UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number: 1-36900
Delaware
47-3373056
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Exact name of registrant as specified in its charter)
Two Penn Plaza New York, NY
(Address of principal executive offices)
10121
(Zip Code)
Registrant’s telephone number, including area code: (212) 465-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Class A Common Stock
Name of each Exchange on which Registered:
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ
No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant has been required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ
No o
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Exchange Act Rule 12b-2.
Large accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates of The Madison Square Garden Company as of June 30, 2018 computed by reference
to the price at which the common equity was last sold on New York Stock Exchange as of December 29, 2017 , the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately: $3,897,326,309
Number of shares of common stock outstanding as of July 31, 2018 :
Class A Common Stock par value $0.01 per share
— 19,136,976
Class B Common Stock par value $0.01 per share
Documents incorporated by reference — Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2018 annual
meeting of the Company’s shareholders, expected to be filed within 120 days after the close of our fiscal year.
— 4,529,517
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
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Table of Contents
Item 1. Business
PART I
The Madison Square Garden Company is a Delaware corporation with our principal executive offices at Two Pennsylvania Plaza, New York, NY, 10121. Unless
the context otherwise requires, all references to “we,” “us,” “our,” “Madison Square Garden,” “MSG” or the “Company” refer collectively to The Madison Square
Garden Company, 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 through MSG Sports & Entertainment, LLC and its direct and indirect subsidiaries. Our telephone number is 212-465-6000, our Internet
address is http://www.themadisonsquaregardencompany.com and the investor relations section of our web site is http://investor.msg.com. We make available, free
of charge through the investor relations section of our web site, 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 (the “ Exchange Act ”), 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”). References to our web site in this report are provided as a convenience and the information contained on, or available through, our web site is not part of
this or any other report we file with or furnish to the SEC.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“ MSG Networks ”), formerly known as The
Madison Square Garden Company. All the outstanding common stock of the Company was distributed to MSG Networks shareholders (the “Distribution”) on
September 30, 2015 (the “ Distribution Date ”).
On June 27, 2018, the Company announced that its board of directors (“ Board ”) has authorized the Company’s management to explore a possible spin-off that
would create a separately-traded public company comprised of its sports businesses, including the New York Knicks and New York Rangers professional sports
franchises. We refer to the potential spin-off as the “ Sports Distribution .” If the Company proceeds with the Sports Distribution , it would be structured as a tax-
free transaction to all MSG shareholders. Upon completion of the contemplated separation, record holders of MSG common stock would receive a pro-rata
distribution, expected to be equivalent, in aggregate, to an approximately two-thirds economic interest in the sports company. The remaining common stock,
expected to be equivalent to an approximately one-third economic interest in the sports company, would be retained by the Company. There can be no assurance
that the proposed transaction will be completed in the manner described above, or at all. The Company has not set a timetable for completion of this process.
Completion of the transaction would be subject to various conditions, including certain league approvals, a private letter ruling from the IRS, receipt of a tax
opinion from counsel and final Board approval. The Company may file a Form 10 registration statement with the SEC which would contain additional information
about the proposed Sports Distribution .
Overview
The Madison Square Garden Company is a leader in live experiences comprised of celebrated venues, legendary sports teams, exclusive entertainment productions,
and other entertainment assets which include dining and nightlife venues and music festivals. Utilizing our powerful assets, brands and live event expertise, the
Company delivers premium and unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate
audiences. We manage our business through the following two operating segments:
MSG
Sports
: This segment includes the Company’s professional sports franchises: the New York Knicks (the “Knicks”) of the National Basketball Association
(the “NBA”), the New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), the New York Liberty (the “Liberty”) of the Women’s National
Basketball Association (the “WNBA”), the Hartford Wolf Pack of the American Hockey League (the “AHL”) and the Westchester Knicks of the NBA G League
(the “ NBAGL ”). Our professional sports franchises are collectively referred to herein as “our sports teams.” The MSG Sports segment also includes Counter
Logic Gaming (“ CLG ”) , a premier North American esports organization, and Knicks Gaming, MSG’s franchise that competes in the NBA 2K League. CLG and
Knicks Gaming are collectively referred to herein as “our esports teams,” and, together with our sports teams, “our teams.” In addition, the MSG Sports segment
promotes, produces and/or presents a broad array of other live sporting events, including professional boxing, college basketball, college hockey, professional bull
riding, mixed martial arts, esports, tennis and college wrestling .
MSG
Entertainment:
This segment features the Company’s live entertainment events — including concerts, family shows, performing arts and special events —
which we present or host in our diverse collection of venues. Those venues are: Madison Square Garden (“ The Garden ”), The Hulu Theater at Madison Square
Garden , Radio City Music Hall, the Beacon Theatre, the Forum, The Chicago Theatre and the Wang Theatre. Our MSG Entertainment segment also includes our
original production — Christmas
Spectacular
Starring
the
Radio
City
Rockettes
(“
Christmas
Spectacular
”)
— as well as Boston Calling Events, LLC (“ BCE ”),
the entertainment production company that owns and operates the Boston Calling Music Festival, and TAO Group Holdings LLC (“ TAO Group ”), a hospitality
group with globally -recognized entertainment dining and nightlife brands.
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Our Strengths
•
•
Ownership of legendary sports franchises;
Iconic venues in top live entertainment markets;
• Marquee entertainment brands and content, including the Christmas
Spectacular
and the Radio City Rockettes (“Rockettes”);
•
•
•
•
•
•
•
•
Powerful presence in the New York City metropolitan area with established core assets and expertise for strategic expansion;
Strong industry relationships that create opportunities for new content and brand extensions;
Deep connections with loyal and passionate fan bases that span a wide demographic mix;
First-class experience in managing venues, bookings, marketing, sales and hospitality in multiple markets;
Ability to forge strategic partnerships that utilize the Company’s assets, core competencies and scale, while allowing the Company to benefit from growth
in those businesses;
Established history of successfully planning and executing comprehensive venue design and construction projects;
Extensive range of proprietary marketing assets, including a customer database that allows us to drive engagement with our brands; and
Strong and seasoned management team.
Our Strategy
The Madison Square Garden Company pursues opportunities that strengthen our portfolio of live experiences and capitalize on our iconic venues, popular sports
franchises and exclusive entertainment content, as well as our expertise in venue management, bookings, marketing, sales and hospitality. We believe the
Company’s unique assets and capabilities, coupled with our deep relationships in the sports and entertainment industries and our strong connection with our diverse
and passionate audiences, are what set the Company apart. We continue to look for ways to improve our core operations, while we explore new opportunities to
grow and innovate. Specific initiatives we are focused on include:
•
Developing
championship
caliber
teams.
The core goal of our sports strategy is to develop teams that consistently compete for championships in their
leagues and support and drive revenue streams across the Company. We continue to explore new ways to increase engagement and revenue opportunities
across the teams’ broad consumer and corporate customer bases.
• Monetizing
our
exclusive
sports
content.
The Company has media rights agreements with MSG Networks that provide a significant recurring and growing
revenue stream to the Company, subject to the terms of such agreements. In addition, these agreements and our relationship with MSG Networks provide
our fans with the ability to watch locally televised home and away games of the Knicks and Rangers, as well as other programming related to our teams,
on MSG Networks’ award-winning regional sports networks.
•
Utilizing
our
integrated
approach
to
marketing
and
sales.
The Company possesses powerful sports and entertainment assets that can create significant
value for our business. For example:
◦
Our integrated approach to marketing partnerships allows us to use and sell our broad array of assets together in order to maximize their
collective value, both for the Company and for our marketing partners. Our ability to offer compelling, broad-based marketing platforms, which
we believe are unparalleled in sports and entertainment, enables us to attract world-class partners, such as our “Marquee” marketing partner,
JPMorgan Chase, and our “Signature” marketing partners, which include — Anheuser-Busch, Charter Communications, Delta Airlines,
DraftKings, Kia, Lexus, PepsiCo (beginning September 1, 2018), SAP and Squarespace.
◦ We continue to forge deep direct-to-consumer relationships with customers and fans, with a focus on understanding how consumers interact with
every aspect of the Company. A key component of this strategy is our large and growing proprietary customer database, which drives revenue
and engagement across segments, benefiting the Company through ticket sales, merchandise sales and sponsorship activation. This database
provides us with an opportunity to cross-promote our products and services, introducing customers to our wide range of assets and brands.
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Table of Contents
•
Utilizing
a
unique
strategy
for
our
performance
venues.
The Company has a collection of performance venues through which we deliver high-quality live
sports and entertainment. In addition to our New York venues: The Garden , The Hulu Theater at Madison Square Garden , Radio City Music Hall and the
Beacon Theatre, our portfolio includes: the Forum in Inglewood, CA and The Chicago Theatre, and we have an exclusive booking agreement with respect
to the Wang Theatre in Boston. These venues, along with our venue management capabilities, effective bookings strategy and proven expertise in
sponsorships, marketing, ticketing and hospitality, have positioned the Company as an industry leader in live entertainment. We intend to leverage our
unique assets, expertise and approach to drive growth and stockholder value, and to ensure we continue to create unmatched experiences for the benefit of
all our stakeholders.
◦ Maximizing
the
live
entertainment
experience
for
our
customers.
We use our first-class operations, coupled with new innovations and our ability
to attract top talent, to deliver unforgettable experiences for our customers — whether they are first-time visitors, repeat customers, season ticket
holders, or suite holders — ensuring they return to our venues. We have a track record of designing world-class facilities that exceed our
customers’ expectations. This includes our renovations of Radio City Music Hall, the Beacon Theatre, The Garden and the Forum to deliver top-
quality amenities such as state-of-the-art lighting, sound and staging, a full suite of hospitality offerings and enhanced premium products. In
addition to better onsite amenities, we continue to explore new ways to utilize technology to improve the customer experience and create
communities around our live events. From the way our customers buy their food and beverage; to how we market and process their tickets; to the
content we provide them to enhance their sports and entertainment experience, we want to give our customers the best in-venue experience in the
industry.
◦
◦
Leveraging
our
live
entertainment
expertise
to
increase
productivity
across
our
performance
venues.
Part of what drives our success is our “artist
first” approach. This includes our renovation of the Forum, which set a new bar for the artist experience by delivering superior acoustics and an
intimate feel, along with amenities such as nine star-caliber dressing rooms and dedicated areas for production and touring crews. This talent-
friendly environment, coupled with more date availability and our top-tier service, is not only attracting artists to our West Coast venue, but also
bringing them back for repeat performances. We will continue to use our “artist first” approach to attract the industry’s top talent with the goal of
increasing utilization across all our venues through more multi-night and multi-market concerts and other events, including more recurring high-
profile shows that help expand our base of events. Examples of this strategy include our residencies — which feature legendary performers
playing our venues each month, and have included Billy Joel at The Garden and Jerry Seinfeld at the Beacon Theatre.
Selectively
expanding
our
performance
venues
in
key
music
and
entertainment
markets.
With the renovation of the Forum, we created the
country’s only arena-sized venue dedicated to music and entertainment, which quickly established a strong presence in the market. We believe
that, similar to Los Angeles, there are other select markets where our proven ability to develop music and entertainment-focused venues —
coupled with our unique capabilities, expertise and “artist first” approach — will deliver a differentiated experience for artists, fans and partners.
In May 2016, the Company announced plans to build a state-of-the-art new venue in Las Vegas focused specifically on music and entertainment.
In February 2018, we further unveiled our vision for these venues, which will be known as MSG Sphere . We believe MSG Sphere venues will
change live entertainment by pioneering the next generation of immersive experiences. The first MSG Sphere venue will debut in Las Vegas, one
of the world’s most important entertainment destination cities. In February 2018, we also announced the purchase of land in Stratford, London,
which we expect will become home to the Company’s first large-scale international venue and the second MSG Sphere . MSG Sphere venues
will utilize advanced, cutting-edge technologies to create an entirely new platform that is expected to redefine how immersion and storytelling
come together in live experiences. Because of the transformative nature of these venues, we believe there will be other markets — both domestic
and international — where MSG Sphere can be successful. The design of MSG Sphere 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 the individual market. Controlling and booking a network
of world-class venues provides the Company with a number of avenues for potential growth, including driving increased bookings and greater
marketing and sponsorship opportunities. As we explore selectively extending the MSG Sphere network, we will be open to multiple types of
transaction structures, including owned, operated, and joint ventures. As we work with various companies to develop the technologies needed for
MSG Sphere venues, we are focused on obtaining appropriate strategic rights with respect to intellectual property.
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Table of Contents
•
•
•
•
Expanding
our
entertainment
dining
and
nightlife
venues.
The Company owns a controlling interest in TAO Group — a leader in the hospitality industry.
TAO Group currently operates 25 entertainment dining and nightlife venues in New York City, Las Vegas, Los Angeles, Singapore and Sydney, Australia
with globally -recognized brands that include: TAO, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal. TAO Group is actively
developing opportunities in select markets — both domestically and internationally — to expand and, in June 2018, announced that it plans to open new
entertainment dining and nightlife venues as part of Moxy Chelsea hotel in New York City, as well as TAO Chicago and Marquee Singapore.
Growing
our
portfolio
of
proprietary
content.
We continue to explore the creation of proprietary content and attractions that enable us to benefit from
being both content creator and venue operator. This includes opportunities to develop theatrical productions for our existing and planned venues. For our
planned MSG Sphere venues, we are developing a set of tools that will allow both MSG and third parties to create content for the platform, making
content creation an intuitive experience — whether someone is adapting existing content or developing original creations that maximize the potential of
the venue’s technologies. MSG expects to use these tools to create our own catalogue of content and original productions, establishing a library of unique
and compelling material that can be used across MSG Sphere venues.
Exploring
adjacencies
that
strengthen
our
business.
As part of our commitment to creating unmatched experiences, we explore adjacencies that
strengthen our position in sports and entertainment. Potential opportunities include new types of events and festivals, and new opportunities in hospitality,
clubs, and food and beverage. Examples over the last several years include the Company’s purchase of a controlling interest in BCE , the entertainment
production company known for creating and operating New England’s premier music festival — the Boston Calling Music Festival; TAO Group , a
hospitality group with globally -recognized entertainment dining and nightlife brands; and CLG , a premier North American esports organization.
Continuing
to
explore
external
strategic
opportunities
. We continue to seek strategic opportunities to add compelling assets and brands that resonate with
our customers and partners, fit with our core competencies and allow new opportunities for growth across the Company. One of the ways we try to
capitalize on our unique combination of dynamic assets, established industry relationships and deep customer connections is through strategic partnerships
that bring together the expertise and capabilities of each partner, and enable us to team with recognized leaders in their fields and benefit from growth in
those businesses. For example, we own 50% of Azoff MSG Entertainment LLC (“ AMSGE ”) which is backed by one of the music and entertainment
industry’s most respected and influential executives, Irving Azoff. The joint venture owns and operates music, media and entertainment businesses, which
allows us to pursue various businesses in the entertainment space. In addition, we own 50% of Tribeca Enterprises LLC (“ Tribeca Enterprises ”), bringing
together two of New York’s cultural and entertainment icons to enhance the reach and impact of both brands, while allowing us to partner with one of the
most respected teams in the film and entertainment industry.
