair value hierarchy consists of the following three levels
Level II Quoted prices for similar instruments in active markets quoted prices for identical or similar instruments in markets that are not active and model derived valuations whose inputs are observable or whose significant value drivers are observable
The consolidated financial statements are presented in U S Dollars Assets and liabilities of non U S subsidiaries and the Company s foreign based equity method investments that operate in a local currency environment where that local currency is the functional currency are translated to U S Dollars at exchange rates in effect at the balance sheet date Operating results of non U S subsidiaries are translated at weighted average exchange rates during the year which approximate the rates in effect at the transaction dates For the Company s foreign based equity method investments the proportionate share of the investee s income is translated into U S dollars at the average exchange rate for the period and the investment is translated using the exchange rate as of the end of the reporting period
Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income loss as changes in cumulative translation adjustments in the accompanying consolidated balance sheets
Financial instruments that may potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable Cash and cash equivalents are invested in U S treasury bills money market accounts and time deposits The Company monitors the financial institutions and money market funds where it invests its cash and cash equivalents with diversification among counterparties to mitigate exposure to any single financial institution The Company s emphasis is primarily on safety of principal and liquidity and secondarily on maximizing the yield on its investments
As of the date the accompanying consolidated financial statements were issued the issuance date management evaluated the presence of the following conditions and events at the Company in accordance with Accounting Standards Update ASU No 2014 15 Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern Subtopic 205 40
As of June 30 2024 the Company s unrestricted cash and cash equivalents balance was 559 757 as compared to 680 575 as of March 31 2024 Included in unrestricted cash and cash equivalents as of June 30 2024 was 1 72 619 in advance cash proceeds primarily from ticket sales a majority of which the Company expects to pay to artists and promoters and 2 117 807 of cash and cash equivalents at MSG Networks which is not available for distribution to the Company in order to maintain compliance with the covenants under the MSG Networks Credit Facilities as defined below which for the avoidance of doubt remain available to be used in connection with the work out of such facilities as discussed below In addition as of June 30 2024 the Company had 417 087 of accounts payable accrued and other current liabilities including 156 234 of capital expenditure accruals primarily related to Sphere construction a significant portion of which is in dispute and which the Company does not expect to pay
Our primary sources of liquidity are cash and cash equivalents and cash flows from the operations of our businesses The Company s uses of cash over the next 12 months beyond the issuance date and thereafter are expected to be substantial and include working capital related items including funding our operations capital spending including the creation of additional original content for Sphere required debt service payments payments we expect MSG Networks to make in connection with the work out of its indebtedness and investments and related loans and advances that we may fund from time to time We may also use cash to repurchase our common stock Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of our businesses the optimal allocation of cash resources and the timing of cash flow generation To the extent that we desire to access alternative sources of funding through the capital and credit markets market conditions could adversely impact our ability to do so at that time
Our ability to have sufficient liquidity to fund our operations and refinance our indebtedness is dependent on the ability of Sphere to generate significant positive cash flow Although Sphere has been embraced by guests artists promoters advertisers and marketing partners and we anticipate that Sphere will generate substantial revenue and adjusted operating income on an annual basis over time there can be no assurance that guests artists promoters advertisers and marketing partners will continue to embrace this new platform Original immersive productions such as
have not been previously pursued on the scale of Sphere which increases the uncertainty of our operating expectations To the extent that our efforts do not result in viable shows or to the extent that any such productions do not achieve expected levels of popularity among audiences we may not generate the cash flows from operations necessary to fund our operations To the extent we do not realize expected cash flows from operations from Sphere we would have to take several actions to improve our financial flexibility and preserve liquidity including significant reductions in both labor and non labor expenses as well as reductions and or deferrals in capital spending Therefore while we currently believe
we will have sufficient liquidity from cash and cash equivalents and cash flows from operations including expected cash flows from operations from Sphere to fund our operations and at a minimum make a required quarterly amortization payment of 20 625 on the MSG Networks Credit Facilities as described below no assurance can be provided that our liquidity will be sufficient in the event any of the preceding uncertainties facing Sphere are realized over the next 12 months beyond the issuance date
The principal balance of the Company s total debt outstanding as of June 30 2024 was 1 383 500 including 849 750 of debt under the MSG Networks Credit Facilities which is classified as short term on the consolidated balance sheets Prior to maturity of the MSG Networks Credit Facilities in October 2024 MSG Networks expects to make a 20 625 required quarterly amortization payment on the MSG Networks Credit Facilities The remaining outstanding borrowings under the MSG Networks Credit Facilities of 829 125 are scheduled to mature in October 2024 which is within one year of the issuance date However MSG Networks will be unable to generate sufficient operating cash flows prior to the maturity to settle the remaining outstanding borrowings under the MSG Networks Credit Facilities when they become due absent action taken by management to refinance the outstanding borrowings
As of the issuance date MSG Networks has not been able to finalize refinancing the MSG Networks Credit Facilities with its existing syndicate of lenders Consequently MSG Networks has decided to pursue a work out of the MSG Networks Credit Facilities with its existing syndicate of lenders The Company has been advised that a cash equity contribution from Sphere Entertainment Group LLC Sphere Entertainment Group to MSG Networks will be required in connection with a work out If a contribution is made it is not expected to adversely impact Sphere Entertainment Co s ability to fund its operations
In the event MSG Networks is unable to successfully refinance the MSG Networks Credit Facilities through a work out or otherwise the lenders could exercise their remedies under the MSG Networks Credit Facilities which would include but not be limited to declaring an event of default and foreclosing on the MSGN Collateral MSG Networks and its subsidiaries could also seek bankruptcy protection prior to the lenders exercising their rights under the MSG Networks Credit Facilities However as of the issuance date MSG Networks and its subsidiaries do not intend to seek such bankruptcy protection Sphere Entertainment Co Sphere Entertainment Group and the subsidiaries of Sphere Entertainment Group collectively the Non Credit Parties are not legally obligated to fund the outstanding borrowings under the MSG Networks Credit Facilities nor are the assets of the Non Credit Parties pledged as security under the MSG Networks Credit Facilities In the event of an exercise of post default rights and remedies the Company believes the lenders would have no remedies or recourse against the Non Credit Parties pursuant to the terms of the MSG Networks Credit Facilities While this condition raises
This ASU aims to improve segment disclosures through enhanced disclosures about significant segment expenses The standard requires disclosure of significant expense categories and amounts for such expenses including those segment expenses that are regularly provided to the chief operating decision maker easily computable from information that is regularly provided or significant expenses that are expressed in a form other than actual amounts With the upcoming change in the Company s fiscal year end this standard will be effective for the six month period ending December 31 2024 and is required to be applied retrospectively to all prior periods presented in the financial statements The Company is currently evaluating the impact of the additional disclosure requirements on the Company s consolidated financial statements
a final standard on improvements to income tax disclosures which applies to all entities subject to income taxes The standard requires disaggregated information about a reporting entity s effective tax rate reconciliation as well as information on income taxes paid The standard is intended to benefit investors by providing more detailed income tax disclosures that would be helpful to understand an entity s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities assess income tax information that affects cash flow forecasts and capital allocation decisions and identify potential opportunities to increase future cash flows With the upcoming change in the Company s fiscal year end this standard will be effective for the Company for the annual period beginning January 1 2025 and should be applied prospectively The Company is currently evaluating the impact of the additional disclosure requirements on the Company s consolidated financial statements
he Company analyzed the quantitative and qualitative factors relevant to the MSGE Distribution and determined that the conditions for discontinued operations presentation were met during the fourth quarter of Fiscal Year 2023