Our Business
MSG Sports
Our Company is synonymous with some of the greatest sporting events in history. Today that tradition continues with our commitment to delivering a broad array
of world-class sporting events that create lasting and indelible memories for sports fans. Our MSG Sports segment includes some of the world’s most recognized
sports franchises, as well as a diverse selection of other live sporting events, that the Company promotes, produces and/or presents, primarily at The Garden , The
Hulu Theater at Madison Square Garden and the Forum.
Our
Sports
Franchises
The Knicks and Rangers are two of the most recognized franchises in professional sports, with storied histories and passionate, multi-generational fan bases. These
teams are the primary occupants of The Garden, playing a combined total of 82 regular season home games, often to at or near capacity attendance. The Liberty
currently play 15 home games at the Westchester County Center, located in White Plains, NY, in addition to two regular season home games at The Garden . For
all of our sports teams, the number of home games increases if they qualify for the playoffs.
New
York
Knicks
As an original franchise of the NBA, the Knicks have a rich history that includes eight trips to the NBA Finals and two NBA Championships, as well as some of
the greatest athletes to ever play the game. In May 2018, the Knicks introduced a new head coach, David Fizdale, who will lead a young and exciting franchise into
the 2018-19 season focused on fielding a championship-caliber team over the long-term. The Knicks ranked in the top three in the NBA for ticket sales receipts for
the 2017-18 regular season.
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Table of Contents
New
York
Rangers
The Rangers hockey club is one of the “original six” franchises of the NHL, with 2017-18 marking the team’s 91 st season. Winners of four Stanley Cup
Championships and 11 conference titles over their history, the Rangers continue to be one of the league’s marquee teams, advancing to the playoffs in 11 of the
past 13 seasons. The Rangers are known to have one of the most passionate, loyal and enthusiastic fan bases in all of sports, and ranked in the top three in the NHL
for ticket sales receipts for the 2017-18 regular season.
New
York
Liberty
Established in October 1996, when New York was selected as one of eight charter members of the WNBA, the Liberty have won three conference championships
and appeared in the playoffs 15 times. In the 2017 season, the Liberty finished with the best record in the Eastern Conference for a third straight season and
qualified for the WNBA playoffs as the number three overall seed. In November 2017, the Company announced that it is pursuing the sale of the Liberty.
Westchester
Knicks
The Westchester Knicks, an NBAGL team, plays its home games at the Westchester County Center in White Plains, NY and serves as the exclusive NBAGL
affiliate of the Knicks. In the 2017-18 season, the Westchester Knicks had the best regular season record in the Eastern Conference.
Hartford
Wolf
Pack
The Hartford Wolf Pack, a minor-league hockey team, is the player development team for the Rangers and is also competitive in its own right in the AHL. The
Rangers send draft picks and other players to the Hartford Wolf Pack for skill development and injury rehabilitation, and can call up players for the Rangers roster
to enhance the team’s competitiveness. The Hartford Wolf Pack have reached the playoffs 15 times in 21 seasons.
Esports
The Company’s portfolio of live experiences includes a presence in the esports industry through a controlling interest in CLG , a premier North American esports
organization. Founded in 2010, CLG is one of the most established and successful organizations in the industry, operating eight teams across several well-known
esports games: “League of Legends,” “Fortnite,” “Counter-Strike: Global Offensive,” “Super Smash Bros.,” “Smite,” “H1Z1,” and “Clash Royale.” In 2018,
Knicks Gaming, our franchise in the NBA 2K Esports League, made its debut as part of the league’s inaugural season and qualified for the playoffs.
The
Role
of
the
Leagues
in
Our
Operations
As franchises in professional sports leagues, our teams are members of their respective leagues and, as such, are subject to certain limitations, under certain
circumstances, on the control and management of their affairs. The respective league constitutions of our sports teams, under which each league is operated,
together with the collective bargaining agreements (each a “ CBA ”) each league has signed with its players’ association, contain numerous provisions that, as a
practical matter in certain circumstances, could impact the manner in which we operate our businesses. In addition, under the respective league constitutions of our
sports teams, the commissioner of each league, either acting alone or with the consent of a majority (or, in some cases, a supermajority) of the other sports teams in
the league, may be empowered in certain circumstances to take certain actions felt to be in the best interests of the league, whether or not such actions would
benefit our sports teams and whether or not we consent or object to those actions.
While the precise rights and obligations of member teams vary from league to league, the leagues have varying degrees of control exercisable under certain
circumstances over the length and format of the playing season, including preseason and playoff schedules; the operating territories of the member teams; national
and international media and other licensing rights; admission of new members and changes in ownership; franchise relocations; indebtedness affecting the
franchises; and labor relations with the players’ associations, including collective bargaining, free agency, and rules applicable to player transactions, luxury taxes
and revenue sharing. See “Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Overview —
MSG Sports — Expenses .” Additionally, CLG operates multiple teams that participate in several different esports leagues. The rights and obligations of each CLG
team (and member teams generally) vary from league to league. The leagues are generally empowered to and have implemented rules with respect to our league
participation, as well as operation, and monetization of the CLG teams and brand. From time to time, we may disagree with or challenge actions the leagues take or
the power and authority they assert, although the leagues’ governing documents and our agreements with the leagues purport to limit the manner in which we may
challenge decisions and actions by a league commissioner or the league itself.
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Table of Contents
Other
Sporting
Events
The Company’s MSG Sports segment also includes a broad array of live sporting events that the Company promotes, produces and/or presents, including
professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, tennis and college wrestling. Many of these events are
among the most popular in our history and are perennial highlights on our annual calendar, as well as some of The Garden’s longest-running associations.
Professional boxing, beginning with John L. Sullivan in 1882, has had a long history with The Garden. The Arena famously hosted Muhammad Ali and Joe
Frazier’s 1971 “Fight of the Century,” considered among the greatest sporting events in modern history, as well as numerous bouts featuring dozens of other
boxing greats. These have included: Joe Louis, Rocky Marciano, Sugar Ray Robinson, Willie Pep, Emile Griffith, George Foreman, Roberto Duran, Oscar De La
Hoya, Sugar Ray Leonard, Lennox Lewis, Roy Jones, Jr., Mike Tyson, Evander Holyfield, Miguel Cotto, Wladimir Klitschko, Gennady Golovkin, and Vasiliy
Lomachenko, one of the world’s best pound-for-pound fighters, who captured the WBA lightweight title at The Garden in May 2018.
The Company has also expanded its presence in the popular sport of mixed martial arts. In June 2016, the Forum hosted its first-ever Ultimate Fighting
Championship (“ UFC ”) event with Michael Bisping capturing the middleweight title in an upset victory over Luke Rockhold at UFC 199. The Garden then hosted
the historic UFC 205 in November 2016, the first professional mixed martial arts event in New York state since 1995, during which Conor McGregor knocked out
Eddie Alvarez to become the first simultaneous two-weight champion in UFC history. In November 2017, UFC returned to The Garden , as mixed martial arts
legend Georges St. Pierre made his much-anticipated comeback to the octagon to capture the middleweight title at UFC 217 , one of three championship belts to
change hands that evening. Bellator MMA has also hosted internationally-broadcasted events at both The Garden and the Forum, and Professional Fighters League
has hosted events at The Hulu Theater at Madison Square Garden and The Chicago Theatre.
College sports have been a mainstay at The Garden for decades, with college basketball’s longest running holiday showcase, the Holiday Festival, first tipping off
more than 60 years ago. In addition to St. John’s University calling The Garden its “home away from home,” this past year the highly-anticipated Big East
Tournament celebrated its 36 th year and the Big Ten Men’s Basketball Tournament held its championship at The Garden in March for the first time. Other college
basketball highlights include visits from Duke University’s Blue Devils and the Villanova Wildcats, who played four games at The Garden on their way to winning
the 2018 National Championships, as well as the annual Jimmy V Classic and the 2K Sports Classic.
In 2007, The Garden sold out its first college hockey game — Red Hot Hockey featuring Cornell University versus Boston University — which has become a
popular biennial event that Cornell won for the first time in 2017. College hockey has continued to grow at The Garden and become a fan-favorite over the last
decade, attracting top national teams such as Boston College, North Dakota, Michigan and Minnesota.
Other recent world-class sporting events have included the NBA All-Star Game, which The Garden last hosted in 2015, marking the fifth time the arena has hosted
the illustrious professional basketball event and the NCAA Division I Men’s Basketball East Regional Finals, which The Garden hosted in 2014 and 2017, and will
again in 2020. Additionally, The Garden has featured numerous tennis legends on its court, including Pete Sampras, Roger Federer and Rafael Nadal, and in March
2018, welcomed tennis luminaries Serena and Venus Williams back for Tie Break Tens, the competition’s first event held in the United States.
These live sporting events are not contemplated to be included as part of the possible Sports Distribution .
MSG Entertainment
Our Company delivers unforgettable entertainment experiences — including live events and spectacular productions — all in extraordinary settings that span some
of the country’s largest entertainment markets. This creates a significant demand for an association with our brands — by artists, premier companies and the public.
And with a foundation of iconic venues, our Company has a proven ability to leverage the strength of our industry relationships, marketing assets, customer
database and live event expertise to create performance, promotion and distribution opportunities for artists, events and productions, and to increase utilization of
our venues.
Specifically, our MSG Entertainment segment includes concerts, family shows, performing arts events and special events that we present or host at our venues,
which are: The Garden , The Hulu Theater at Madison Square Garden , Radio City Music Hall, the Beacon Theatre, the Forum and The Chicago Theatre. In
addition, we have an exclusive booking agreement with respect to the Wang Theatre. With seating capacities and configurations that range from 2,800 to 21,000 ,
our collection of diverse venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal.
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Our MSG Entertainment segment also includes the beloved holiday show, the Christmas
Spectacular
— created for Radio City Music Hall and featuring the world-
famous Rockettes. The Company is also exploring opportunities for a second, streamlined show featuring the iconic Rockettes at Radio City Music Hall.
Over the past couple of years, the Company has been executing on its plans to build a robust, diversified portfolio of live experiences. In July 2016, the Company
acquired a controlling interest in BCE, the entertainment production company that owns and operates the Boston Calling Music Festival. This was followed in
January 2017 by the Company’s purchase of a controlling interest in TAO Group, a hospitality group with globally -recognized entertainment dining and nightlife
brands.
Our
Live
Entertainment
Bookings
Our Company is an established industry leader that books a wide variety of live entertainment events in our venues, which perennially include some of the biggest
names in music and entertainment. Over the last several years, our venues have been a key destination for artists such as the Eagles, U2, Pearl Jam, Foo Fighters,
Paul McCartney, Kendrick Lamar, Bruno Mars, Justin Bieber, Dead and Company, Madonna, Mumford & Sons, Phish, Fleetwood Mac, Adele, Eric Clapton,
Bruce Springsteen, Rihanna, Justin Timberlake, Katy Perry, Kanye West, Stevie Wonder, Ariana Grande and Dave Chappelle.
Our efforts to find new ways to increase the utilization of our venues led to a unique partnership between our Company and Billy Joel that made the renowned
performer a staple of The Garden, playing monthly performances since January 2014. This extraordinary residency has been a great success, with 54 sold-out
performances through July 2018 , and has cemented Billy Joel’s record for the most performances by any artist at “The World’s Most Famous Arena.” In
December 2015, the legendary New Yorker and comedian Jerry Seinfeld began a two-year residency at the Beacon Theatre, with monthly appearances in 2016 and
twice monthly appearances in 2017. All 36 performances — which concluded in December 2017 — were sold out.
Our venues also attract family shows and theatrical productions, which this past year included: PAW
Patrol
Live!,
Sesame
Street
Live!,
PJ
Masks
Live!,
and Elf
The
Musical
. In addition, we frequently serve as the backdrop for high-profile special events such as the 60 th Annual Grammy Awards, which returned to The Garden
for the first time in 15 years in 2018. Other significant events that have been hosted in our venues include the Tony Awards, “America’s Got Talent,” and the MTV
Video Music Awards; appearances by luminaries such as His Holiness Pope Francis, His Holiness the Dalai Lama and the Prime Minister of India, Narendra Modi;
graduations, television upfronts, product launches and film premieres .
Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows where we have economic risk relating to the
event. MSG Entertainment currently does not promote or co-promote events outside of our venues.
Our
Productions
One of the Company’s core properties, the Christmas
Spectacular
, has been performed at Radio City Music Hall for 85 years. The world-famous Rockettes, along
with show-stopping performances, festive holiday scenes and state-of-the-art special effects, have played an important role in the critically-acclaimed show’s
enduring popularity. This past year the show featured several new technology enhancements, including the ability to project content on all eight of Radio City
Music Hall’s proscenium arches. This large-scale projection, along with a backdrop that now includes one of the world’s largest 8K resolution LED screens,
visually transformed entire scenes of the production. During the 2017 holiday season, the Christmas
Spectacular
sold more than one million tickets.
We acquired the rights to the Christmas
Spectacular
in 1997, and those rights are separate from, and do not depend on the continuation of, our lease of Radio City
Music Hall. We also hold rights to the Rockettes brand in the same manner.
The Company believes it has significant and unique assets in both Radio City Music Hall and the Rockettes, and is exploring the creation of a second, streamlined
show that leverages not only these brands, but also the technology enhancements we have invested at the venue.
In addition, we continue to strengthen and broaden our Rockettes brand, targeting the most prominent and effective vehicles that elevate their visibility and
underscore their reputation as beloved American cultural icons. The Rockettes have appeared or performed at high-profile events, including Presidential
Inaugurations, the Macy’s Thanksgiving Day Parade, Macy’s 4th of July Fireworks event, the New Year’s Eve Times Square Ball Drop, the Tony Awards, and
television shows (“America’s Got Talent,” “Project Runway,” “The Today Show,” “Live with Kelly and Ryan,” and “The Tonight Show with Jimmy Fallon”),
among many others. We continue to pursue opportunities to generate greater brand awareness, including television and public appearances and dance education
offerings.