As such the results of the MSG Entertainment business previously owned and operated by the Company through its MSG Entertainment business segment as well as transaction costs related to the MSGE Distribution have been classified in the accompanying consolidated financial statements as discontinued operations for all periods presented No impairment loss was recognized in connection with the reclassification to discontinued operations and no gain or loss was recognized in connection with the MSGE Distribution
Indirect corporate and administrative costs do not qualify for discontinued operations presentation and these costs are included in continuing operations for all periods presented through April 20 2023 After the MSGE Distribution Date these corporate and administrative services are provided to the Company by MSG Entertainment under a Transition Services Agreement MSGE TSA with the related costs included in continuing operations from April 21 2023 through June 30 2023 As noted above results from continuing operations prior to the MSGE Distribution Date include certain corporate overhead expenses that the Company did not incur in the period after the completion of the MSGE Distribution and the Company does not expect to incur such expenses in future periods
On May 3 2023 the Company completed the Tao Group Hospitality Disposition The Company analyzed the quantitative and qualitative factors relevant to the Tao Group Hospitality Disposition and determined that the criteria to classify the assets and liabilities of Tao Group Hospitality as held for sale along with the related operations as a discontinued operation had been satisfied as of the third quarter of Fiscal Year 2023 As such the historical financial results of the Tao Group Hospitality segment have been reflected in the accompanying consolidated financial statements as discontinued operations for all periods presented In connection with the Tao Group Hospitality Disposition the Company recognized a loss net of taxes of 23 984 as a result of a change in estimate and a gain of 212 857 net of taxes of 1 020 for Fiscal Years 2024 and 2023 respectively which are presented as income from discontinued operations
The tables below sets forth for the periods presented the operating results of the disposal groups Amounts presented below differ from historically reported results for the MSG Entertainment and Tao Group Hospitality business segments in order to reflect discontinued operations presentation
a Prior to the MSGE Distribution and Tao Group Hospitality Disposition the Company s consolidated results of operations included a number of intercompany transactions between MSG Entertainment and Tao Group Hospitality which were presented in the Company s segment reporting disclosures As such these transactions are eliminated for purposes of this disclosure as they will not continue in periods subsequent to the MSGE Distribution and Tao Group Hospitality Disposition respectively
As permitted under ASC Subtopic 205 20 50 5b 2 the Company has elected not to adjust the consolidated statements of cash flows for the years ended June 30 2024 2023 and 2022 to exclude cash flows attributable to discontinued operations The table below sets forth for the periods presented significant selected financial information related to discontinued activities included in the accompanying consolidated financial statements
except for revenues from sublease arrangements as disclosed below In Fiscal Years 2024 2023 2022 the Company did not have any material provisions for credit losses on receivables or contract assets arising from contracts with customers
The Sphere segment earns revenue primarily from ticket sales to our audiences for The Sphere Experience license fees for our venue paid by third party promoters or licensees in connection with events that we do not produce or promote co promote sponsorships and signage advertising on the Exosphere suite license fees at Sphere facility and ticketing fees concessions and the sale of merchandise
DTC and authenticated streaming product Advertising revenue is largely derived from the sale of inventory in MSG Networks live professional sports programming and as such a significant share of this revenue has historically been earned in the second and third fiscal quarters The performance obligation under affiliation agreements with Distributors is satisfied as MSG Networks provides its programming over the term of the agreement
Media related revenue as presented below includes both distribution revenue earned from Distributors for the right to carry the Company s networks as well as revenue earned from subscriptions and single game purchases on MSG
Substantially all of MSG Networks affiliation agreements are sales based and usage based royalty arrangements revenue is recognized as the sale or usage occurs The transaction price is represented by affiliation fees that are generally based upon contractual rates applied to the number of the Distributor s subscribers who receive or can receive MSG Networks programming Such subscriber information is generally not received until after the close of the reporting period and in these cases the Company estimates the number of subscribers Historical adjustments to recorded estimates have not been material
The MSG Networks segment also generates advertising revenue primarily through the sale of commercial time and other advertising inventory during its live professional sports programming In general these advertising arrangements either do not exceed one year or are primarily multi year media banks the elements of which are agreed upon each year Advertising revenue is recognized as advertising is aired In certain advertising arrangements the Company guarantees specified viewer ratings for its programming In such cases the promise to deliver the guaranteed viewer ratings by airing the advertising represents MSG Networks performance obligation A contract liability is recognized as deferred revenue to the extent any guaranteed viewer ratings are not met This permits the customer to exercise a contractual right for additional advertising time The related deferred revenue is subsequently recognized as revenue either when MSG Networks provides the required additional advertising time or additional performance requirements become remote which may be at the time the guarantee obligation contractually expires
The following tables disaggregate the Company s revenue by major source and reportable segment based upon the timing of transfer of goods or services to the customer for Fiscal Years 2024 2023 and 2022
a Event related revenues consists of i ticket sales and other revenue directly related to the exhibition of the Sphere Experience ii ticket sales and other ticket related revenues to other events at our venue iii venue license fees from third party promoters and iv food beverage and merchandise sales Event related revenues are recognized at a point in time As such these revenues have been included in the same category in the table above
In addition to the disaggregation of the Company s revenue by major source based upon the timing of transfer of goods or services to the customer disclosed above the following tables disaggregate the Company s consolidated revenues by type of goods or services in accordance with the required entity wide disclosure requirements of ASC Subtopic 280 10 50 38 to 40 and the disaggregation of revenue required disclosures in accordance with ASC Subtopic 606 10 50 5 for Fiscal Years 2024 2023 and 2022
a Amounts include ticket sales other ticket related revenue and venue license fees from the Company s events such as i concerts ii The Sphere Experience and iii other live entertainment and sporting events
b Primarily consists of affiliation fees from Distributors as defined above and to a lesser extent advertising revenues through the sale of commercial time and other advertising inventory during MSG Networks programming
a As of June 30 2024 2023 and 2022 the Company s receivables from contracts with customers above included 0 2 730 and 992 respectively related to various related parties See Note 18 Related Party Transactions for further details on these related party arrangements
b Contract assets current which are reported as Prepaid expenses and other current assets in the Company s consolidated balance sheets primarily relate to the Company s rights to consideration for goods or services transferred to customers for which the Company does not have an unconditional right to bill as of the reporting date Contract assets are transferred to accounts receivable once the Company s right to consideration becomes unconditional
The following table depicts the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30 2024 This primarily relates to performance obligations under sponsorship agreements that have original expected durations longer than one year and for which the respective consideration is not variable In developing the estimated revenue the Company applies the allowable practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less
During Fiscal Year 2024 the Company incurred costs for termination benefits for certain executives and employees in the Sphere segment As a result the Company recognized restructuring charges of 9 486 inclusive of 1 166 of share based compensation expenses which were recorded in Accounts payable accrued and other current liabilities and Additional paid in capital on the consolidated balance sheets
During Fiscal Years 2023 and 2022 the Company incurred costs of 27 924 inclusive of 8 118 of share based compensation expenses and 13 404 inclusive of 4 254 of share base compensation expenses respectively as a result of the Company s cost reduction program implemented which were recorded in Accounts payable accrued and other current liabilities and Additional paid in capital on the consolidated balance sheets
The following table presents a reconciliation of weighted average shares used in the calculations of basic and diluted loss earnings per common share attributable to Sphere Entertainment Co s stockholders
a For Fiscal Years 2024 and 2022 all restricted stock units and stock options were excluded from the above table because the Company reported a net loss for the period presented and therefore their impact on reported loss per share would have been antidilutive
a In January 2023 the Company extended financing to Holoplot GmbH Holoplot in the form of a three year convertible loan the Holoplot Loan of 18 804 equivalent to 20 484 using the applicable exchange rate at the time of the transaction Following the acquisition of Holoplot during the fourth quarter of Fiscal Year 2024 further discussed below the Holoplot Loan is eliminated in consolidation
b As of June 30 2024 following the sale of portions of the MSGE Retained Interest and the repayment of the DDTL Facility as defined below with MSG Entertainment using a portion of the MSGE Retained Interest the Company no longer holds any of the outstanding common stock of MSG Entertainment The Company elected the fair value option for its investment in MSG Entertainment as of June 30 2023 when it held approximately 20 of the outstanding shares of common stock of MSG Entertainment in the form of Class A common stock The fair value of the investment was determined based on quoted market prices on the New York Stock Exchange NYSE which were classified within Level I of the fair value hierarchy
In Fiscal Year 2019 the Company acquired a 30 interest in SACO a global provider of high performance LED video lighting and media solutions for a total consideration of 47 244 The Company is utilizing SACO as a preferred display technology provider for Sphere in Las Vegas based upon commercial terms The total consideration consisted of a 42 444 payment at closing and a 4 800 deferred payment which was made in October 2018 As of the acquisition date the carrying amount of the investment was greater than the Company s equity interest in the underlying net assets of SACO As such the Company allocated the difference to amortizable intangible assets of 25 350 and is amortizing these intangible assets on a straight line basis over the expected useful lives ranging from 6 years to 12 years as a basis adjustment to the carrying amount of the investment
In March 2024 the Company paid 51 for an 8 3 investment in CPC CPC represents sports and entertainment brands and venues including those of the Company MSG Entertainment and MSG Sports in connection with the sale of their respective sponsorship advertising and marketing partnerships assets The Company s share of CPC s results is picked up on a three month lag
In January 2024 MSG Networks and The YES Network YES announced they formed GAME a 50 50 joint venture aimed at capitalizing on technical and operational synergies associated with YES and MSG Network s streaming services
In Fiscal Year 2018 the Company acquired a 25 interest in Holoplot a global leader in 3D audio technology based in Berlin Germany In Fiscal Year 2023 the Company extended financing to Holoplot in the form of the Holoplot Loan of 18 804 equivalent to 20 484 using the applicable exchange rate at the time of the transaction The Holoplot Loan was comprised of 7 625 cash and 12 859 of outstanding deposits paid by the Company to Holoplot in prior periods plus accrued interest
On April 25 2024 in connection with the Company s strategy to expand our capabilities and enable further innovation across immersive experiences and 3D audio technology the Company entered into a share purchase and transfer agreement to acquire the remaining equity interest in Holoplot not previously owned by the Company The initial purchase price of 11 181 is net of cash acquired of 2 554 The acquisition date fair value of the Company s previous equity interest and the fair value of the Holoplot Loan were included in the measurement of the total consideration transferred The Company recognized the remeasurement fair value of the previous equity interest as a gain of 5 689 and also recognized a loss of 10 262 related to the fair value over the carrying of the previously held Holoplot Loan which are both included in Impairment and other losses gains net within the consolidated statements of operations for Fiscal Year 2024 The Company preliminarily recognized 17 818 of intangible assets and 13 345 of goodwill on the consolidated balance sheets as of June 30 2024 as a result of the business combination and is in the process of finalizing its purchase price allocation related to certain of its contractual agreements Following the acquisition on April 25 2024 Holoplot is now a consolidated subsidiary of the Company and the Holoplot Loan is eliminated in consolidation
The Company held an investment in MSG Entertainment s Class A common stock the MSGE Retained Interest MSG Entertainment is a related party that is listed on the NYSE under the symbol MSGE See Note 1 Description of Business and Basis of Presentation for details regarding the MSGE Retained Interest
The following table summarizes the unrealized and realized gains losses on the MSGE Retained Interest which are reported in Other income expenses net in the accompanying consolidated statements of operations
The Company holds other equity investments with readily determinable fair values in trust under the Company s Executive Deferred Compensation Plan The Company recorded unrealized gains of 307 218 and 0 for the years ended June 30 2024 2023 and 2022 respectively within Other income expense net to reflect the remeasurement of the fair value of assets under the Executive Deferred Compensation Plan
The property and equipment balances above include 156 234 and 236 593 of capital expenditure accruals primarily related to Sphere construction as of June 30 2024 and 2023 respectively which are reflected in Accounts payable accrued and other current liabilities in the accompanying consolidated balance sheets During the first quarter of Fiscal Year 2024 the Company placed 3 130 028 of construction in progress assets into service with the opening of Sphere in Las Vegas and began depreciating them over their corresponding estimated useful lives
On November 21 2023 the Company announced that it was formally notified by the Mayor of London that its planning application for a Sphere venue in Stratford London was not approved In light of this decision the Company no longer plans to allocate resources towards the development of a Sphere in the United Kingdom In connection with this decision the Company recorded an impairment charge of 116 541 on construction in progress and land assets reported within the Sphere segment during the second quarter of Fiscal Year 2024 This charge is recognized in Impairment and other losses gains net within the consolidated statements of operations for Fiscal Year 2024 The fair value of the land was determined using an estimate of the assumed exit value from a market participant perspective
The following table summarizes the Company s amortization of production content costs which is reported in Direct operating expenses in the accompanying consolidated statements of operations for the years ended June 30 2024 2023 and 2022 as follows
The Company excluded its ground lease with a subsidiary of Venetian Venue Propco LLC The Venetian associated with Sphere in Las Vegas from its ROU assets and lease liabilities balances as the ground lease will not have any fixed rent If certain return objectives are achieved The Venetian will receive 25 of the after tax cash flow in excess of such objectives in the form of variable rent The Venetian paid the Company 75 000 to help fund the construction costs including the cost of a pedestrian bridge that links Sphere to The Venetian Expo The 50 year fixed term commenced on July 14 2023
For Fiscal Years 2024 and 2022 the Company received 5 833 and 17 697 respectively of tenant incentives from a landlord for capital expenditures on behalf of the Company There were no tenant incentives received in Fiscal Year 2023
The Company has sublease arrangements for office and storage spaces where the operating lease revenue is recognized on a straight line basis over the lease term The following table summarizes the Company s sublease revenues for Fiscal Years 2024 2023 and 2022
and 2023 the Company performed its annual impairment tests of goodwill and determined that there were no impairments identified as of the impairment test date The Sphere segment s goodwill carrying amount increased by
For periods prior to the MSGE Distribution Sphere was included with the MSGE Entertainment business in a combined segment and reporting unit In connection with the MSGE Distribution the goodwill balance associated with this reporting unit was allocated between Sphere and MSG Entertainment discontinued operations based upon a relative fair value approach resulting in 32 299 of goodwill attributed to Sphere
Amortization expense for intangible assets was 3 788 3 115 and 5 768 for Fiscal Years 2024 2023 and 2022 respectively The Company recognized 17 818 of intangible assets subject to amortization during Fiscal Year 2024 as a result of the acquisition of Holoplot The weighted average remaining useful life for the intangible assets acquired is 4 8 years refer to Note 7 Investments for further details
for more information regarding the Company s contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year for the Company s venues These commitments are presented exclusive of the imputed interest used to reflect the payment s present value
Nine of these complaints involved allegations of materially incomplete and misleading information set forth in the joint proxy statement prospectus filed by the Company and MSG Networks Inc in connection with the Networks Merger As a result of supplemental disclosures made by the Company and MSG Networks Inc on July 1 2021 all of the disclosure actions were voluntarily dismissed with prejudice prior to or shortly following the consummation of the Networks Merger
On September 10 2021 the Court of Chancery of the State of Delaware the Court entered an order consolidating two derivative complaints filed by purported Company stockholders The consolidated action is captioned
C A No 2021 0468 KSJM the MSG Entertainment Litigation The consolidated plaintiffs filed their Verified Consolidated Derivative Complaint on October 11 2021 The complaint which named the Company as only a nominal defendant retained all of the derivative claims and alleged that the members of the board of directors and controlling stockholders violated their fiduciary duties in the course of negotiating and approving the Networks Merger Plaintiffs sought among other relief an award of damages to the Company including interest and plaintiffs attorneys fees Pursuant to the indemnity rights in its bylaws and Delaware law the Company advanced the costs incurred by defendants in this action and defendants asserted indemnification rights in respect of any adverse judgment or settlement of the action