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Our
Entertainment
Dining
and
Nightlife
Offerings
The Company owns a controlling interest in TAO Group, which strengthens the Company’s portfolio of live offerings with a complementary, hospitality group
with widely-recognized brands that include: TAO, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal. Since 2000, TAO Group has been
creating some of the most innovative premium experiences in the entertainment dining and hospitality industry. Today, TAO Group operates 25 venues – 12
venues in New York City, six venues in Las Vegas, five venues in Los Angeles, one venue in Singapore and one venue in Sydney, Australia — and is actively
developing opportunities to expand on their success with new venues. In June 2018, TAO Group announced that it will debut new entertainment dining and
nightlife venues as part of Moxy Chelsea hotel in New York City, which is expected to open this Fall, as well as TAO Chicago restaurant and nightclub in
September, followed by Marquee Singapore, located in the Marina Bay Sands hotel, in 2019.
A majority of TAO Group’s venues are leased, while the rest are managed. Essentially all of the venues have either long-term leases or long-term management
agreements with options to renew for multiple years.
Our
Festival
Offering
The Company owns a controlling interest in BCE , the entertainment production company known for successfully creating and operating New England’s premier
music festival — Boston Calling. The 2018 three-day festival took place over Memorial Day weekend at the Harvard Athletic Complex, and was headlined by
Eminem, The Killers and Jack White. Additionally, the festival featured 54 performances from musicians, bands, podcasts and comedians across its three stages
and indoor arena, as well as the first-ever Boston Calling Film Festival, curated by Academy Award-winning actress, producer and director Natalie Portman.
Our
Performance
Venues
The Company operates a mix of iconic performance venues that continue to build on their historic prominence as destinations for unforgettable experiences and
events. Individually, these venues are each premier showplaces, with a passionate and loyal following of fans, performers and events. Taken together, we believe
they represent an outstanding collection of venues.
We own or operate under long-term leases a total of six venues in New York City, Chicago and Inglewood, CA and have an exclusive booking agreement with
respect to the Wang Theatre in Boston. Our New York City venues are the Madison Square Garden Complex (which includes both The Garden and The Hulu
Theater at Madison Square Garden ), Radio City Music Hall and the Beacon Theatre. Our portfolio of venues also includes the Forum in Inglewood, CA and the
landmark The Chicago Theatre.
The
Garden
The Garden has been a celebrated center of New York life since it first opened its doors in 1879. Over its 139 -year history, there have been four Garden buildings,
each known for showcasing the best of the era’s live sports and entertainment offerings. We believe that The Garden has come to epitomize the power and passion
of live sports and entertainment to people around the world, with an appearance at The Garden often representing a pinnacle of an athlete’s or performer’s career.
Known as “The World’s Most Famous Arena,” The Garden has been the site of some of the most memorable events in sports and entertainment, and, together with
The Hulu Theater at Madison Square Garden , has hosted hundreds of events and millions of visitors this past year. In 2009, Billboard Magazine ranked The
Garden the number one venue of the decade in its respective class based upon gross ticket sales. Music industry subscribers of the trade magazine Pollstar have
voted The Garden “Arena of the Year” 19 out of the last 25 years. The Garden is the highest-grossing entertainment venue of its size in the nation and the second
highest in the world based on Billboard Magazine’s 2018 mid-year rankings.
The Garden is home to the Knicks and Rangers and is associated with countless “big events,” inspired performances and one-of-a-kind moments. Highlights
include: “The Fight of the Century” between Muhammad Ali and Joe Frazier in 1971; the 1970 Knicks’ NBA Championship; the Rangers’ 1994 Stanley Cup
Championship; three Democratic National Conventions and one Republican National Convention; Marilyn Monroe’s famous birthday serenade to President John
F. Kennedy; Frank Sinatra’s “Main Event” concert in 1974; the only U.S. concerts from the reunited Cream; the 25 th Anniversary Rock and Roll Hall of Fame
concerts and Billy Joel’s record-breaking 100 total performances at The Garden (through July 2018). In September 2015, His Holiness Pope Francis celebrated
Mass at The Garden as part of his successful U.S. visit, which marked the first time a current pope has visited The Garden since Pope John Paul II in 1979. The
Garden has also hosted four prominent benefit concerts, which galvanized the public to respond to national and global crises, including the first of its kind, “The
Concert for Bangladesh” in 1972, as well as “The Concert for New York City,” following the events of 9/11; “From the Big Apple to the Big Easy,” held after
Hurricane Katrina in 2005; and “12-12-12, The Concert for Sandy Relief” in 2012.
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The current Madison Square Garden Complex, located between 31 st and 33 rd Streets and Seventh and Eighth Avenues on Manhattan’s West Side, opened on
February 11, 1968 with a salute to the United Service Organizations hosted by Bob Hope and Bing Crosby. From a structural standpoint, the construction of the
current Garden was considered an engineering wonder for its time, including its famous circular shape and unique, cable-supported ceiling, which contributes to its
intimate feel. It was the first large structure built over an active railroad track. The builder, R.E. McKee, had a national reputation and was later recognized as a
“Master Builder” by the construction industry. Architect Charles Luckman had one of the largest firms in the country and designed such buildings as the Prudential
Tower in Boston, NASA’s flight center in Houston and the Forum in Inglewood, CA.
Following a three-year, top-to-bottom transformation, in October 2013, the Company debuted a fully-transformed Garden, featuring improved sightlines; additional
entertainment and dining options; new concourses; upgraded hospitality areas; new technology; unique historic exhibits; and a completely transformed interior,
where the intimacy of the arena bowl and The Garden’s world-famous ceiling were maintained. Focused on the total fan experience, the transformation was
designed to benefit everyone in attendance, whether first time visitors, season ticket subscribers, athletes, artists, suite holders or marketing partners. The Garden’s
transformation ensured that attending an event at “The World’s Most Famous Arena” remained unlike anywhere else.
We own the Madison Square Garden Complex, the platform on which it is built and development rights (including air rights) above our property. Madison Square
Garden sits atop Pennsylvania Station (“ Penn Station ”), a major commuter hub in Manhattan, which is owned by the National Railroad Passenger Corporation
(Amtrak). While the development rights we own would permit us to expand in the future, any such use of development rights would require various approvals from
the City of New York. The Garden seats up to approximately 21,000 spectators for sporting and entertainment events and, along with The Hulu Theater at Madison
Square Garden , contains approximately 1,100,000 square feet of floor space over 11 levels.
The
Hulu
Theater
at
Madison
Square
Garden
The Hulu Theater at Madison Square Garden , which has approximately 5,600 seats, opened as part of the fourth Madison Square Garden Complex in 1968 with
seven nights of performances by Judy Garland. Since then, some of the biggest names in live entertainment have played The Hulu Theater at Madison Square
Garden , including The Who, Bob Dylan, Diana Ross, Elton John, James Taylor, Mary J Blige, Pentatonix, Sara Bareilles, Ellie Goulding, Chris Rock, Neil Young,
Bill Maher, Radiohead, Jerry Seinfeld and Van Morrison. The Hulu Theater at Madison Square Garden has also hosted boxing events and the NBA Draft; award
shows such as The Daytime Emmys; and other special events including “Wheel of Fortune” and audition shows for “America’s Got Talent,” as well as a variety of
theatrical productions and family shows, including A
Christmas
Story,
Elf
The
Musical,
Paw
Patrol
Live!,
and Sesame
Street
Live!
. In March 2018, the Company
and Hulu, a leading premium streaming service, announced a multi-faceted marketing partnership that included exclusive naming rights to the venue, which has
now been rebranded as The Hulu Theater at Madison Square Garden . The Hulu Theater at Madison Square Garden is the fifth highest-grossing entertainment
venue of its size in the world, based on Billboard Magazine’s 2018 mid-year rankings.
Radio
City
Music
Hall
Radio City Music Hall has a rich history as a national theatrical and cultural mecca since it was first built by theatrical impresario S.L. “Roxy” Rothafel in 1932.
Known as “The Showplace of the Nation,” it was the first building in the Rockefeller Center complex and, at the time, the largest indoor theater in the world. Radio
City Music Hall, a venue with approximately 6,000 seats, hosts concerts, family shows and special events, and is home to the Christmas
Spectacular
. See “—
MSG Entertainment — Our Productions .” Entertainers who have graced the Great Stage include: Yes, Lady Gaga, Brian Wilson, Harry Styles, Bastille, John
Mulaney, Jack White, Kelly Clarkson, Britney Spears, Tony Bennett, Khalid, Sebastian Maniscalco and Dave Chappelle. In 2009, Billboard Magazine ranked
Radio City Music Hall the number one venue of the decade in its respective class based upon gross ticket sales. Radio City Music Hall is the highest-grossing
entertainment venue of its size in the world, based on Billboard Magazine’s 2018 mid-year rankings.
In 1978, Radio City Music Hall was designated a New York City landmark by the NYC Landmarks Preservation Commission and a national landmark on the
National Register of Historic Places. We acquired the lease in 1997, and in 1999, we invested in a complete restoration that returned the legendary theater to its
original grandeur. Our acclaimed restoration touched all aspects of the venue and included burnishing the ceilings of Radio City Music Hall with 720,000 sheets of
gold and aluminum leaf, replacing the existing stage curtain with a new 112 -foot wide golden silk curtain, and cleaning the three-story tall mural “The Fountain of
Youth,” by Ezra Winter, which looms above the grand staircase. State-of-the-art sound systems, lighting and HDTV capabilities were also installed.
We lease Radio City Music Hall, located at Sixth Avenue and 50 th Street in Manhattan, pursuant to a long-term lease agreement. The lease on Radio City Music
Hall expires in 2023 . We have the option to renew the lease for an additional 10 years by providing two years’ notice prior to the initial expiration date.
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Beacon
Theatre
In November 2006, we entered into a long-term lease agreement to operate the legendary Beacon Theatre, a venue with approximately 2,800 seats, which sits on
the corner of Broadway and 74 th Street in Manhattan. The Beacon Theatre was conceived of by S. L. “Roxy” Rothafel and is considered the “older sister” to Radio
City Music Hall. Designed by Chicago architect Walter Ahlschlager, the Beacon Theatre opened in 1929 as a forum for vaudeville acts, musical productions,
drama, opera, and movies. The Beacon Theatre was designated a New York City landmark by the NYC Landmarks Preservation Commission in 1979 and a
national landmark on the National Register of Historic Places in 1982. Over its history, the Beacon Theatre has been a venerable rock and roll room for some of the
greatest names in music including Steely Dan, Coldplay, Mariah Carey, Crosby Stills & Nash, Elton John, John Fogerty, Ray LaMontagne, Tom Petty and the
Heartbreakers, Tedeschi Trucks Band, Eddie Vedder and Bob Dylan, as well as The Allman Brothers Band, which played their 238 th show at the Beacon Theatre
in October 2014, marking their final concert as a band. The venue has also hosted special events such as film premieres for the Tribeca Film Festival and comedy
events, including our Jerry Seinfeld residency, along with numerous luminaries such as His Holiness the Dalai Lama in 2009 and 2013, and President Bill Clinton
in 2006 when the Rolling Stones played a private concert in honor of his 60 th birthday.
In August of 2008 we closed the Beacon Theatre for a seven-month restoration project to return the theater to its original 1929 grandeur. The restoration of the
Beacon Theatre focused on all historic, interior public spaces of the building, backstage and back-of-house areas, and was based on extensive historic research, as
well as detailed, onsite examination of original, decorative painting techniques that had been covered by decades-old layers of paint. The Beacon Theatre has won
several architectural awards recognizing its outstanding restoration. The widely acclaimed, comprehensive restoration was similar to our restoration of Radio City
Music Hall, and reflects our commitment to New York City. The Beacon Theatre is the tenth highest-grossing entertainment venue of its size in the world, based on
Billboard Magazine’s 2018 mid-year rankings.
Our lease on the Beacon Theatre expires in 2026 .
The
Forum
In June 2012, we added a West Coast home with the purchase of the Forum in Inglewood, CA, which serves the Greater Los Angeles area. Following an extensive
reinvention of the historic venue, on January 15, 2014, the Forum re-opened with the first of six concerts by the legendary Eagles and is once again a thriving
destination for both artists and music fans. With both the Forum and The Garden, the Company has an iconic arena in each of the country’s two largest
entertainment markets.
The Forum is the only arena-sized venue in the country dedicated to music and entertainment, and offers something exceptional for everyone. Architecturally, the
interior of the bowl has been completely modernized and features superior acoustics, along with flexible seating that ranges from 7,000 seats to 17,600 seats. Fans
seated on the floor have access to one of the largest general admission floors in the country, with approximately 8,000 square feet of event level hospitality
offerings. The Forum also offers exclusive spaces for VIP customers, including the historic Forum Club, and, for artists, delivers a first-class experience that
includes nine , star-caliber dressing rooms with high-end amenities. Among the key features that were resurrected in an effort to replicate the original design is the
exterior color of the venue, which was returned to the 1960’s “California sunset red,” and is now known as “Forum Red.” Other outdoor features include the
addition of a distinct and iconic Forum marquee and a 40,000-square foot terrace that surrounds the perimeter of the building.
The original Forum was designed by renowned architect, Charles Luckman, who also designed The Garden that opened in 1968. The historic West Coast venue,
which opened in 1967, has played host to some of the greatest musical performers of all time, including The Rolling Stones, The Jackson 5, Bob Dylan, Led
Zeppelin, Madonna, Van Halen, Foo Fighters, Coldplay, Prince and many others. In addition, the Forum was home to the Los Angeles Lakers and Los Angeles
Kings until 1999.
Since re-opening in 2014, the Forum has received several architectural awards recognizing its outstanding restoration. The venue’s impressive lineup of
entertainers has included: the Eagles, Justin Timberlake, U2, Maroon 5, Drake, Kanye West, Eric Clapton, Guns N’ Roses, Stevie Wonder, Aerosmith, Steely Dan,
Fleetwood Mac, Tom Petty and the Heartbreakers, Mumford & Sons, Foo Fighters, The Weeknd, P!nk and Rihanna as well as His Holiness the Dalai Lama. The
Forum has also hosted a number of special events such as the MTV Video Music Awards and Nickelodeon’s Kids’ Choice Awards, as well as select sporting
events, including Championship Boxing and mixed martial arts. The Forum is the third highest-grossing entertainment venue of its size in the world, based on
Billboard Magazine’s 2018 mid-year rankings.
The
Chicago
Theatre
In October 2007, to provide us with an anchor for content and distribution in a key market in the Midwest, we purchased the legendary Chicago Theatre, a venue
with approximately 3,600 seats. The Chicago Theatre, which features its famous six-story-high “C-H-I-C-A-G-O” marquee, was built in 1921 and designed in the
French Baroque style by architects Cornelius W. Rapp and George L. Rapp. It is the oldest surviving example of this architectural style in Chicago today, and was
designated a Chicago landmark building in 1983 by the Mayor of Chicago and the Chicago City Council.