On March 14 2023 the parties to the MSG Entertainment Litigation reached an agreement in principle to settle the MSG Entertainment Litigation without admitting liability on the terms and conditions set forth in a binding term sheet which was incorporated into a long form settlement agreement the MSGE Settlement Agreement that was filed with the Court on April 20 2023 The MSGE Settlement Agreement provided for among other things the final dismissal of the MSG Entertainment Litigation in exchange for a settlement payment to the Company of approximately 85 000 subject to customary reduction for attorneys fees and expenses in an amount to be determined by the Court The settlement s amount was fully funded by the other defendants insurers The MSGE Settlement Agreement was approved by the Court on August 14 2023 which constituted the final judgment in the action
C A No 2021 0575 KSJM the MSG Networks Litigation The consolidated plaintiffs filed their Verified Consolidated Stockholder Class Action Complaint on October 29 2021 The complaint asserted claims on behalf of a putative class of former MSG Networks Inc stockholders against each member of the board of directors of MSG Networks Inc and the controlling stockholders prior to the Networks Merger Plaintiffs alleged that the MSG Networks Inc board of directors and controlling stockholders breached their fiduciary duties in negotiating and approving the Networks Merger The Company was not named as a defendant but was subpoenaed to produce documents and testimony related to the Networks Merger Plaintiffs sought among other relief monetary damages for the putative class and plaintiffs attorneys fees Pursuant to the indemnity rights in its bylaws and Delaware law the Company advanced the costs incurred by defendants in this action and defendants asserted indemnification rights in respect of any adverse judgment or settlement of the action
On April 6 2023 the parties to the MSG Networks Litigation reached an agreement in principle to settle the MSG Networks Litigation without admitting liability on the terms and conditions set forth in a binding term sheet which was incorporated into a long form settlement agreement the MSGN Settlement Agreement that was filed with the Court on May 18 2023 The MSGN Settlement Agreement provided for among other things the final dismissal of the MSG Networks Litigation in exchange for a settlement payment to the plaintiffs and the class of approximately 48 500 of which approximately 28 000 has been paid by the Company and 20 500 has been paid to the plaintiffs by insurers who agreed to advance these costs subject to final resolution of the parties insurance coverage dispute The MSGN Settlement Agreement was approved by the Court on August 14 2023 which constituted the final judgment in the action MSG Networks Inc has a dispute with its insurers over whether and to what extent there is insurance coverage for the settlement and has settled with one of the insurers As of June 30 2024 approximately 18 000 has
been accrued for by the Company in Accounts payable accrued and other current liabilities reduced from 20 500 accrued as of March 31 2024 in connection with the aforementioned settlement Unless MSG Networks Inc and the remaining insurers settle that insurance dispute it is expected to be finally resolved in a pending Delaware insurance coverage action
The Company is a defendant in various other lawsuits Although the outcome of these other lawsuits cannot be predicted with certainty including the extent of available insurance if any management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company
MSGN Holdings L P MSGN L P MSGN Eden LLC an indirect subsidiary of the Company and the general partner of MSGN L P Regional MSGN Holdings LLC an indirect subsidiary of the Company and the limited partner of MSGN L P collectively with MSGN Eden LLC the MSGN Holdings Entities and certain subsidiaries of MSGN L P have senior secured credit facilities pursuant to a credit agreement as amended and restated on October 11 2019 the MSGN Credit Agreement consisting of i an initia
of the MSGN Revolving Credit Facility is available for the issuance of letters of credit As of June 30 2024 there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility
Upon a payment default in respect of principal interest or other amounts due and payable under the MSGN Credit Agreement or related loan documents default interest will accrue on all overdue amounts at an ad
etermined based on a total net leverage ratio in respect of the average daily unused commitments under the MSGN Revolving Credit Facility MSGN L P will also be required to pay customary letter of credit fees as well as fronting fees to banks that issue letters of credit The interest rate on the MSGN Term Loan Facility as of June 30 2024 was 7 44
Subject to customary notice and minimum amount conditions MSGN L P may voluntarily repay outstanding loans under the MSGN Credit Agreement at any time in whole or in part without premium or penalty except for customary breakage costs with respect to Eurodollar loans The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31 2020 through September 30 2024 with a final maturity date of October 11 2024 MSGN L P is required to make mandatory prepayments in certain circumstances including without limitation from the net cash proceeds of certain sales of assets including MSGN Collateral or casualty insurance and or condemnation recoveries subject to certain reinvestment repair or replacement rights and the incurrence of certain indebtedness subject to certain exceptions
In addition to the financial covenants discussed above the MSGN Credit Agreement and the related security agreement contain certain customary representations and warranties affirmative covenants and events of default The MSGN Credit Agreement contains certain restrictions on the ability of MSGN L P and its restricted subsidiaries to take certain actions as provided in and subject to various exceptions and baskets set forth in the MSGN Credit Agreement including the following i incurring additional indebtedness and contingent liabilities ii creating liens on certain assets iii making investments loans or advances in or to other persons iv paying dividends and distributions or repurchasing capital stock v changing their lines of business vi engaging in certain transactions with affiliates vii amending specified material agreements viii merging or consolidating ix making certain dispositions and x entering into agreements that restrict the granting of liens The MSGN Holdings Entities are also subject to customary passive holding company covenants
All obligations under the MSGN Credit Agreement are guaranteed by the MSGN Holdings Entities and MSGN L P s existing and future direct and indirect domestic subsidiaries that are not designated as excluded subsidiaries or unrestricted subsidiaries the MSGN Subsidiary Guarantors and together with the MSGN Holdings Entities the MSGN Guarantors All obligations under the MSGN Credit Agreement including the guarantees of those obligations are secured by certain assets of MSGN L P and each MSGN Guarantor collectively MSGN Collateral including but not limited to a pledge of the equity interests in MSGN L P held directly by the MSGN Holdings Entities and the equity interests in each MSGN Subsidiary Guarantor held directly or indirectly by MSGN L P
On December 22 2022 MSG Las Vegas LLC MSG LV an indirect wholly owned subsidiary of the Company entered into a credit agreement with JP Morgan Chase Bank N A as administrative agent and the lenders party thereto providing for a five year 275 000 senior secured term loan facility as amended the LV Sphere Term Loan Facility
Borrowings under the LV Sphere Term Loan Facility bear interest at a floating rate which at the option of MSG LV may be either i a base rate plus a margin of 3 375 per annum or ii adjusted Term SOFR i e Term SOFR plus 0 10 plus a margin of 4 375 per annum The interest rate on the LV Sphere Term Loan Facility
The LV Sphere Term Loan Facility will mature on December 22 2027 The principal obligations under the LV Sphere Term Loan Facility are due at the maturity of the facility with no amortization payments prior to maturity Under certain circumstances MSG LV is required to make mandatory prepayments on the loan including prepayments in an amount equal to the net cash proceeds of casualty insurance and or condemnation recoveries subject to certain reinvestment repair or replacement rights subject to certain exceptions
The LV Sphere Term Loan Facility and related guaranty by Sphere Entertainment Group include financial covenants requiring MSG LV to maintain a specified minimum debt service coverage ratio and requiring Sphere Entertainment Group to maintain a specified minimum liquidity level
The debt service coverage ratio covenant began testing in the fiscal quarter ended December 31 2023 on a historical basis and on a prospective basis Both the historical and prospective debt service coverage ratios are required to be at least 1 35 1 00 As of June 30 2024 the historical and prospective debt service coverage ratios were 8 36 1 00 and 13 04 1 00 respectively In addition among other conditions MSG LV is not permitted to make distributions to Sphere Entertainment Group unless the historical and prospective debt
service coverage ratios are at least 1 50 1 00 The minimum liquidity level for Sphere Entertainment Group is set at 50 000 with 25 000 required to be held in cash or cash equivalents and is tested as of the last day of each fiscal quarter based on Sphere Entertainment Group s unencumbered liquidity consisting of cash and cash equivalents and available lines of credit as of such date
In addition to the covenants described above the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements contain certain customary representations and warranties affirmative and negative covenants and events of default The LV Sphere Term Loan Facility contains certain restrictions on the ability of MSG LV and Sphere Entertainment Group to take certain actions as provided in and subject to various exceptions and baskets set forth in the LV Sphere Term Loan Facility and the related guaranty and security and pledge agreements including the following i incur additional indebtedness ii make investments loans or advances in or to other persons iii pay dividends and distributions which will restrict the ability of MSG LV to make cash distributions to the Company iv change its lines of business v engage in certain transactions with affiliates vi amend organizational documents vii merge or consolidate and viii make certain dispositions
All obligations under the LV Sphere Term Loan Facility are guaranteed by Sphere Entertainment Group All obligations under the LV Sphere Term Loan Facility including the guarantees of those obligations are secured by all of the assets of MSG LV and certain assets of Sphere Entertainment Group including but not limited to MSG LV s leasehold interest in the land on which Sphere in Las Vegas is located and a pledge of all of the equity interests held directly by Sphere Entertainment Group in MSG LV
On April 20 2023 the Company entered into the DDTL Facility with MSG Entertainment Holdings LLC MSG Entertainment Holdings Pursuant to the DDTL Facility MSG Entertainment Holdings committed to lend up to 65 000 in delayed draw term loans to the Company on an unsecured basis for a period of 18 months following the consummation of the MSGE Distribution
On July 14 2023 the Company drew down the full amount of the 65 000 under the DDTL Facility On August 9 2023 the Company repaid all amounts outstanding under the DDTL Facility including accrued interest and commitment fees by delivering to MSG Entertainment Holdings approximately 1 923 shares of MSG Entertainment Class A common stock
On December 8 2023 the Company completed a private unregistered offering the Offering of 258 750 in aggregate principal amount of its 3 50 Convertible Senior Notes due 2028 the 3 50 Convertible Senior Notes which amount includes the full exercise of the initial purchasers option to purchase additional 3 50 Convertible Senior Notes
The Company used 14 309 of the net proceeds from the Offering to fund the cost of entering into the capped call transactions described below with the remaining net proceeds from the Offering designated for general corporate purposes including capital for Sphere related growth initiatives The capped call transactions met all of the applicable criteria for equity classification in accordance with ASC Subtopic 815 10 15 74 a
On December 8 2023 the Company entered into an Indenture the Indenture with U S Bank Trust Company National Association as trustee the Trustee relating to the 3 50 Convertible Senior Notes The 3 50 Convertible Senior Notes constitute a senior general unsecured obligation of the Company
The 3 50 Convertible Senior Notes bear interest at a rate of 3 50 per year payable semi annually in arrears on June 1 and December 1 of each year beginning on June 1 2024 The 3 50 Convertible Senior Notes will mature on December 1 2028 unless earlier redeemed repurchased or converted
Subject to the terms of the Indenture the 3 50 Convertible Senior Notes may be converted at an initial conversion rate of 28 1591 shares of Class A Common Stock per 1 000 principal amount of 3 50 Convertible Senior Notes equivalent to an initial conversion price of approximately 35 51 per share of Class A Common Stock Upon conversion of the 3 50 Convertible Senior Notes the Company will pay or deliver as the case may be cash shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock at the Company s election in accordance with the Indenture
Holders of the 3 50 Convertible Senior Notes may convert their 3 50 Convertible Senior Notes at their option at any time on or after September 1 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date Holders of the 3 50 Convertible Senior Notes will also have the right to convert the 3 50 Convertible Senior Notes prior to September 1 2028 but only upon the occurrence of specified events described in the Indenture The conversion rate is subject to anti dilution adjustments if certain events occur
Prior to December 6 2026 the 3 50 Convertible Senior Notes will not be redeemable On or after December 6 2026 the Company may redeem for cash all or part of the 3 50 Convertible Senior Notes subject to certain exceptions at its option if the last reported sale price of the Class A Common Stock has been at least 130 of the conversion price then in effect for at least 20 trading days whether or not consecutive during any period of 30 consecutive trading days including the last trading day of such period ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 of the principal amount of the 3 50 Convertible Senior Notes to be redeemed plus accrued and unpaid interest to but not including the redemption date No sinking fund is provided for the 3 50 Convertible Senior Notes
If certain corporate events occur or the Company delivers a notice of redemption prior to the maturity date of the 3 50 Convertible Senior Notes and a holder elects to convert its 3 50 Convertible Senior Notes in connection with such corporate event or notice of redemption as the case may be the Company will under certain circumstances increase the conversion rate for the 3 50 Convertible Senior Notes so surrendered for conversion by a number of additional shares of Class A Common Stock in accordance with the Indenture No adjustment to the conversion rate will be made if the price paid or deemed to be paid per share of Class A Common Stock in such corporate event or redemption as the case may be is either less than 28 41 per share or exceeds 280 00 per share
If a specified Fundamental Change as defined in the Indenture occurs prior to the maturity date of the 3 50 Convertible Senior Notes under certain circumstances each holder may require the Company to repurchase all or part of its 3 50 Convertible Senior Notes at a repurchase price equal to 100 of the principal amount plus accrued and unpaid interest to but not including the repurchase date
Under the Indenture the 3 50 Convertible Senior Notes may be accelerated upon the occurrence of certain events of default In the case of an event of default with respect to the 3 50 Convertible Senior Notes arising from specified events of bankruptcy or insolvency of the Company 100 of the principal of and accrued and unpaid interest on the 3 50 Convertible Senior Notes will automatically become due and payable If any other event of default with respect to the 3 50 Convertible Senior Notes under the Indenture occurs or is continuing the Trustee or holders of at least 25 in aggregate principal amount of the then outstanding 3 50 Convertible Senior Notes may declare the principal amount of the 3 50 Convertible Senior Notes to be immediately due and payable
On December 5 2023 in connection with the pricing of the 3 50 Convertible Senior Notes and on December 6 2023 in connection with the exercise in full by the initial purchasers of their option to purchase additional 3 50 Convertible Senior Notes the Company entered into capped call transactions with certain of the initial purchasers of the 3 50 Convertible Senior Notes or their respective affiliates and other financial institutions pursuant to capped call confirmations The capped call transactions are expected generally to reduce the potential dilution to the Class A Common Stock upon any conversion of the 3 50 Convertible Senior Notes and or offset any cash payments the Company is required to make in excess of the principal amount of converted 3 50 Convertible Senior Notes as the case may be with such reduction and or offset subject to a cap based on a cap price initially equal to approximately 42 62 per share which represents a premium of approximately 50 over the last reported sale price of the Class A Common Stock of 28 41 per share on the NYSE on December 5 2023 and is subject to certain adjustments under the terms of the capped call transactions
Debt maturities over the next five years for the outstanding principal balance under the MSG Networks Credit Facilities LV Sphere Term Loan Facility and 3 50 Convertible Senior Notes as of June 30 2024 were as follows
a The total carrying value of the Company s debt as of June 30 2024 and 2023 is equal to the current and non current principal payments for the Company s debt excluding unamortized deferred financing costs of 5 014 and 6 363 respectively
Prior to the MSGE Distribution the Company sponsored i a non contributory qualified cash balance retirement plan covering its non union employees the Cash Balance Plan ii an unfunded non contributory non qualified excess cash balance plan covering certain employees who participate in the underlying qualified plan the MSGE Excess Cash Balance Plan iii an unfunded non contributory non qualified excess balance plan covering certain employees who participate in the underlying qualified plan the Networks Excess Cash Balance Plan iv an unfunded non contributory non qualified benefit pension plan for the benefit of certain employees who participated in a frozen non contributory qualified defined benefit plan which became part of the Cash Balance Plan on March 1 2011 the MSGE Excess Retirement Plan v an unfunded non contributory non qualified benefit pension plan for the benefit of certain employees who participated in a frozen non contributory qualified defined benefit plan which became part of the Cash Balance Plan on March 1 2022 the Networks Excess Retirement Plan vi a non contributory qualified defined benefit pension plan covering certain of the Company s union employees the Union Plan and vii a non contributory qualified defined benefit pension plan covering certain of its union employees the Networks 1212 Plan
The Cash Balance Plan was amended to freeze participation and future benefit accruals Therefore since December 31 2015 no new participants have been able to participate in the Cash Balance Plan and the Excess Cash Balance Plan and no further annual pay credits will be made for any future year Existing account balances under the Cash Balance Plan and the Excess Cash Balance Plan will continue to be credited with monthly interest in accordance with the terms of the plans As of December 31 2007 the MSGE Excess Retirement Plan was amended to freeze all benefits earned through December 31 2007 and to eliminate the ability of participants to earn benefits for future service under the MSGE Excess Retirement Plan
The sponsorship of the Cash Balance Plan the MSGE Excess Cash Balance Plan the MSGE Excess Retirement Plan and the Union Plan was transferred from the Company to MSG Entertainment in connection with the MSGE Distribution In addition certain assets if any and liabilities associated with the Cash Balance Plan the MSGE Excess Cash Balance Plan the MSGE Excess Retirement plan and the Union Plan were also transferred from the Company to MSG Entertainment in connection with the MSGE Distribution
After the MSGE Distribution the Company continues to sponsor the Networks 1212 Plan Networks Excess Cash Balance Plan and the Networks Excess Retirement Plan together the Networks Plans In connection with the MSGE Distribution the Company established an unfunded non contributory non qualified frozen excess cash balance plan covering certain employees who participated in the Cash Balance Plan the Sphere Excess Plan The Networks Plans and Sphere Excess Plans are collectively referred to as the Pension Plans