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The Chicago Theatre has become a highly attractive destination for concerts, comedy shows and other live events, hosting a wide range of entertainers, including
Bob Dylan, Mumford & Sons, David Byrne, Neil Young, Steve Winwood, Jerry Seinfeld, Janet Jackson, The National, Jim Gaffigan, Conan O’Brien, Aziz Ansari
and Steely Dan. The venue has also hosted theatrical tours such as A
Christmas
Story,
The
Wizard
of
Oz
and Dr.
Seuss’
How
The
Grinch
Stole
Christmas!
. The
Chicago Theatre is the seventh highest-grossing entertainment venue of its size in the world, based on Billboard Magazine’s 2018 mid-year rankings.
Wang
Theatre
Since August 2008, we have had a booking agreement with respect to the historic Wang Theatre in Boston. Under the booking agreement, we have been utilizing
our diverse relationships and experience in event production and entertainment marketing to maximize the quantity and diversity of performances staged at the
Wang Theatre. These performances have included theatrical productions and family shows such as the Tony award-winning Annie
the
Musical
, Irving Berlin’s
White
Christmas
the
Musical,
The
Sound
of
Music,
A
Christmas
Story
, and Elf
The
Musical.
The Wang Theatre has also welcomed a variety of concerts, including
multi-night runs by Steely Dan, Sting, Neil Young, Chris Rock, Jerry Seinfeld, Steve Martin and The National and performances from Leonard Cohen, Ringo Starr,
Wilco, Tegan and Sara, John Legend and The Shins. The Wang Theatre seats approximately 3,600 .
Our booking agreement expires in 2019 . The expiration of the booking agreement will not have a material negative effect on our business.
MSG
Sphere
The Company is moving forward with its plans to create the “venue of the future.” These structures — known as MSG Sphere — will use cutting-edge
technologies to create the next-generation of immersive experiences. The Company will build its first MSG Sphere in Las Vegas on land leased from Las Vegas
Sands Corp. (“Sands”), which is adjacent to the Venetian/Palazzo/Sands Expo Complex. The Company plans to break ground on the more than 18,000-seat venue
during September 2018 with the start of site preparations, with the goal of opening in fiscal 2021.
Key design features of MSG Sphere are expected to include (i) a fully programmable LED exterior and an interior bowl that features the world’s largest and
highest resolution LED screen known today, (ii) a multi-layered audio system that will deliver a spectacular acoustical experience, (iii) a custom video system
capable of capturing, curating and distributing both today’s and tomorrow’s content, and (iv) an advanced architecture for connectivity that will enable a broader
range of content, greater interaction among guests and more immersive entertainment experiences. Sands will provide us with $75 million to help fund the
construction costs, including the cost of a pedestrian bridge from MSG Sphere Las Vegas to the Venetian/Palazzo/Sands Expo Complex. Sands will receive priority
access to purchase tickets to events at the venue for inclusion in hotel packages or other uses, as well as certain rent-free use of the venue to support its Expo Center
business. The ground lease will have no fixed rent; however, if certain return objectives are achieved, Sands will receive 25% of the after-tax cash flow in excess of
such objectives. The lease is for a term of 50 years.
In February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to the Company’s second MSG Sphere. Subject to
the timely completion of the planning and governmental approval process, our goal is to have our MSG Sphere London debut approximately one year after the Las
Vegas venue. We currently expect that MSG Sphere London will be substantially similar to MSG Sphere Las Vegas, including having approximately the same
seating capacity.
We continue to explore additional domestic and international markets where next-generation venues can be successful. The design of MSG Sphere 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 MSG Sphere network, we will be open to multiple types of transaction structures, including owned, operated, and joint ventures.
See “Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MSG
Spheres .”
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Table of Contents
Our
Interactive
Initiatives
The Company has a digital presence that includes web sites, social networking sites and mobile applications for our sports and entertainment properties. In 2017,
the Company consolidated a collection of individual web sites dedicated to our venues into a new platform, MSG.com, designed to deliver greater value to our
customers by providing one place where they can explore upcoming events in all our venues, learn more about our brands, and purchase tickets. Web sites
dedicated to our teams (nhl.com/rangers, nba.com/knicks, liberty.wnba.com, westchester.gleague.nba.com, hartfordwolfpack.com, clg.gg, knicksgaming.nba.com)
remain separate from MSG.com, as do the web sites for TAO Group (taogroup.com) and Boston Calling (bostoncalling.com). Like our MSG Sports business, the
online operations relating to our teams may, in certain circumstances, be subject to certain agreements, rules, policies, regulations and directives of the leagues in
which the respective team operates. See “— Our Business — Regulation .” In addition to driving ticket sales to our events, this interactive business generates
revenue for the Company’s segments via the sale of advertising and sponsorships on these digital properties. Additionally, it offers strategic marketing assets that
create opportunities to market directly to our fans and cross-promote our businesses.
Other Investments
We continue to explore additional opportunities that strengthen our existing position within the sports and entertainment landscape and/or allow us to exploit our
assets and core competencies for growth.
In August 2013, the Company, in a partnership with the owners of Brooklyn Bowl, invested in building a venue in Las Vegas. See “Part II — Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments in Nonconsolidated Affiliates ” for further discussion.
In September 2013, the Company acquired a 50% interest in AMSGE . The AMSGE entity owns and operates businesses in the entertainment industry and is
currently focused on music management, performance rights, strategic marketing and venue management consulting services. This strategic partnership brings
together the expertise and capabilities of each partner with the goal of jointly entering into attractive new businesses that generate revenue and cash flow. AMSGE
currently has a controlling interest in both Full Stop Management LLC., its core music management business, and Global Music Rights, a performance rights
company. In addition, AMSGE has a non-controlling interest in Oak View Group, Digital Brand Architects, Burns Entertainment and On Board Experiential
Marketing. AMSGE will remain focused on capitalizing on investment opportunities within its existing businesses as well as on others in its pipeline, with the goal
of accelerating its revenue growth.
In March 2014, the Company acquired a 50% interest in Tribeca Enterprises , the company that owns and operates the acclaimed Tribeca Film Festival, bringing
together two of New York’s most important cultural and entertainment icons to enhance the reach and impact of both brands. Now in its 17 th year, the annual Film
Festival celebrates storytelling in a variety of forms – from film to television to virtual reality, music and gaming. The Festival supports emerging and established
voices, discovers award-winning filmmakers, curates innovative and interactive experiences, and introduces new technology and ideas through panels, premieres,
exhibitions, and live performance. Tribeca Enterprises’ businesses also include Tribeca Studios, a branded entertainment content business that has produced award-
winning stories, and year-round live events. This joint venture augments our portfolio of premier New York City live entertainment brands, while also providing us
with a high-profile entry into the festival business, with a team that has created one of the most successful festivals in the world.
In July 2014, MSG Networks completed the sale of Fuse to SiTV Media, Inc., which has since been renamed Fuse Media, Inc., the parent company of NUVOtv.
NUVOtv is an English language entertainment network created for modern Latinos. As part of the transaction, MSG Networks received a 15% equity interest in
SiTV Media, LLC, which has since been renamed Fuse Media, LLC (“Fuse Media”), and such equity interest was transferred to the Company in connection with
the Distribution. See “Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments in
Nonconsolidated Affiliates ” for further discussion.
In August 2016, the Company acquired an approximately 12% common equity stake in Townsquare Media, Inc., a leading media, entertainment and digital
marketing solutions company that, like us, believes in the value of creating communities around shared experiences and compelling content.
In addition to the investments discussed above, the Company also has other investments in various sports and entertainment companies and related technologies,
accounted for either under the cost method or equity method.
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Table of Contents
Garden of Dreams Foundation
Our Company has a close association with The Garden of Dreams Foundation (the “Foundation”), a 501(c)(3) non-profit charity that is dedicated to making dreams
come true for children facing obstacles. The Foundation works with 28 partner organizations throughout the tristate area, including hospitals, wish organizations
and community-based organizations, to reach children who are facing challenges such as homelessness, extreme poverty, illness and foster care. Since it began in
2006, Garden of Dreams has used the magic of The Madison Square Garden Company — including the Rangers, Knicks, Liberty, Rockettes and famed showplaces
— to brighten the lives of nearly 375,000 children and their families. The Foundation takes pride in its commitment to truly change lives, hosting more than 500
events and programs each year. They include: events with the Knicks, Rangers and Liberty; special celebrations and event attendance at The Garden, Radio City
Music Hall and the Beacon Theatre; visits by Madison Square Garden celebrities; The Garden of Dreams Talent Show, where children perform on the Great Stage
at Radio City Music Hall; The Garden of Dreams Prom, which brings together teens who may not otherwise have the opportunity to attend their own proms; toy
drives; and the “Make A Dream Come True Program,” where children enjoy unforgettable experiences with celebrities and at events. In addition, through its
Garden of Dreams Giving program, the Foundation helps its partner organizations meet the critical needs of the children they serve through direct support of
scholarships and tangible, targeted community projects. To date, the Foundation has awarded scholarships to 60 children. Garden of Dreams has also served its
partners by refurbishing pediatric wards at area hospitals, activity rooms and gymnasiums at community facilities and by creating brand new spaces such as music
and dance studios — with plans for many more vital civic enhancements in the years to come.
Regulation
Our sports and entertainment businesses are subject to legislation governing the sale and resale of tickets and consumer protection statutes generally.
In addition, our venues, like all public spaces, are subject to building and health codes and fire regulations imposed by the state and local governments in the
jurisdictions in which they are located. Our venues are also subject to zoning and outdoor advertising regulations, and, with respect to Radio City Music Hall and
the Beacon Theatre, landmark regulations which restrict us from making certain modifications to our facilities as of right or from operating certain types of
businesses. Our venues also require a number of licenses in order for us to operate, including occupancy permits, exhibition licenses, food and beverage permits,
liquor licenses and other authorizations and, with respect to The Garden, a zoning special permit granted by the New York City Planning Commission. In the
jurisdictions in which our venues are located, 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. In addition, our venues are subject to the federal
Americans with Disabilities Act, which requires us to maintain certain accessibility features at each of our facilities. We and our venues are also subject to
environmental laws and regulations. See “ Item 1A. Risk Factors — General Risks — We Are Subject to Extensive Governmental Regulation and Our Failure to
Comply with These Regulations May Have a Material Negative Effect on Our Business and Results of Operations. ” The professional sports leagues in which we
operate, primarily the NBA and NHL, have the right under certain circumstances to regulate important aspects of our sports business and our team-related online
and mobile businesses. See “— Our Business — MSG Sports — The Role of the Leagues in Our Operations .”
Our sports and entertainment businesses are also subject to certain regulations applicable to our Internet web sites and mobile applications. We maintain various
web sites and mobile applications that provide information and content regarding our businesses, offer merchandise and tickets for sale, make available
sweepstakes and/or contests and offer hospitality services. The operation of these web sites and applications may be subject to a range of federal, state and local
laws such as privacy and protection of personal information, accessibility for persons with disabilities and consumer protection regulations. In addition, to the
extent any of our web sites collect information from children under 13 years of age or are intended primarily for children under 13 years of age, we must comply
with certain limits on commercial matter.
Our businesses are also subject to regulation regarding working conditions and minimum wage requirements. See “ Item 1A. Risk Factors — Risks Relating to Our
Entertainment Business — Increases in Labor Costs Could Slow the Growth of or Harm TAO Group .”
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, currency and repatriation of funds, anti-bribery, anti-
money laundering and anti-corruption, such as the 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 place restrictions on our business and partnering activities.
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Table of Contents
Competition
Competition
in
Our
Sports
Business
Our sports business operates in a market in which numerous sports and entertainment opportunities are available. In addition to the NBA, NHL, WNBA, AHL and
NBAGL teams that we own and operate, the New York City metropolitan area is home to two Major League Baseball teams (the New York Yankees (the “
Yankees ”) and the New York Mets (the “ Mets ”)), two National Football League teams (the New York Giants (the “ Giants ”) and the New York Jets (the “ Jets
”)), two additional NHL teams (the New York Islanders (the “ Islanders ”) and the New Jersey Devils (the “ Devils ”)), a second NBA team (the Brooklyn Nets (the
“ Nets ”) and two Major League Soccer franchises (the New York Red Bulls and the New York City Football Club). In addition, there are a number of other
amateur and professional teams that compete in other sports, including at the collegiate and minor league levels. New York is also home to the U.S. Open tennis
event each summer, as well as many other non-sports related entertainment options.
As a result of the large number of options available, we face strong competition for the New York area sports fan. We must compete with these other sporting
events in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete, our ability to
provide an entertaining environment at our games and the prices we charge for our tickets. In addition, for fans who prefer the unique experience of NHL hockey,
we must compete with the Islanders and Devils as well as, in varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those
fans attracted to the equally unique experience of NBA basketball, we must compete with the Nets as well as, in varying respects and degrees, with other NBA
teams and the NBA itself. In addition, we also compete to varying degrees with other productions and live entertainment events for advertising and sponsorship
dollars.
The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams and general
economic conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets, potentially
greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs, we also
benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact that a
significant portion of our revenue derives from rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a multi-
year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teams and our ability to attract other
compelling sports content.
In July 2017, we acquired a controlling interest in CLG, a premier North American esports organization. Due to the nature of esports, CLG competes with other
teams across North America and globally . CLG competes for sponsorship, merchandise rights, media rights, and event prize winnings. Esports teams vary in their
amount of funding, size of existing business, and amount of social following, among other factors, which can impact our ability to compete effectively.
See “ Item 1A. Risk Factors — Risks Relating to Our Sports Business — Our Sports Business Faces Intense and Wide-Ranging Competition, Which May Have a
Material Negative Effect on Our Business and Results of Operations ” and “— Our Businesses Are Substantially Dependent on the Continued Popularity and/or
Competitive Success of the Knicks and Rangers, Which Cannot Be Assured .”
Competition
in
Our
Entertainment
Business
Our entertainment business competes, in certain respects and to varying degrees, with other live performances, sporting events, movies, home entertainment
(including the Internet and online services, television, video and gaming devices), restaurants and nightlife venues, and the large number of other entertainment and
public attraction options available to members of the public. Our businesses typically represent alternative uses for the public’s entertainment dollars. The primary
geographic area in which we operate, New York City, is among the most competitive entertainment markets in the world, with the world’s largest live theater
industry and extensive performing arts venues, 12 major professional sports teams, thousands of restaurants and nightlife venues, numerous museums, galleries and
other attractions, and numerous movie theaters available to the public. We also have significant operations in Los Angeles and Las Vegas. Our venues and live
offerings outside of New York City similarly compete with other entertainment, dining and nightlife options in their respective markets and elsewhere. We
compete with these other entertainment options on the basis of the quality of our productions, the public’s interest in our content, the price of our tickets, the
quality, location and atmosphere, including the nature and condition of the setting, of our venues, our service, the price, quality and presentation of our food and the
overall experience we provide.
We compete for bookings with a large number of other venues both in the cities in which our venues are located and in alternative locations capable of booking the
same productions and events. 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.
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Table of Contents
In addition to competition for ticket sales and bookings, we also compete to varying degrees with other productions and sporting events for advertising and
sponsorship dollars.
See “ Item 1A. Risk Factors — Risks Relating to Our Entertainment Business — Our Entertainment Business Faces Intense and Wide-Ranging Competition Which
May Have a Material Negative Effect on Our Business and Results of Operations ,” “— The Success of Our Entertainment Business Depends on the Continued
Popularity of Our Live Productions, Particularly the Christmas Spectacular , the Decline of Which Could Have a Material Negative Effect on Our Business and
Results of Operations ” and “ — Negative Publicity with Respect to Any of the Existing or Future TAO Group Brands Could Reduce Sales at One or More of the
Existing or Future TAO Group Venues and Make the TAO Group Brands Less Valuable, Which Could Have a Material Negative Effect on Our Business and
Results of Operations .”
Employees
As of June 30, 2018 we had approximately 2,900 full-time union and non-union employees and 8,800 part-time union and non-union employees. Approximately
58% of our employees were represented by unions as of June 30, 2018 . Approximately 24% of such union employees are subject to CBAs that expired as of
June 30, 2018 and approximately 16% are subject to CBAs that will expire by June 30, 2019 if they are not extended prior thereto. Labor relations in general and in
the sports and entertainment industry in particular 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.
The NHL players and the NBA players are covered by CBAs between the NHL Players’ Association (“ NHLPA ”) and the NHL and between the National
Basketball Players Association (“ NBPA ”) and the NBA, respectively. Both the NHL and the NBA have experienced labor difficulties in the past and may have
labor issues in the future. On June 30, 2011 the prior CBA between the NBA and NBPA expired and there was a work stoppage for approximately five months
until a new CBA was entered into in December 2011. On September 15, 2012 the prior CBA between the NHL and NHLPA expired and there was a work stoppage
for approximately four months until a new CBA was entered into in January 2013. See “ Item 1A. Risk Factors — General Risks — Organized Labor Matters May
Have a Material Negative Effect on Our Business and Results of Operations .”
Financial Information about Segments and Geographic Areas
Substantially all of the Company’s revenues and assets are attributed to or located in the United States and are primarily concentrated in the New York City
metropolitan area. Financial information by business segments for each of the years ended June 30, 2018 , 2017 , and 2016 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 18 . Segment Information .”
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Table of Contents
Item 1A. Risk Factors
Risks Relating to Our Sports Business
Our
Sports
Business
Faces
Intense
and
Wide-Ranging
Competition,
Which
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations
.
The success of a sports business, like ours, is dependent upon the performance and/or popularity of its franchises. Our Knicks and Rangers and other sports
franchises compete, in varying respects and degrees, with other live sporting events, and with sporting events delivered over television networks, radio, the Internet
and online services, mobile applications and other alternative sources. For example, our sports teams compete for attendance, viewership and advertising with a
wide range of alternatives available in the New York City metropolitan area. During some or all of the basketball and hockey seasons, our sports teams face
competition, in varying respects and degrees, from professional baseball (including the Yankees and the Mets), professional football (including the Giants and the
Jets), professional soccer (including the New York Red Bulls and the New York City Football Club) and each other. For fans who prefer the unique experience of
NHL hockey, we must compete with two other NHL hockey teams located in the New York City metropolitan area (the Islanders and the Devils) as well as, in
varying respects and degrees, with other NHL hockey teams and the NHL itself. Similarly, for those fans attracted to the equally unique experience of NBA
basketball, we must compete with another NBA team located in the New York City metropolitan area (the Nets) as well as, in varying respects and degrees, with
other NBA teams and the NBA itself.
As a result of the large number of options available, we face strong competition for the New York area sports fan. We must compete with these other sports teams
and sporting events, in varying respects and degrees, including on the basis of the quality of the teams we field, their success in the leagues in which they compete,
our ability to provide an entertaining environment at our games, prices we charge for tickets and the viewing availability of our teams on multiple media
alternatives. Given the nature of sports, there can be no assurance that we will be able to compete effectively, including with companies that may have greater
resources than we have, and as a consequence, our business and results of operations may be materially negatively affected.
Our
Businesses
Are
Substantially
Dependent
on
the
Continued
Popularity
and/or
Competitive
Success
of
the
Knicks
and
Rangers,
Which
Cannot
Be
Assured
.
Our financial results have historically been dependent on, and are expected to continue to depend in large part on, the Knicks and Rangers remaining popular with
our fan bases and, in varying degrees, on the teams achieving on-court and on-ice success, which can generate fan enthusiasm, resulting in sustained ticket,
premium seating, suite, concession and merchandise sales during the season. In addition, the popularity of our sports teams can impact television ratings, which
could affect the long-term value of the media rights for the Knicks and/or Rangers. Furthermore, success in the regular season may qualify one of our sports teams
for participation in post-season playoffs, which provides us with additional revenue by increasing the number of games played by our sports teams and, more
importantly, by generating increased excitement and interest in our sports teams, which can improve attendance and television ratings in subsequent seasons. There
can be no assurance that any of our sports teams, including the Knicks and Rangers, will maintain continued popularity or compete in post-season play in the
future.
Our
Basketball
and
Hockey
Decisions,
Especially
Those
Concerning
Player
Selection
and
Salaries,
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
Creating and maintaining our sports teams’ popularity and/or on-court and on-ice competitiveness is key to the success of our sports business. Accordingly, efforts
to improve our revenues and earnings from operations from period to period may be secondary to actions that management believes will generate long-term value.
As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and retain talented players, coaches and
team executives, for which we compete with other professional sports teams. Our efforts in this regard may include, among other things, trading for highly
compensated players, signing draft picks, free agents or current players to new contracts, engaging in salary arbitration with existing players, terminating and
waiving players and replacing team executives. Any of these actions could increase expenses for a particular period, subject to any salary cap restrictions contained
in the respective leagues’ CBAs. There can be no assurance that any actions taken by management to increase our long-term value will be successful.
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Table of Contents
A significant factor in our ability to attract and retain talented players is player compensation. NBA and NHL player salaries have generally increased significantly
and may continue to increase. Although CBAs between the NBA and the NBPA and the NHL and the NHLPA generally cap league-wide player salaries at a
prescribed percentage of league-wide revenues, we may pay our players different aggregate salaries and a different proportion of our revenues than other NBA or
NHL franchises. Future CBAs may increase the percentage of league-wide revenues to which NBA or NHL players are entitled or impose other conditions, which
may further increase our costs. In addition, we may also be obligated to pay the NBA a luxury tax each year, the calculation of which is determined by a formula
based on the aggregate salaries paid to our NBA players. See “Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of
Operations — MSG Sports — Expenses — Player Salaries, Escrow System/Revenue Sharing and NBA Luxury Tax .”
We have incurred, and may in the future incur, significant charges for costs associated with transactions relating to players on our sports teams for season-ending
and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives. These transactions can
result in significant charges as the Company recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to
these individuals are generally paid over their remaining contract terms. These expenses add to the volatility of the results of our MSG Sports segment.
The
Actions
of
the
Basketball
and
Hockey
Leagues
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
The governing bodies of the NBA (including the WNBA and the NBAGL ) and the NHL have certain rights under certain circumstances to take actions that they
deem to be in the best interests of their respective leagues, which may not necessarily be consistent with maximizing our results of operations and which could
affect our sports teams in ways that are different than the impact on other sports teams. Certain of these decisions by the NBA or the NHL could have a material
negative effect on our business and results of operations. From time to time, we may disagree with or challenge actions the leagues take or the power and authority
they assert. The following discussion highlights certain areas in which decisions of the NBA and the NHL could materially affect our businesses.
The NBA and the NHL may assert control over certain matters, under certain circumstances, that may affect our revenues such as the national and international
rights to telecast the games of league members, including the Knicks and Rangers, licensing of the rights to produce and sell merchandise bearing the logos and/or
other intellectual property of our sports teams and the leagues, and the Internet-based activities of our sports teams. The NBA and NHL have each entered into
agreements regarding the national and international telecasts of NBA and NHL games. We receive a share of the income the NBA and the NHL generate from
these contracts, which expire from time to time. There can be no assurance that the NBA or the NHL will be able to renew these contracts following their
expiration on terms as favorable to us as those in the current agreements or that we will continue to receive the same level of revenues in the future. We receive
significant revenues from MSG Networks for the right to telecast games of the Knicks and Rangers. Changes to league rules, regulations and/or agreements,
including national and international media rights, could impact the availability of games covered by our local media rights and could negatively affect the rights
fees we receive from MSG Networks and our business and results of operations. The sports leagues have asserted control over certain other important decisions,
under certain circumstances, such as the length and format of the playing season, preseason and playoff schedules, the operating territories of the member teams,
admission of new members, franchise relocations, labor relations with the players associations, collective bargaining, free agency, luxury taxes and revenue
sharing. The esports leagues have adopted a number of rules and regulations governing the length and format of the playing season, how teams may generate
revenue, and player rosters. Decisions on these matters, some of which are also subject to the terms of a CBA, may materially negatively affect our business and
results of operations. In addition, the NBA imposes a luxury tax and escrow system with respect to player salaries and a revenue sharing plan, and the NHL
imposes an escrow system with respect to player salaries and a revenue sharing plan. For fiscal year 2018 , the Knicks and Rangers recorded approximately $57.7
million in estimated revenue sharing expenses, net of escrow receipts. The actual amounts for the 2017-18 season may vary significantly from the estimate based
on actual operating results for the respective leagues and all teams for the season and other factors. For a discussion of the NBA luxury tax impacts, see “— Our
Basketball and Hockey Decisions, Especially Those Concerning Player Selection and Salaries, May Have a Material Negative Effect on Our Business and Results
of Operations. ”
The NBA and the NHL have imposed certain restrictions on the ability of owners to undertake some types of transactions in respect of teams, including a change in
ownership and a relocation of a team. The NBA and NHL have also imposed restrictions on certain types and/or amounts of financing transactions. In certain
instances, these restrictions could impair our ability to proceed with a transaction that is in the best interest of the Company and its stockholders if we were unable
to obtain any required league approvals in a timely manner or at all.
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Table of Contents
The leagues impose certain rules that define, under certain circumstances, the territories in which we operate, including the markets in which our games can be
telecast. Changes to these rules could have a material negative effect on our business and results of operations.
Each league’s governing body has imposed a number of rules, regulations, guidelines, bulletins, directives, policies and agreements upon its teams. Changes to
these provisions may apply to our teams and their personnel, and the Company as a whole, regardless of whether we agree or disagree with such changes, have
voted against such changes or have challenged them through other means, and it is possible that any such changes could materially negatively affect our business
and results of operations to the extent they are ultimately determined to bind our teams. The commissioners of each of the NBA and NHL assert significant
authority to take certain actions on behalf of their respective leagues under certain circumstances. Decisions by the commissioners of the NBA and the NHL,
including on the matters described above, may materially negatively affect our businesses and results of operations. The leagues’ governing documents and our
agreements with the leagues purport to limit the manner in which we may challenge decisions and actions by a league commissioner or the league itself.
Injuries
to
Players
on
Our
Sports
Teams
Could
Hinder
Our
Success.
To the degree that our financial results are dependent on our sports teams’ popularity and/or on-court and on-ice success, the likelihood of achieving such
popularity or competitive success may, given the nature of sports, be substantially impacted by serious and/or untimely injuries to key players. Nearly all of our
Knicks and Rangers players, including those with multi-year contracts, have partially or fully guaranteed contracts, meaning that in some cases (subject to the
terms of the applicable player contract and CBA), a player or his estate may be entitled to receive his salary even if the player dies, or is unable to play as a result
of injury. These salaries represent significant financial commitments for our sports teams. We are generally insured against having to pay salaries in the event of a
player’s death and seek to obtain disability insurance policies for substantially all of our material player contracts. In the event of injuries sustained resulting in lost
services (as defined in the applicable insurance policies), generally the insurance policies provide for payment to us of a portion of the player’s salary for the
remaining term of the contract or until the player can resume play, in each case following a deductible number of missed games. Such insurance may not be
available in every circumstance or on terms that are commercially feasible or such insurance may contain significant dollar limits and/or exclusions from coverage
for preexisting medical conditions. We may choose not to obtain (or may not be able to obtain) such insurance in some cases and we may change coverage levels
(or be unable to change coverage levels) in the future.
In the absence of disability insurance, we may be obligated to pay all of an injured player’s salary. In addition, player disability insurance policies do not cover any
NBA luxury tax that we may be required to pay under the NBA CBA. For purposes of determining NBA luxury tax under the NBA CBA, salary payable to an
injured player is included in team salary, unless and until that player’s salary is removed from the team salary for purposes of calculating NBA luxury tax which,
pursuant to the terms of the NBA CBA, requires a waiting period of one year and satisfaction of other conditions. Replacement of an injured player may result in
an increase in salary and NBA luxury tax expense for us.
Risks Relating to Our Entertainment Business
Our
Entertainment
Business
Faces
Intense
and
Wide-Ranging
Competition
Which
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations
.
Our entertainment business competes, in certain respects and to varying degrees, with other leisure-time activities such as television, radio, motion pictures,
sporting events, other live performances, restaurants and nightlife venues, the Internet, 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 with other event venues, and
other restaurants and nightlife venues, for total entertainment dollars in our marketplace. The success of our entertainment business is largely dependent on the
continued success of our Christmas
Spectacular
and the TAO Group business, and the availability of, and our venues’ ability to attract, concerts, family shows and
other events, competition for which is intense, and the ability of acts to attract strong attendance at our venues. For example, The Garden, The Hulu Theater at
Madison Square Garden, Radio City Music Hall and the Beacon Theatre all compete with other entertainment options in the New York City metropolitan area. The
Forum, The Chicago Theatre and the Wang Theatre face similar competition from other entertainment options in their respective markets and elsewhere. A
proposed new stadium in Inglewood, CA, is reportedly scheduled to open in 2020. In addition, there are plans to open an indoor arena as part of the same complex
in Inglewood. Either of these venues could materially adversely affect the performance of the Forum. The restaurant, nightlife and hospitality industries are
intensely competitive with respect to, among other things, service, price, food quality and presentation, location, atmosphere, overall experience, and the nature and
condition of the setting. Competitors of TAO Group business include a large and diverse group of well-recognized upscale restaurants and nightlife venues and
brands. Some of our competitors may have a larger network of venues and/or greater financial resources.