Prior to the MSGE Distribution the Company sponsored two contributory welfare plans which provided certain postretirement healthcare benefits to certain employees hired prior to January 1 2001 The sponsorship of the postretirement plan covering Networks employees was retained by the Company the Postretirement Plan while the postretirement plan covering MSGE employees was transferred to MSG Entertainment in connection with MSGE Distribution In addition the liabilities associated with the postretirement plan for MSGE employees were transferred from the Company to MSG Entertainment in connection with the MSGE Distribution
The following table summarizes the projected benefit obligations assets funded status and the amounts recorded on the Company s consolidated balance sheets as of June 30 2024 and 2023 associated with the Pension Plans and Postretirement Plan based upon actuarial valuations as of those measurement dates
The following table presents components of net periodic benefit cost for the Pension Plans and Postretirement Plan included in the accompanying consolidated statements of operations for Fiscal Years 2024 2023 and 2022 Service cost is recognized in Direct operating expenses and Selling general and administrative expenses All other components of net periodic benefit cost are reported in Other income expense net
The accumulated benefit obligation for the pension plans aggregated to 37 587 and 37 842 at June 30 2024 and 2023 respectively As of June 30 2024 and 2023 each of the pension plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets
The discount rates were determined based on the expected duration of the benefit payments for the plans from the Willis Towers Watson U S Rate Link 40 90 Discount Rate Model as of June 30 2024 and 2023 to select a rate at which the Company believed the plans benefits could be effectively settled This model was developed by examining the yields on selected highly rated corporate bonds The expected long term return on plan assets is based on a periodic review and modeling of the plans asset allocation structures over a long term horizon Expectations of returns for each asset class are the most important of the assumptions used in the review and modeling and are based on comprehensive reviews of historical data forward looking economic outlook and economic financial market theory The expected long term rate of return was selected from within the reasonable range of rates determined by i historical returns for the asset classes covered by the investment policy and ii projections of returns over the long term period during which benefits are payable to plan participants
The Investment and Benefits Committee utilizes the services of an investment manager to actively manage the assets of the pension plans The Company has established asset allocation targets and investment policies and guidelines with the investment manager The investment manager takes into account expected long term risks returns correlation and other prudent investment assumptions when recommending asset classes and investment managers to the Company s Investment and Benefits Committee The investment manager also considers each applicable Pension Plans liabilities when making investment allocation recommendations The majority of the Pension Plans assets are invested in fixed income securities
b Common collective trust CCT is a non exchange traded fund classified within Level II of the fair value hierarchy at its net asset value NAV as reported by the Trustee The NAV is based on the fair value of the underlying investments held by the fund which are based on quoted market prices less its liabilities The CCT publishes daily NAV and use such value as the basis for current transactions
The Company sponsors the MSGN Holdings L P Excess Savings Plan and the Sphere Entertainment Excess Savings Plan The Company also participates in the Madison Square Garden 401 k Savings Plan the 401 k Plan For Fiscal Years 2024 2023 and 2022 expenses related to the Savings Plans that are included in the accompanying consolidated statements of operations were 6 376 7 421 and 5 778 respectively
The Company contributes to a number of multiemployer defined benefit pension plans multiemployer defined contribution plans and multiemployer health and welfare plans that provide benefits to retired union represented employees under the terms of collective bargaining agreements CBAs
The multiemployer defined benefit pension plans to which the Company contributes generally provide for retirement and death benefits for eligible union represented employees based on specific eligibility participant requirements vesting periods and benefit formulas The risks to the Company of participating in these multiemployer defined benefit pension plans are different from single employer defined benefit pension plans in the following aspects
If the Company chooses to stop participating in some of these multiemployer defined benefit pension plans the Company may be required to pay those plans an amount based on the Company s proportion of the underfunded status of the plan referred to as a withdrawal liability However cessation of participation in a multiemployer defined benefit pension plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process
The Company was not listed in any of the multiemployer plans 5500 s as providing more than 5 of the total contributions There were no multiemployer defined benefit pension plans to which the Company contributes that were in a redzone which are plans that are generally less than 65 funded for the most recent Pension Protection Act zone status available as of June 30 2024
The Company sponsors the Sphere Entertainment Corp Executive Deferred Compensation Plan the Deferred Compensation Plan for the purpose of permitting a select group of highly compensated employees to defer the employee s annual base salary and bonus into the Deferred Compensation Plan with returns on such deferrals tracking the performance of certain investments Following the MSGE Distribution accounts attributable to the Company s current employees were transferred from a deferred compensation plan sponsored by MSG Entertainment to the Deferred Compensation Plan Amounts deferred and invested by employees under the Deferred Compensation Plan are placed in an irrevocable trust established by the Company and all assets of the trust are subject to the creditors of the Company in the event of insolvency In accordance with ASC Topic 710
In accordance with ASC Topic 710 the Company remeasures the deferred compensation liability with a charge or credit to compensation cost in the Company s consolidated statements of operations to reflect changes in the fair value of the assets owed to the participants of the Deferred Compensation Plan The Company remeasures the fair value of the assets held in trust in accordance with ASC Topic 321
and recognizes unrealized gains and losses in Other income expense net in the Company s consolidated statements of operations The Company recorded compensation expense compensation cost credits of 307 and 218 for the year ended June 30 2024 and 2023 respectively within Selling general and administrative expenses to reflect the remeasurement of the Deferred Compensation Plan liability In addition the Company recorded gains losses of 307 and 218 for the year ended June 30 2024 and 2023 respectively within Other income expense net to reflect the remeasurement of the fair value of assets under the Deferred Compensation Plan
The Company has three share based compensation plans the 2020 Employee Stock Plan as amended the Employee Stock Plan the 2020 Stock Plan for Non Employee Directors as amended the Non Employee Director Plan and the MSG Networks Inc 2010 Employee Stock Plan as amended the MSG Networks Employee Stock Plan
Share based compensation expense is generally recognized straight line over the vesting term of the award which typically provides for three year cliff or graded vesting subject to continued employment For awards that provide for graded vesting and are subject to performance conditions in addition to continued employment the Company uses the graded vesting method to recognize share based compensation expense
In connection with the MSGE Distribution pursuant to the terms of the incentive plans and applicable award agreements i each holder of an employee RSU and PSU received one MSG Entertainment RSU or PSU in respect of every one Company RSU or PSU owned on the Record Date and continues to be entitled to one share of the Company s Class A Common Stock for each Company RSU or PSU in accordance with the existing award agreement ii one share of MSG Entertainment Class A Common Stock was issued under the MSG Entertainment Non Employee Director Plan in respect of every one RSU outstanding under the Company s 2020 Stock Plan for Non Employee Directors which remain outstanding and continue to be entitled to a share of the Company s Class A Common Stock in accordance with the existing award agreement and iii each option to purchase the Company s Class A Common Stock became two options one option to acquire MSG Entertainment Class A Common Stock and one option to acquire the Company s Class A Common Stock The existing exercise price was allocated between the Company s options and the new MSG Entertainment options based upon the weighted average price of each of our Class A Common Stock and MSG Entertainment Class A Common Stock over the ten trading days immediately following the MSGE Distribution as reported by Bloomberg and the underlying share amount was consistent with the one to one distribution ratio in the MSGE Distribution Other than the split of the options and the allocation of the existing exercise price there were no additional adjustments to existing options in connection with the MSGE Distribution
The Company s RSUs PSUs and or stock options held by individuals who are solely employees of MSG Sports or MSG Entertainment are not expensed by the Company however such RSUs PSUs and or stock options do have a dilutive effect on earnings loss per share available to the Company s common stockholders
and 2 979 for Fiscal Years 2024 2023 and 2022 respectively For Fiscal Years 2024 2023 and 2022 share based compensation also excludes costs of 1 166 8 118 and 4 254 respectively that have been reclassified to Restructuring charges in the consolidated statements of operations as detailed in Note 5 Restructuring Charges