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Table of Contents
Further, in order to maintain the competitive positions of The Garden and our other venues, we must invest on a continuous basis in state-of-the-art technology. In
addition, we must maintain a competitive pricing structure for events that may be held in our venues, many of which have alternative venue options available to
them in New York and other cities. In addition, we invest a substantial amount in our Christmas
Spectacular
and in new productions 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.
The
Success
of
Our
Entertainment
Business
Depends
on
the
Continued
Popularity
of
Our
Live
Productions,
Particularly
the
Christmas
Spectacular
,
the
Decline
of
Which
Could
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations
.
The financial results of our entertainment business are dependent on the popularity of our live productions, particularly the Christmas
Spectacular
, which
represented 15% of our MSG Entertainment segment’s revenues in fiscal year 2018 . Should the popularity of the Christmas
Spectacular
decline, our revenues
from ticket sales, and concession and merchandise sales would likely also decline, and we might not be able to replace the lost revenue with revenues from other
sources.
We
Plan
to
Build
and
Operate
Entertainment
Venues
in
Las
Vegas
and
London
and
are
Exploring
Other
Potential
Sites.
These
State-of-the-Art
Venues
Will
Use
Cutting-Edge
Technologies
and
Will
Require
Significant
Capital
Investment
by
the
Company.
There
Can
Be
No
Assurance
That
The
Company’s
Sphere
Projects
Will
Be
Successful.
The Company is moving forward with its venue strategy to create, build and operate new music and entertainment-focused venues — called MSG Sphere - that
will utilize cutting-edge technologies to create the next generation of immersive experiences. There is no assurance that the MSG Sphere in Las Vegas or London
will be successful. We are building the first MSG Sphere in Las Vegas with the goal of opening in fiscal year 2021. Subject to the timely completion of the
planning and governmental approval process, our goal is to have our London venue debut approximately one year after the Las Vegas venue. Our primary focus
now is to build the Las Vega and London MSG Spheres, but we also continue to explore additional domestic and international markets where these next-generation
venues can be successful. While both the Las Vegas and London venues would have a scalable capacity of more than 18,000 seats, moving forward, our goal is to
develop a venue model that will accommodate a wide range of sizes and seating capacities — from large-scale to more intimate — based on the needs of any
individual market.
Given the transformative nature of these venues, we expect that construction of these venues will require greater capital spend than would be required for a
traditional arena-sized venue. As is the case with any large-scale real estate development, as the Company moves forward with the planning and construction of
these and other major new venues, the Company may face unexpected project delays and costs. In light of the ambitious and unique design of MSG Sphere,
including the use of technologies that have not previously been employed in major entertainment venues, the risk of delays and higher than anticipated costs are
elevated. In connection with the construction of the MSG Sphere venues, the Company will need to obtain additional capital beyond what is available from cash on
hand, cash flows from operations and borrowings under our revolving credit facilities. There is no assurance that we will be able to obtain such capital. The NBA
and NHL have imposed restrictions on certain types and/or amounts of financing transactions. See also “ — The Actions of the Basketball and Hockey Leagues
May 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 customers, artists, promoters, advertisers and marketing partners will embrace this new platform.
Our
Entertainment
Business
is
Highly
Sensitive
to
Customer
Tastes
and
Depends
on
Our
Ability
to
Attract
Artists
and
Events.
The success of our entertainment business depends in part upon our ability to offer live entertainment that is popular with customers. We contract with promoters
and others to provide performers and events at our venues. There may be a limited number of popular artists, groups or events that can attract audiences to our
venues, and our entertainment segment would suffer to the extent that we are unable to continue to attract such artists, groups and events to perform at our venues.
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Table of Contents
TAO
Group
Plans
to
Add
a
Significant
Number
of
New
Venues.
This
Will
Require
Additional
Capital
and
There
Can
Be
No
Guarantee
of
Success.
TAO Group has an aggressive plan to add new venues. In pursuing its expansion strategy, TAO Group faces a number of risks associated with cost overruns and
construction delays, obtaining financing and operating in new or existing markets. In addition, TAO Group faces the risk that new venues may not be successful
and that TAO Group may lose all or a part of its investment in existing and new venues, which could have a material negative effect on our business and results of
operations.
Our
Strategy
for
Our
Entertainment
Business
Includes
the
Development
of
New
Live
Productions
and
the
Possible
Addition
of
New
Venues,
Each
of
Which
Could
Require
Us
to
Make
Considerable
Investments
for
Which
There
Can
Be
No
Guarantee
of
Success.
As part of our business strategy, we intend to develop new productions, attractions and live entertainment events, which may include expansions or enhancements
of our existing productions or relationships or the creation of entirely new live productions. Expansion or enhancement of productions and/or the development of
new productions, attractions and live entertainment events could require significant upfront investment in sets, staging, creative processes, licensing of intellectual
property, casting and advertising and dislocation of other alternative sources of entertainment that may have played in our venues absent these productions. To the
extent that any efforts at expanding or enhancing productions or creating new productions do not result in a viable live show, or to the extent that any such
productions do not achieve expected levels of popularity among audiences, we may be subject to a write-down of all or a portion of such investments. In addition,
any delay in launching such productions or enhancements could result in the incurrence of operating costs which may not be recouped. In March 2016, we wrote
off approximately $41.8 million of deferred production costs of the New
York
Spectacular
Starring
the
Radio
City
Rockettes
(“ New
York
Spectacular
”).
Subsequently, due to assessments of the show’s creative direction, timing and scale, the Company wrote off the remaining balance of deferred production costs
related to the New
York
Spectacular
in the amount of $33.6 million during the fourth quarter of fiscal year 2017.
A
Lack
of
Availability
of
Suitable
Locations
for
New
TAO
Group
Venues
or
a
Decline
in
the
Quality
of
the
Locations
of
Current
TAO
Group
Venues
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
The success of the existing TAO Group venues depends in large part on their locations. Possible declines in neighborhoods where TAO Group venues are located
or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those venues. Further, TAO Group’s growth strategy is
based, in part, on the expansion of TAO Group venues into new geographic markets where its business has not previously operated. Desirable locations for new
openings or for the relocation of existing venues may not be available at an acceptable cost when TAO Group identifies a particular opportunity for a new venue or
relocation. In addition, the success of new TAO Group venues tends to expand or revive interest in TAO Group venues that have been in operation for an extended
period of time. Thus, the inability to successfully open new TAO Group venues could also negatively impact the existing TAO Group business. The occurrence of
one or more of these events could have a material negative effect on our business and results of operations.
The
Success
of
TAO
Group
Depends
in
Part
Upon
the
Continued
Retention
of
Certain
Key
Personnel.
The success of TAO Group depends, in part, on certain key members of its management, including its four original founders. The expertise of TAO Group’s senior
management team in developing, acquiring, reinventing, integrating and growing businesses, particularly those focused on entertainment and hospitality, has been
and will continue to be a significant factor in the growth of TAO Group’s business and the ability of TAO Group to execute its business strategy. The loss of such
key personnel could have a material negative effect on our business and results of operations.
The
Geographic
Concentration
of
Our
Businesses
Could
Subject
Us
to
Greater
Risk
Than
Our
Competitors
and
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
The Company primarily operates in three markets — New York City, Las Vegas and Los Angeles — and, as a result, is subject to greater degrees of risk than
competitors with more operating properties or that operate in more markets. The Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall and
the Beacon Theatre are all located in New York City, our sports teams are all based in the New York City metropolitan area, and TAO Group currently operates 12
venues in New York City, including the food and beverage operations at the Dream Downtown and Dream Midtown hotels. In addition, TAO Group currently
operates six venues in Las Vegas, where the Company plans to construct its first MSG Sphere. The Forum is located in Inglewood, California, which is adjacent to
Los Angeles, where TAO Group currently operates five venues. Therefore, the Company is particularly vulnerable to adverse events (including acts of terrorism,
natural disasters, weather conditions, labor market disruptions and government actions) and economic conditions in New York City, Las Vegas, Los Angeles and
surrounding areas. Any adverse event or conditions in those markets could have a material negative effect on our business and results of operations.
20
Table of Contents
Negative
Publicity
with
Respect
to
Any
of
the
Existing
or
Future
TAO
Group
Brands
Could
Reduce
Sales
at
One
or
More
of
the
Existing
or
Future
TAO
Group
Venues
and
Make
the
TAO
Group
Brands
Less
Valuable,
Which
Could
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations
.
The success of TAO Group depends upon the reputation and popularity of the TAO Group venues and brands. If customers have a poor experience at a restaurant
or nightlife venue owned, operated or managed by TAO Group, the TAO Group venues may experience a decrease in customer traffic. Negative publicity with
respect to any of the TAO Group brands could adversely affect TAO Group. Such publicity could relate to food quality, illness, injury or other health concerns,
poor service, negative experiences or other problems and reduce demand in the TAO Group business. The risk of negative publicity is exacerbated by the growing
influence of social media, which can result in immediate and widespread dissemination of information (which may be false) with limited ability on our part to
respond or correct such reports.
Increases
in
Labor
Costs
Could
Slow
the
Growth
of
or
Harm
TAO
Group
.
TAO Group has a substantial number of hourly employees whose compensation may be impacted by increases in government-imposed minimum wage rates. In
addition, TAO Group employs a substantial number of employees whose income is supplemented through the receipt of gratuities. In certain jurisdictions in which
TAO Group operates, the minimum hourly wage to which gratuity eligible employees are entitled under law is lower than the minimum wage required to be paid to
other employees, subject to the former’s receipt of sufficient gratuities. The difference between the two minimum rates is referred to as a “tip credit”.
Governmental entities have acted to increase minimum wage rates in jurisdictions where TAO Group operates or may operate in the future. In addition,
governmental entities have acted to eliminate, or considered the elimination of, tip credits in the application of minimum wage laws. As minimum wage rates
increase, or if tip credits are reduced or eliminated, TAO Group may need to increase wages paid to a substantial number of employees, which will increase the
labor costs of TAO Group. In addition, TAO Group’s labor costs may increase if certain employees elect to be union represented and to collectively bargain their
compensation. TAO Group may be unable offset these increased labor cost either through increased prices or changes to its operations, which could have a material
negative effect on our business and results of operations.
General Risks
Our
Business
Has
Been
Adversely
Impacted
and
May,
in
the
Future,
Be
Materially
Adversely
Impacted
by
an
Economic
Downturn
and
Financial
Instability
or
Changes
in
Consumer
Tastes
and
Preferences.
Our businesses depend upon the ability and willingness of consumers and businesses to purchase tickets (including season tickets) at our venues, license suites at
The Garden, spend on concessions and merchandise, and drive continued advertising and sponsorship revenues. Further, the restaurant, nightlife and hospitality
industries are 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.
As a result, instability and weakness of the U.S. and global economies and the negative effects on consumers’ and businesses’ discretionary spending may
materially negatively affect our business and results of operations.
We
Have
in
Past
Periods
Incurred
Substantial
Operating
Losses,
Negative
Adjusted
Operating
Income
and
Negative
Cash
Flow
and
There
is
No
Assurance
We
Will
Have
Operating
Income,
Positive
Adjusted
Operating
Income
or
Positive
Cash
Flow
in
the
Future.
We have in past periods incurred operating losses and negative cash flow and there is no assurance that we will have operating income or positive cash flow in the
future. Our MSG Entertainment segment recognized operating losses during the years ended June 30, 2017, 2016 and 2014 and our MSG Sports segment
recognized an operating loss during the year ended June 30, 2014. 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, lenders and the organizations that issue investment ratings on indebtedness. See
“Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Sports — Factors Affecting Operating
Results ” and “Part II — Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — MSG Entertainment — Factors
Affecting Operating Results .”
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Table of Contents
Our
Operating
Results
and
Cash
Flow
Can
Vary
Substantially
from
Period
to
Period.
Our operating results and cash flow reflect significant variation from period to period and will continue to do so in the future. Therefore, period-to-period
comparisons of our operating results may not necessarily be meaningful and the operating results 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.
Weather
or
Other
Conditions
May
Impact
Events
at
Our
Venues,
Which
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
Weather or other conditions, including natural disasters, acts of terrorism and similar events, in the New York metropolitan area and other locations in which we
own or operate venues may affect patron attendance as well as sales of concessions and merchandise, among other things. Weather conditions may also require us
to cancel or postpone events. Any of these events may have a material negative effect on our business and results of operations.
Our
Business
Could
Be
Adversely
Affected
by
Terrorist
Activity
or
the
Threat
of
Terrorist
Activity
and
Other
Developments
that
Discourage
Congregation
at
Prominent
Places
of
Public
Assembly.
The success of our businesses is dependent upon the willingness and ability of patrons to attend events at our venues. The venues we operate, like all prominent
places of public assembly, could be the target of terrorist activities or other actions that discourage attendance. Any such activity at or near one of our venues or
other similar venues could result in a material negative effect on our business and results of operations. In addition, terrorist activity or other actions that discourage
attendance at other locations, or even the threat of such activity, could result in reduced attendance at our venues. Similarly, a major epidemic or pandemic, or the
threat of such an event, could adversely affect attendance at our events.
We
May
Pursue
Acquisitions
and
Other
Strategic
Transactions
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 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 business. 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, litigation or other claims in connection with acquisitions or against companies we
invest in or acquire, our lack of control over certain joint venture companies and other minority investments, the inability to successfully integrate such business
into our operations or even if successfully integrated, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or
ventures are not successful. We have significant investments in businesses that we account for under the equity method of accounting. These investments have
generated operating losses each year and certain have required additional investments from us in the form of equity or loans. We incurred losses in our equity
method investments of approximately $7.8 million , $30.0 million , $19.1 million , and $40.6 million in the 2018 , 2017 , 2016 and 2015 fiscal years, respectively.
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 do 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 of all or a portion of such investments. Additionally, these businesses are 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.
We
Do
Not
Own
All
of
Our
Venues
and
Our
Failure
to
Renew
Our
Leases
or
Venue
Management
Agreements
on
Economically
Attractive
Terms
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations;
Our
Lease
on
Radio
City
Music
Hall
Requires
Us
to
Maintain
a
Certain
Net
Worth
or
Meet
Certain
Other
Requirements.
The lease on Radio City Music Hall expires in 2023 . We have the option to renew the lease at fair market value for an additional ten years by providing two years’
notice prior to the initial expiration date. Similarly, we lease the Beacon Theatre pursuant to a lease that expires in 2026 . If we are unable to renew these leases on
economically attractive terms, our business could be materially negatively affected. Our booking agreement with the Wang Theatre in Boston expires in 2019 . The
expiration of the booking agreement will not have a material negative effect on our business. MSG Sports & Entertainment, LLC, the entity that guarantees the
Radio City Music Hall lease, is required to maintain a certain net worth or, if such net worth is not maintained, the entity must either post a letter of credit or
provide cash collateral. The MSG Sphere Las Vegas will be constructed on property we lease from Sands under a 50 year lease.