a The fair value of RSUs and PSUs that vested and were distributed during Fiscal Year 2024 was 45 263 Upon delivery RSUs and PSUs granted under the Employee Stock Plan and the MSG Networks Employee Stock Plan were net share settled to cover the required statutory tax withholding obligations To fulfill the employees statutory minimum tax withholding obligations for the applicable income and other employment taxes 431 awards with an aggregate value of 15 996 were retained by the Company during Fiscal Year 2024
As of June 30 2024 there was 88 753 of unrecognized compensation cost related to unvested RSUs and PSUs held by the Company s employees The cost is expected to be recognized over a weighted average period of approximately 2 1 years Additionally there was no unrecognized compensation cost related to unvested stock options held by the Company s employees
Compensation expense for the Company s existing stock options is determined based on the grant date fair value of the award calculated using the Black Scholes options pricing model Stock options generally cliff vest after a three year service period and expire 7 5 to 10 years from the date of grant
Effective as of the 2020 Entertainment Distribution the Company adopted two share based compensation plans the 2020 Employee Stock Plan the Employee Stock Plan and the 2020 Stock Plan for Non Employee Directors the Non Employee Director Plan
Under the Employee Stock Plan the Company is authorized to grant incentive stock options non qualified stock options restricted shares RSUs stock appreciation rights and other equity based awards The Company may grant awards for up to 4 500 shares of Class A Common Stock subject to certain adjustments Options and stock appreciation rights under the Employee Stock Plan must be granted with an exercise price of not less than the fair market value of a share of Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant or up to one additional year in the case of the death of a holder The terms and conditions of awards granted under the Employee Stock Plan including vesting and exercisability were determined by the Compensation Committee of the Board of Directors Compensation Committee and included terms or conditions based upon performance criteria RSUs that were awarded by the Company to its employees will settle in shares of Class A Common Stock either from treasury or with newly issued shares or at the option of the Compensation Committee in cash
Under the Non Employee Director Plan the Company is authorized to grant non qualified stock options RSUs restricted shares stock appreciation rights and other equity based awards The Company may grant awards for up to 250 shares of Class A Common Stock subject to certain adjustments Options under the Non Employee Director Plan must be granted with an exercise price of not less than the fair market value of a share of Class A Common Stock on the date of grant and must expire no later than 10 years from the date of grant or up to one additional year in the case of the death of a holder The terms and conditions of awards granted under the Non Employee Director Plan including vesting and exercisability were determined by the Compensation Committee Unless otherwise provided in an applicable award agreement options granted under this plan will be fully vested and exercisable upon the date of grant Unless otherwise provided in an applicable award agreement RSUs granted under this plan will be fully vested upon the date of grant and will settle in shares of Class A Common Stock either from treasury or with newly issued shares or at the option of the Compensation Committee in cash on the first business day after ninety days from the date the director incurs a separation from service or if earlier upon the director s death
Compensation expense for the Company s SARs is determined based on mark to market valuation of the awards calculated using the Black Scholes options pricing model SARs generally cliff vest after a three year service period
On March 31 2020 the Company s Board of Directors authorized the repurchase of up to 350 000 of the Company s Class A Common Stock The program was re authorized by the Company s Board of Directors on March 29 2023 Under the authorization shares of Class A Common Stock may be purchased from time to time in accordance with applicable insider trading and other securities laws and regulations The timing and amount of purchases will depend on market conditions and other factors The Company has not engaged in any share repurchase activities under its share repurchase program to date
a Amounts reclassified from accumulated other comprehensive loss represent curtailments settlement losses recognized the amortization of net actuarial gain loss and net unrecognized prior service credit included in net periodic benefit cost which is reflected under Other income expense net in the accompanying consolidated statements of operations see Note 14 Pension Plans and Other Postretirement Benefit Plan
The income tax benefit expense attributable to continuing operations differs from the amount derived by applying the statutory federal rate to pre tax income loss principally due to the effect of the following items
In assessing the realizability of deferred tax assets management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized The Company s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow for the utilization of its federal net operating loss carryforward and its future deductible temporary differences As of June 30 2024 based on current facts and circumstances management believes that it is more likely than not that the Company will not realize its deferred tax assets related to foreign NOLs The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis
Prior to the MSGE Distribution the Company and MSG Entertainment entered into a Tax Disaffiliation Agreement TDA that governs the parties respective rights responsibilities and obligations with respect to taxes and tax benefits Under the TDA the Company will generally be responsible for all U S federal state local and other applicable income taxes of the Company for any taxable period or portion of such period ending on or before the MSGE Distribution Date
As of June 30 2024 certain members of the Dolan family including certain trusts for the benefit of members of the Dolan family collectively the Dolan Family Group for purposes of Section 13 d of the Securities Exchange Act of 1934 as amended collectively beneficially owned 100 of the Company s outstanding Class B Common Stock and approximately 6 5 of the Company s outstanding Class A Common Stock inclusive of options exercisable within 60 days of June 30 2024 Such shares of Class A Common Stock and Class B Common Stock collectively represent approximately 72 3 of the aggregate voting power of
MSGE TSA pursuant to which the Company receives certain services from MSG Entertainment such as information technology security accounts payable payroll tax certain legal functions human resources insurance and risk management government affairs investor relations corporate communications benefit plan administration and reporting and internal audit functions as well as certain marketing functions in exchange for service fees The Company also provides certain services to MSG Entertainment including studio and corporate technology services in exchange for service fees
Other agreements with MSG Entertainment entered into in connection with the MSGE Distribution including a distribution agreement a tax disaffiliation agreement an employee matters agreement a trademark license agreement and certain other arrangements
Arrangements with i MSG Entertainment pursuant to which MSG Entertainment provides certain sponsorship related account management services to the Company in exchange for service fees and ii MSG Sports pursuant to which MSG Sports provides certain business operations services to the Company in exchange for service fees
Arrangements with MSG Entertainment and MSG Sports pursuant to which i the Company has the right to lease on a time sharing basis certain aircraft to which the MSG Entertainment has access ii the Company has the right to dry lease certain aircraft leased by MSG Sports and iii MSG Entertainment provides certain aircraft support services The Company MSG Entertainment and MSG Sports have agreed to allocate expenses in connection with the use by each company or their executives of aircraft leased by MSG Entertainment and MSG Sports and
Other agreements with MSG Sports entered into in connection with the 2020 Entertainment Distribution such as a distribution agreement a tax disaffiliation agreement an employee matters agreement and certain other arrangements
Further the Company shares certain executive support costs including office space executive assistants security and transportation costs for i the Company s Executive Chairman and Chief Executive Officer with MSG Entertainment and MSG Sports ii the Company s Vice Chairman with MSG Entertainment MSG Sports and AMC Networks and iii the Company s Executive Vice President with MSG Sports and AMC Networks Additionally the Company MSG Entertainment MSG Sports and AMC Networks have agreed on an allocation of the costs of certain other aircraft including helicopter use by shared executives In addition the Company through its MSG Networks segment has also entered into various agreements with AMC Networks with respect to a number of ongoing commercial relationships
Prior to April 1 2024 the Company was also party to arrangements with MSG Sports pursuant to which MSG Sports provided certain sponsorship services to the Company in exchange for service fees Following the MSGE Distribution the Company was also party to the DDTL Facility with MSG Entertainment that provided for a 65 000 senior unsecured delayed draw term loan facility The DDTL Facility was fully drawn on July 14 2023 and on August 9 2023 the Company repaid all amounts outstanding under the DDTL Facility including accrued interest and commitment fees using a portion of the MSGE Retained Interest See Note 13 Credit Facilities and Convertible Notes for more information
From time to time the Company enters into arrangements with 605 LLC Kristin Dolan a director of the Company and the spouse of James L Dolan the Executive Chairman and Chief Executive Officer of the Company founded and was the Chief Executive Officer of 605 an audience measurement and data analytics company in the media and entertainment industries until February 2023 On September 13 2023 605 was sold to iSpot tv and James L Dolan and Kristin A Dolan now hold a minority interest in iSpot tv As a result from and after September 13 2023 605 is no longer considered to be a related party
8 311 93 823 and 121 115 respectively of capital expenditures in connection with services provided to the Company under these agreements The Company recorded commission expense of 5 618 for the year ended June 30 2024 and did not record any
30 2023 and 2022 in connection with sponsorship sales services provided under certain of these arrangements As of June 30 2024 2023 and 2022 accrued capital expenditures associated with related parties were 17 712 13 412 and 25 028 respectively and were reported in Accrued and other current liabilities in the accompanying consolidated balance sheets As of June 30 2024 prepaid expenses associated with related parties were 1 882
Following the MSGE Distribution except as otherwise noted the Company is no longer party to the arrangements described below However the amounts associated with such arrangements are reflected in the Company s results of operations for the periods prior to the MSGE Distribution
The Company was party to a services agreement the MSG Sports Services Agreement pursuant to which the Company provided certain corporate and other services to MSG Sports such as information technology security accounts payable payroll tax certain legal functions human resources insurance and risk management government affairs investor relations corporate communications benefit plan administration and reporting and internal audit functions as well as certain marketing functions in exchange for service fees MSG Sports also provided certain services to the Company including certain legal functions communications ticket sales and certain operational and marketing services in exchange for service fees This agreement was assigned to MSG Entertainment
The Company also shared certain executive support costs including office space executive assistants security and transportation costs for i the Company s Executive Chairman and Chief Executive Officer with MSG Sports and ii the Company s Vice Chairman with MSG Sports and AMC Networks Prior to April 1 2022 the Company also shared costs for the Company s former President with MSG Sports Following the MSGE Distribution the Company also shares these expenses with MSG Entertainment See
The Company was a party to various aircraft arrangements which were assigned to MSG Entertainment in connection with the MSGE Distribution The Company was party to reciprocal time sharing dry lease agreements with Charles F Dolan and Sterling2k LLC collectively CFD an entity owned and controlled by Deborah Dolan Sweeney the daughter of Charles F Dolan and the sister of James L Dolan pursuant to which the Company had agreed from time to time to make its aircraft available to CFD and CFD had agreed from time to time to make their aircraft available to the Company Pursuant to the terms of the agreements CFD could lease on a non exclusive time sharing basis certain Company aircraft
The Company was also party to a dry lease agreement and a time sharing agreement with Brighid Air LLC Brighid Air a company owned and controlled by Patrick F Dolan the son of Charles F Dolan and the brother of James L Dolan pursuant to which Brighid Air had agreed from time to time to make its Bombardier BD100 1A10 Challenger 350 aircraft the Challenger available to the Company on a non exclusive basis In connection with the dry lease agreement the Company also entered into a Flight Crew Services Agreement the Flight Crew Agreement with Dolan Family Office LLC DFO an entity owned and controlled by Charles F Dolan pursuant to which the Company could utilize pilots employed by DFO for purposes of flying the Challenger when the Company was leasing that aircraft under the Company s dry lease agreement with Brighid Air
Pursuant to certain aircraft support services agreements the Support Agreements the Company provided certain aircraft support services to i Charles F Dolan a director and certain of his children including James L Dolan the Company s Executive Chairman Chief Executive Officer and a director Deborah Dolan Sweeney Patrick F Dolan Marianne Dolan Weber a director of the Company and Kathleen M Dolan and ii an entity controlled by Patrick F Dolan the son of Charles F Dolan and brother of James L Dolan
Prior to December 21 2021 the Company was also party to i a reciprocal time sharing dry lease agreement with Quart 2C LLC Q2C a company controlled by James L Dolan and Kristin A Dolan his spouse and a director of the Company pursuant to which the Company from time to time made its aircraft available to Q2C and Q2C from time to time made its aircraft available to the Company and ii an aircraft support services agreement with an entity controlled by James L Dolan pursuant to which the Company provided certain aircraft support services These agreements were no longer effective as of December 21 2021
The Company and each of MSG Sports and AMC Networks were party to certain aircraft time sharing agreements pursuant to which the Company had agreed from time to time to make aircraft available to MSG Sports and or AMC Networks for lease on a time sharing basis Additionally the Company MSG Sports and AMC Networks had agreed on an allocation of the costs of certain aircraft and helicopter use by their shared executives
In addition to the aircraft arrangements described above certain executives of the Company were party to aircraft time sharing agreements pursuant to which the Company had agreed from time to time to make certain aircraft available for lease on a time sharing basis for personal use in exchange for payment of actual expenses of the flight as listed in the agreement
The following table summarizes the composition and amounts of the transactions with the Company s related parties The significant components of these amounts are discussed below These amounts are reflected in revenues and operating expenses in the accompanying consolidated statements of operations for Fiscal Years 2024 2023 and 2022
a Included in the year ended June 30 2024 Corporate general and administrative expenses net MSGE TSA is 3 363 related to Restructuring charges for employees who provided services to the Company under the MSGE TSA
c Of the total operating expenses credits net 182 051 206 804 and 167 928 for Fiscal Years 2024 2023 and 2022 respectively are included in direct operating expenses in the accompanying consolidated statements of operations and 127 473 31 322 and 37 219 for Fiscal Years 2024 2023 and 2022 respectively are included in selling general and administrative expenses
MSG Networks The Company takes into account whether two or more operating segments can be aggregated together as one reportable segment as well as the type of discrete financial information that is available and regularly reviewed by its Chief Operating Decision Maker
The Company incurs non capitalizable content development and technology costs associated with the Company s Sphere business which are reported in the Sphere segment Sphere also includes other expenses such as a corporate and supporting department operating costs that are attributable to Sphere development including charges under the MSGE TSA and b non event related operating expenses such as i insurance ii utilities iii repairs and maintenance iv labor related to the overall management of Sphere segment and v depreciation and amortization expense related to certain corporate property equipment and leasehold improvements
The Company evaluates segment performance based on several factors of which the key financial measure is adjusted operating income loss a non GAAP financial measure We define adjusted operating income loss as operating income loss excluding
The Company 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 The Company eliminates merger and acquisition related costs when applicable because the Company does not consider such costs to be
indicative of the ongoing operating performance of the Company as they result from an event that is of a non recurring nature thereby enhancing comparability In addition management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company s Executive Deferred Compensation Plan provides investors with a clearer picture of the Company s operating performance given that in accordance with GAAP gains and losses related to the remeasurement of liabilities under the Company s Executive Deferred Compensation Plan are recognized in Operating loss income whereas gains and losses related to the remeasurement of the assets under the Company s Executive Deferred Compensation Plan which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities are recognized in Other income expense net which is not reflected in Operating loss income
The Company believes adjusted operating income loss is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis 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 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
Accounts receivable net on the accompanying consolidated balance sheets as of June 30 2024 and 2023 included amounts due from the following individual customers substantially derived from the MSG Networks segment which accounted for the noted percentages of the gross balance
Revenues in the accompanying consolidated statements of operations for Fiscal Years 2024 2023 and 2022 included amounts from the following individual customers primarily derived from the MSG Networks segment which accounted for the noted percentages of the total
As of June 30 2024 the Company employed approximately 3 100 full time and part time employees of which approximately 18 are subject to CBAs Approximately 5 are subject to CBAs that expired as of June 30 2024 and approximately 39 are subject to CBAs that will expire by June 30 2025 if they are not extended prior thereto
The Company s cash equivalents consist of money market accounts time deposits and U S treasury bills of 367 900 and 108 701 as of June 30 2024 and 2023 respectively Cash cash equivalents and restricted cash are measured at fair value within Level I of the fair value hierarchy on a recurring basis using observable inputs that reflect quoted prices for identical assets in active markets The Company s restricted cash includes cash deposited in escrow accounts The Company has deposited cash in interest bearing escrow accounts related to credit support debt facilities and collateral to its workers compensation and general liability insurance obligations

Company Name	Sphere Entertainment Co. Vist SEC web-site
Category	SERVICES-AMUSEMENT & RECREATION SERVICES
Trading Symbol	SPHR