22
Table of Contents
TAO Group operates venues under various agreements that include leases with third parties and management agreements. The long-term success of TAO Group
will depend in part on the availability of real estate, the ability to lease this real estate and the ability to enter into management agreements. As many of these
agreements are with third parties over whom TAO Group has little or no control, they may be unable to renew these agreements or enter into new agreements on
acceptable terms or at all, and may be unable to obtain favorable agreements with venues. The ability to renew these agreements and obtain new agreements on
favorable terms depends on a number of other factors, many of which are beyond the control of us or TAO Group, such as national and local business conditions
and competition from other businesses. There can be no assurance that TAO Group will be able to renew these agreements on acceptable terms or at all, or that
they will be able to obtain attractive agreements with appropriate venues or real estate owners, which could have a material negative effect on our business and
results of operations.
We
Are
Subject
to
Extensive
Governmental
Regulation
and
Our
Failure
to
Comply
with
These
Regulations
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
Our operations are subject to federal, state and local laws and regulations.
We hold liquor licenses at each of our venues and are subject to licensing requirements with respect to the sale of alcoholic beverages in the jurisdictions in which
we serve those beverages. Failure to receive or retain, or the suspension of, liquor licenses or permits could interrupt or terminate our ability to serve alcoholic
beverages at the applicable venue and could have a material negative effect on our business and our results of operations. Additional regulation relating to liquor
licenses may limit our activities in the future or significantly increase the cost of compliance, or both. In the jurisdictions in which our venues are located, 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 potential liability.
We and our venues 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 venues. 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, and could hold us responsible for any personal or property damage related to any contamination. Any requirements to dispose of, or remediate, such
hazardous or non-hazardous materials and any associated costs and impact on operations of such efforts may be heightened as a result of the purchase, construction
or renovation of a venue.
Our venues are subject to zoning and building regulations including permits relating to the operation of The Garden. In addition, The Garden requires a zoning
special permit. The original permit was granted by the New York City Planning Commission in 1963 and renewed in July 2013 for 10 years. In connection with the
renewal, certain government officials and special interest groups sought to use the renewal process to pressure us to improve Penn Station or to relocate The
Garden. There can be no assurance regarding the future renewal of the permit or the terms thereof.
In January 2016, New York Governor Andrew Cuomo announced a request for proposal (“ RFP ”) process for proposals on transforming Penn Station. For
example, he noted the possibility of seeking to move The Hulu Theater at Madison Square Garden to create a new Penn Station entrance, but noted that New York
State was ready to explore all RFP proposals. The Governor has not announced a final decision on any of the proposals received. We have no assurance on how the
final approved proposal may impact the Madison Square Garden Complex.
Our businesses are, and may in the future be, subject to a variety of other laws and regulations, including licensing, permitting, and historic designation and similar
requirements; working conditions, labor, immigration and employment laws; health, safety and sanitation requirements; compliance with the Americans with
Disabilities Act; and privacy laws.
Our failure to comply with applicable governmental laws and regulations, or to maintain necessary permits or licenses, could have a material negative effect on our
business and results of operations.
23
Table of Contents
Our
Properties
Are
Subject
to,
and
Benefit
from,
Certain
Easements,
the
Availability
of
Which
May
Not
Continue
on
Terms
Favorable
to
Us
or
at
All.
Our properties are subject to, and benefit from, certain easements. For example, the “breezeway” into the Madison Square Garden Complex from Seventh Avenue
in New York City is a significant easement that we share with other property owners. Additionally, our planned MSG Sphere Las Vegas will have the benefit of an
easement with respect to the planned pedestrian bridge to the Sands Expo & Convention Center. Our ability to continue to utilize these and other easements,
including for advertising purposes, requires us to comply with a number of 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. 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.
We
May
Be
Exposed
to
Business,
Reputational
and
Litigation
Risk
if
There
is
Loss,
Disclosure
or
Misappropriation
of
or
Access
to
Stored
Personal
Information
or
Other
Breaches
of
Our
Information
Security.
Through our operations, we may collect and store, including by electronic means, certain personal information and payment card information that is provided to us
through purchases, registration on our web sites, or otherwise in communication or interaction with us. These activities require the use of centralized data storage,
including through third party service providers. Data maintained in electronic form is subject to the risk of intrusion, tampering, theft or other malicious activity.
Our ability to safeguard such personal information and other confidential information, including information regarding the Company and our distributors,
advertisers and employees, is important to our business. We take these matters seriously and take significant steps to protect our stored information. These
protections are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated.
Despite our efforts, the risks of a data breach cannot be entirely eliminated and our information technology and other systems that maintain and transmit consumer,
distributor, advertiser, Company, employee and other confidential information may be compromised. This compromise of information on our network security or
that of a third party service provider could result in personal information and/or confidential information being lost, disclosed, accessed or taken without consent,
as well as the security of our other confidential information may be compromised. For example, on November 22, 2016, the Company announced that it was
notifying customers that it had identified and addressed a payment card issue that affected cards used at merchandise and food and beverage locations at several of
the Company’s New York venues and The Chicago Theatre. The Company, working with security firms, promptly fixed the issue and implemented enhanced
security measures. The Company also continues to review and enhance our security measures in light of changes in the industry. The Company has incurred and
expects to incur expenses associated with the payment card incident.
If our electronically stored data is compromised, our ability to conduct business may be interrupted or impaired, 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. Further, a penetration of our network
security or other misappropriation or misuse of personal or confidential information could subject us to business and litigation risk and damage our reputation,
which could have a material negative effect on our business and results of operations.
A
Change
to
or
Withdrawal
of
New
York
City
Real
Estate
Tax
Exemption
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
Many arenas, ballparks and stadiums nationally and in New York City have received significant public support, such as tax exempt financing, other tax benefits,
direct subsidies and other contributions, including for public infrastructure critical to the facilities such as parking lots and transit improvements. Our Madison
Square Garden Complex benefits from a more limited real estate tax exemption pursuant to an agreement with the City of New York, subject to certain conditions,
and legislation enacted by the State of New York in 1982. For fiscal year 2018 , the tax exemption was $41.5 million . From time to time there have been calls to
repeal or amend the tax exemption. Repeal or amendment would require legislative action by New York State. There can be no assurance that the tax exemption
will not be amended in a manner adverse to us or repealed in its entirety, either of which could have a material negative effect on our business and results of
operations.
24
Table of Contents
Certain
of
Our
Subsidiaries
Have
Incurred
Indebtedness,
and
the
Occurrence
of
an
Event
of
Default
Under
Our
Subsidiaries’
Credit
Facilities
Could
Substantially
Impair
the
Assets
of
Those
Subsidiaries;
Failure
of
Our
Joint
Ventures
to
Perform
as
Expected
Could
Have
a
Negative
Effect
on
Our
Business.
Certain of our subsidiaries have incurred indebtedness, which indebtedness in the case of the TAO Group is significant relative to the assets of the TAO Group
business. New York Knicks, LLC and New York Rangers, LLC, which own the assets of the Knicks and Rangers franchises, respectively, have also entered into
credit facilities, both of which were undrawn as of June 30, 2018. The occurrence of an event of default under our subsidiaries’ credit facilities could substantially
impair the assets of those subsidiaries and, as a result, have a negative effect on our business and results of operations.
In addition, we have made investments in, or otherwise extended loans to, one or more of our joint ventures and may make additional investments in, or otherwise
extend loans to, one or more of our joint ventures or their affiliates in the future. To the extent that those joint ventures or related affiliates do not perform as
expected, including with respect to repayment of such loans, it could impair such assets or create losses related to such loans, and, as a result, have a negative effect
on our business and results of operations.
We
May
Require
Financing
to
Fund
Our
Ongoing
Operations
and
Capital
Expenditures,
the
Availability
of
Which
is
Highly
Uncertain.
The capital and credit markets can experience volatility and disruption. Such 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.
Our business has been characterized by significant expenditures for properties, businesses, renovations and productions. In the future we may engage in
transactions that depend on our ability to obtain financing. We may also seek financing to fund our ongoing operations.
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. In addition, as described above, the leagues in which our sports teams compete may have, under certain circumstances, approval rights over certain
financing transactions, and in connection with those rights, could affect our ability to obtain such financing. 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.
Our
Business
is
Subject
to
Seasonal
Fluctuations.
Our revenues have been seasonal and we expect they will continue to be seasonal. For example, 15% of our MSG Entertainment segment’s revenues and 7% of our
consolidated revenues in fiscal year 2018 were derived from the Christmas
Spectacular
. Revenues of the MSG Entertainment segment are highest in the second
quarter of our fiscal year when these performances primarily occur. As a result, MSG Entertainment earns a disproportionate amount of its revenue and operating
income in the second quarter of each fiscal year. Similarly, because of the nature of the NBA and NHL playing seasons, revenues from our sports teams are
concentrated in the second and third quarters of each fiscal year. Revenues from our business on a consolidated basis tend to be at their lowest in the first and
fourth quarters of the fiscal year.
Organized
Labor
Matters
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations
.
Our business is dependent upon the efforts of unionized workers. Approximately 58% of our employees are represented by unions. 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 concerts, theatrical productions, sporting events and other events).
25
Table of Contents
NBA players are covered by a CBA between the NBPA and the NBA. NHL players are covered by a CBA between the NHLPA and the NHL. Both the NBA and
the NHL have experienced labor difficulties in the past and may have labor issues in the future. Labor difficulties may include players’ strikes or management
lockouts. For example, the NHL has experienced labor difficulties, including a lockout during the 1994-95 NHL season, which resulted in the regular season being
shortened from 84 to 48 games, a lockout beginning in September 2004, which resulted in the cancellation of the entire 2004-05 NHL season, and a lockout during
the 2012-13 NHL season, which resulted in the regular season being shortened from 82 to 48 games. The current NHL CBA expires on September 15, 2022
(although the NHL and NHLPA each have the right to terminate the CBA effective following the 2019-20 season). The NBA has also experienced labor
difficulties, including a lockout during the 1998-99 season, which resulted in the regular season being shortened from 82 to 50 games, and a lockout during the
2011-12 season, which resulted in the regular season being shortened from 82 games to 66 games. The current NBA CBA expires after the 2023-24 season
(although the NBA and NBPA each has the right to terminate the CBA effective following the 2022-23 season).
The
Unavailability
of
Systems
Upon
Which
We
Rely
May
Have
a
Material
Negative
Effect
on
Our
Business
and
Results
of
Operations.
We rely upon various internal and third-party software or 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. From time to time, certain of these
arrangements may not be covered by long-term agreements. 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.
We
May
Become
Subject
to
Infringement
or
Other
Claims
Relating
to
Our
Content
or
Technology.
From time to time, third parties may assert against us alleged intellectual property (e.g., copyright, trademark and patent) or other claims relating to our
productions, technologies or other content or material, some of which may be important to our business. In addition, our productions could potentially subject us to
claims of defamation or similar types of allegations. Any such claims, regardless of their merit, could cause us to incur significant costs. 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.
There
Is
the
Risk
of
Personal
Injuries
and
Accidents
in
Connection
with
Our
Venues,
Which
Could
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 or renovating our venues and in operating the restaurant and
nightlife venues. As a result, personal injuries, accidents and other incidents have occurred and may occur from time to time, which could subject us to claims and
liabilities.
These risks might not be covered by insurance or could involve exposures that exceed the limits of any applicable insurance. Incidents in connection with events at
any of our venues could also reduce attendance at our events, and cause a decrease in our revenue and operating income. While we seek to obtain contractual
indemnities for events at our venues that we do not promote and we 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.
From time to time, we become subject to other kinds of litigation. The outcome of litigation is inherently unpredictable. As a result, we could incur liability from
litigation which could be material and for which we may have inadequate or no insurance coverage or be subject to other forms of relief which might adversely
affect the Company.
26
Table of Contents
We
face
risks
from
doing
business
internationally.
We have operations and own property outside of the United States. As a result, our business is subject to certain risks inherent in international business, many of
which are beyond our control. These risks include:
•
•
•
•
•
•
•
•
•
•
laws and policies affecting trade and taxes, including laws and policies relating to currency, the repatriation of funds and withholding taxes, and changes
in these laws;
changes in local regulatory requirements, including restrictions on foreign ownership;
exchange rate fluctuation;
exchange controls, tariffs and other trade barriers;
differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;
foreign privacy and data protection laws and regulations and changes in these laws;
the instability of foreign economies and governments;
war and acts of terrorism;
anti-corruption laws and regulations such as the 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
shifting consumer preferences regarding entertainment.
Events or developments related to these and other risks associated with international operations could have a material negative effect on our business and results of
operations.
The
Distribution
Could
Result
in
Significant
Tax
Liability.
We have received an opinion from Sullivan & Cromwell LLP substantially to the effect that, among other things, the Distribution qualified 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. Additionally,
MSG Networks received a private letter ruling from the IRS concluding that certain limited aspects of the Distribution do not prevent the Distribution from
satisfying certain requirements for tax-free treatment under the Code . The opinion and the private letter ruling relied on factual representations and reasonable
assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.
If the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, MSG Networks would recognize taxable gain in an
amount equal to the excess of the fair market value of the common stock of our Company over MSG Networks’ tax basis therein (i.e., as if it had sold the common
stock of our Company in a taxable sale for its fair market value). In addition, the receipt by MSG Networks’ stockholders of common stock of our Company would
be a taxable distribution, and each U.S. holder that participated in the Distribution would recognize a taxable distribution 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 MSG Networks’ earnings and profits, then as a non-taxable return of capital to the extent of each U.S. holder’s tax basis in its MSG Networks 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 Networks’ stockholders and MSG
Networks would be substantial. See “— We May Have a Significant Indemnity Obligation to MSG Networks if the Distribution Is Treated as a Taxable
Transaction. ”
We
May
Have
a
Significant
Indemnity
Obligation
to
MSG
Networks
if
the
Distribution
Is
Treated
as
a
Taxable
Transaction.
We have entered into a Tax Disaffiliation Agreement with MSG Networks, which sets out each party’s rights and obligations with respect to deficiencies and
refunds, if any, of federal, state, local or foreign taxes for periods before and after the Distribution and related matters such as the filing of tax returns and the
conduct of IRS and other audits. Pursuant to the Tax Disaffiliation Agreement, we are required to indemnify MSG Networks for losses and taxes of MSG Networks
resulting from the breach of certain covenants and for certain taxable gain recognized by MSG Networks, including as a result of certain acquisitions of our stock
or assets. If we are required to indemnify MSG Networks under the circumstances set forth in the Tax Disaffiliation Agreement, we may be subject to substantial
liabilities, which could materially adversely affect our financial position.
27
Table of Contents
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 have two classes of common stock:
•
•
Class A Common Stock, par value $0.01 per share (“ Class A Common Stock ”), which is entitled to one vote per share and is entitled collectively to elect
25% of our Board of Directors; and
Class B Common Stock, par value $0.01 per share (“ Class B Common Stock ”), which is entitled to ten votes per share and is entitled collectively to elect
the remaining 75% of our Board of Directors.
As of July 31, 2018 , the Dolan family, including trusts for the benefit of members of the Dolan family (collectively, the “ Dolan Family Group ”), collectively own
all of our Class B Common Stock, approximately 2.8% of our outstanding Class A Common Stock and approximately 71.1% of the total voting power of all our
outstanding common stock. The members of the Dolan Family Group holding Class B Common Stock have executed a stockholders agreement (the “Stockholders
Agreement”) that 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 Class B Common Stock. Under the Stockholders Agreement, the shares of Class B Common Stock owned by members of the Dolan Family
Group are to be voted on all matters in accordance with the determination of the Dolan Family Committee, 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 40.5% of the outstanding
Class B Common Stock (“Excluded Trust”). 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 are to be voted on all matters 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 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 will be able to do so without obtaining the
consent of the Dolan Family Group. The Dolan Family Group, by virtue of their stock ownership, have the power to elect all of our directors subject to election by
holders of Class B Common Stock and are 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.
In addition, the affirmative vote or consent of the holders of at least 66 2 ⁄ 3 % of the outstanding shares of the Class B Common Stock, voting separately as a class,
is required to approve:
•
•
the authorization or issuance of any additional shares of Class B Common Stock; and
any amendment, alteration or repeal of any of the provisions of our certificate of incorporation that adversely affects the powers, preferences or rights of
the Class B Common Stock.
As a result, the Dolan Family Group also has the power to prevent such issuance or amendment.
The Dolan Family Group also controls MSG Networks and AMC Networks Inc. (“ AMC Networks ”).
We
Have
Elected
to
Be
a
“Controlled
Company”
for
NYSE
Purposes
Which
Allows
Us
Not
to
Comply
with
Certain
of
the
Corporate
Governance
Rules
of
NYSE.
Members of the Dolan Family Group have entered into a 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, (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.
28
Table of Contents
Future
Stock
Sales,
Including
as
a
Result
of
the
Exercise
of
Registration
Rights
by
Certain
of
Our
Stockholders,
Could
Adversely
Affect
the
Trading
Price
of
Our
Class
A
Common
Stock.
Certain parties have registration rights covering a portion of our shares. 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 5.1 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 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.
Transfers
and
Ownership
of
Our
Common
Stock
Are
Subject
to
Restrictions
Under
Rules
of
the
NBA,
NHL
and
WNBA
and
Our
Certificate
of
Incorporation
Provides
Us
with
Remedies
Against
Holders
Who
Do
Not
Comply
with
Those
Restrictions.
The Company is the owner of professional sports franchises in the NBA, NHL and WNBA. As a result, transfers and ownership of our common stock are subject to
certain restrictions under the governing documents of the NBA, NHL and WNBA as well as the Company’s consent and other agreements with the NBA, NHL and
WNBA in connection with their approval of the Distribution. These restrictions are described under “Description of Capital Stock — Class A Common Stock and
Class B Common Stock — Transfer Restrictions” in our Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the registration statement on Form 10
filed with the SEC on September 11, 2015. In order to protect the Company and its NBA, NHL and WNBA franchises from sanctions that might be imposed by the
NBA, NHL or WNBA as a result of violations of these restrictions, our amended and restated certificate of incorporation provides that, if a transfer of shares of our
common stock to a person or the ownership of shares of our common stock by a person requires approval or other action by a league and such approval or other
action was not obtained or taken as required, the Company shall have the right by written notice to the holder to require the holder to dispose of the shares of
common stock which triggered the need for such approval. If a holder fails to comply with such a notice, in addition to any other remedies that may be available,
the Company may redeem the shares at 85% of the fair market value of those shares.
We
Share
Certain
Key
Executives
and
Directors
with
MSG
Networks
and/or
AMC
Networks
,
Which
Means
Those
Executives
Do
Not
Devote
Their
Full
Time
and
Attention
to
Our
Affairs
and
the
Overlap
May
Give
Rise
to
Conflicts;
Certain
Directors
Are
Also
Directors
and/or
Executives
of
AMC
Networks
.
Our Executive Chairman and Chief Executive Officer, James L. Dolan, also serves as the Executive Chairman of MSG Networks, and our Executive Vice
President, General Counsel and Secretary, Lawrence J. Burian, also serves as the Executive Vice President, General Counsel and Secretary of MSG Networks. As a
result, not all of our executive officers devote their full time and attention to the Company’s affairs. In addition, our Vice Chairman, Gregg G. Seibert, also serves
as the Vice Chairman of both MSG Networks and AMC Networks, and one of our directors, Charles F. Dolan, is the Executive Chairman of AMC Networks.
Furthermore, six members of our Board of Directors (including James L. Dolan) are also directors of MSG Networks, and seven members of our Board of
Directors (including James L. Dolan) are also directors of AMC Networks. The overlapping officers and directors may have actual or apparent conflicts of interest
with respect to matters involving or affecting each company. For example, the potential for a conflict of interest exists when we on the one hand, and MSG
Networks and/or AMC Networks 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 Networks or AMC Networks and
us. In addition, certain of our directors and officers hold MSG Networks and/or AMC Networks stock, stock options, restricted stock units and/or cash performance
awards. 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 MSG Networks or AMC Networks. See “Certain Relationships and Potential Conflicts of Interest” in our Proxy
Statement filed with the SEC on October 27, 2016 and “Certain Relationships and Related Party Transactions — Certain Relationships and Potential Conflicts of
Interest” in our Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the registration statement on Form 10 filed with the SEC on September 11,
2015 for a discussion of certain procedures we instituted to help ameliorate such potential conflicts with MSG Networks and/or AMC Networks that may arise.
29
Table of Contents
Our
Overlapping
Directors
and
Executive
Officers
with
MSG
Networks
and/or
AMC
Networks
May
Result
in
the
Diversion
of
Corporate
Opportunities
to
MSG
Networks
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 or agents of MSG Networks and/or AMC Networks (each 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 director or officer of the Company who is also serving as a director, officer, employee or agent of one or more
of the Other Entities 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, provide that the
actions of the overlapping directors or officers in connection therewith are not breaches of fiduciary duties owed to the Company, any of its subsidiaries or their
respective stockholders. See “Certain Relationships and Potential Conflicts of Interest” in our Proxy Statement filed with the SEC on October 27, 2017 and
“Description of Capital Stock — Certain Corporate Opportunities and Conflicts” in our Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the
registration statement on Form 10 filed with the SEC on September 11, 2015 .
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own the Madison Square Garden Complex, which includes The Garden (with a maximum capacity of approximately 21,000 seats) and The Hulu Theater at
Madison Square Garden (approximately 5,600 seats) in New York City, comprising approximately 1,100,000 square feet; a training center in Greenburgh, NY with
approximately 105,000 square feet of space; The Chicago Theatre (approximately 3,600 seats) in Chicago comprising approximately 72,600 square feet; and the
Forum (approximately 17,600 seats) in Inglewood, CA comprising approximately 307,000 square feet.
Significant properties that are leased in New York City include approximately 328,500 square feet housing Madison Square Garden’s administrative and executive
offices, approximately 577,000 square feet comprising Radio City Music Hall (approximately 6,000 seats) and approximately 57,000 square feet comprising the
Beacon Theatre (approximately 2,800 seats). We also lease storage space in various other locations. For more information on our venues, see “ Item 1. Business —
Our Business — Our Performance Venues .”
We also lease property in Las Vegas, Nevada and own property in Stratford, London on which we intend to construct new venues — known as “MSG Sphere.” See
“ Item 1. Business — Our Business — Our Performance Venues — MSG Sphere .”
Our Madison Square Garden Complex is subject to and benefits from various easements, including over the “breezeway” into Madison Square Garden from
Seventh Avenue in New York City (which we share with other property owners). Additionally, our planned MSG Sphere Las Vegas will have the benefit of an
easement with respect to the planned pedestrian bridge to the Sands Expo & Convention Center. 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.
In addition, TAO Group is engaged in the management and operation of restaurants, nightlife and hospitality venues in New York City, Las Vegas, Los Angeles,
Singapore and Australia, of which 14 venues are leased properties as well as five leased offices located in in New York and Las Vegas. The size of the TAO
Group’s leased venues ranges from approximately 4,200 to 26,000 square feet and total approximately 200,000 square feet including office space. TAO Group also
manages 11 venues (including one venue located in Australia and one venue located in Singapore) that are not owned or leased properties.
30
Table of Contents
Item 3. Legal Proceedings
The Company owns 50% of AMSGE, which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights
organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters. GMR engaged in
negotiations with the Radio Music Licensing Committee (“RMLC”), which represents over ten thousand commercial radio stations. On November 18, 2016,
RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania alleging that GMR is violating Section 2 of the
Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate
set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses for songs
which are fully controlled by GMR. GMR and RMLC agreed to an interim license arrangement through September 30, 2017, which has been extended through
September 30, 2018. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20,
2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal
jurisdiction of GMR and that in any event the complaint fails to state a claim. On December 6, 2016, GMR filed a complaint against RMLC in the United States
District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the
Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that
unreasonably restrict competition for public performance licenses. The judge in the Central District of California denied RMLC’s motion to dismiss GMR’s claim
for lack of ripeness and, on the basis that the two cases involve similar facts, stayed the California action in order to assess the status of the Pennsylvania case. On
July 21, 2017, RMLC filed a preliminary injunction motion in the United States District Court for the Eastern District of Pennsylvania to extend the duration of the
interim licenses which GMR had granted to certain radio stations. The district court determined that the jurisdictional matter should be decided prior to addressing
the motion for preliminary injunction and referred the jurisdictional questions to the Magistrate Judge in the United States District Court Eastern District of
Pennsylvania. On November 29, 2017, the Magistrate Judge issued a report and recommendation that personal jurisdiction was not appropriate over GMR in the
Eastern District of Pennsylvania and recommending the dismissal of RMLC’s action without prejudice. RMLC has filed objections to the Magistrate Judge’s report
and recommendation. On May 3, 2018, GMR filed a motion to lift the stay in GMR’s California action on the basis that a continuation of the stay would cause
undue prejudice to GMR. On May 14, 2018, RMLC opposed GMR’s motion to lift the stay and, on May 23, 2018, GMR filed a reply in support of its motion to lift
the stay. On August 14, 2018, the court denied GMR’s motion to lift the stay.
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.
Item 4. Mine Safety Disclosures
Not applicable.
31
Table of Contents
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A Common Stock, par value $0.01 per share (“ Class A Common Stock ”), is listed on the New York Stock Exchange (“ NYSE ”) under the symbol
“MSG.” The Company’s Class A Common Stock began “regular way” trading on the NYSE on October 1, 2015 .
Performance Graph
The following graph compares the relative performance of our Class A Common Stock, the Russell 3000 Index and the Bloomberg Americas Entertainment Index .
This graph covers the period from October 1, 2015 through June 30, 2018 . The stock price performance included in this graph is not necessarily indicative of
future stock performance.
Base Period
10/1/15
12/31/15
6/30/16
12/31/16
6/30/17
12/31/17
6/30/18
The Madison Square Garden Company
$
100.00 $
101.45 $
108.16 $
107.54 $
123.46 $
132.20 $
194.49
Russell 3000 Index
Bloomberg Americas Entertainment Index
100.00
100.00
106.11
99.65
109.96
106.98
119.62
110.36
130.31
118.88
144.90
141.61
149.56
156.68
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.
32
Table of Contents
As of June 30, 2018 , there were 693 holders of record of our Class A Common Stock. There is no public trading market for our Class B Common Stock, par value
$.01 per share (“ Class B Common Stock ”). As of June 30, 2018 , there were 14 holders of record of our Class B Common Stock.
We did not pay any dividend on our common stock during fiscal year 2018 and do not have any current plans to pay a cash dividend on our common stock for the
foreseeable future.
Price Range of Madison Square Garden Class A Common Stock
The following tables set forth for the periods indicated the intra-day high and low sales prices per share of our Class A Common Stock as reported on NYSE:
Year ended June 30, 2018
For the Quarter ended September 30, 2017
For the Quarter ended December 31, 2017
For the Quarter ended March 31, 2018
For the Quarter ended June 30, 2018
Year ended June 30, 2017
For the Quarter ended September 30, 2016
For the Quarter ended December 31, 2016
For the Quarter ended March 31, 2017
For the Quarter ended June 30, 2017
Issuer Purchases of Equity Securities
$
$
High
Low
226.95 $
231.44
254.50
321.92
189.96
207.98
205.22
236.78
High
Low
188.80 $
178.29
206.24
206.60
166.13
160.96
166.86
192.15
As of June 30, 2018 , the Company had approximately $260 million remaining under the $525 million Class A Common Stock share repurchase program
authorized by the Company’s board of directors (“ Board ”) on September 11, 2015. 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, with the timing and amount of purchases depending on
market conditions and other factors. The Company has been funding and expects to continue to fund stock repurchases through a combination of cash on hand and
cash generated by operations. During the three months ended June 30, 2018 , the Company did not engage in any share repurchase activity under its share
repurchase program.
Item 6. Selected Financial Data
The operating and balance sheet data included in the following selected financial data table have been derived from the consolidated and combined financial
statements of The Madison Square Garden Company and its subsidiaries. The balance sheet data as of June 30, 2018, 2017 and 2016 and the operating data for the
years ended June 30, 2018 and 2017 and the nine months ended June 30, 2016 are presented on a consolidated basis, as the Company became a standalone public
company on the September 30, 2015 (the “ Distribution Date ”). Operating data prior to the Distribution Date , which included operating data for the years ended
June 30, 2015 and 2014, as well as operating data for the three months ended September 30, 2015 that is included in results of operations for the year ended June
30, 2016, were prepared on a standalone basis derived from the consolidated financial statements and accounting records of MSG Networks Inc. (“ MSG Networks
” or “ Former Parent ”) and are presented as carve-out financial statements as the Company was not a standalone public company prior to the Distribution Date
(“carve-out and combined basis”). Balance sheet data as of June 30, 2015 and 2014 were also presented on a carve-out and combined basis.
For periods prior to the Distribution Date , the financial information presented below does not necessarily reflect what our results of operations and financial
position would have been if we had operated as a separate publicly-traded entity. The selected financial data presented below should be read in conjunction with
the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K and with “Item 7 . Management’s Discussion and Analysis of
Financial Condition and Results of Operations .” As discussed in note (a) below, our operating results for the year ended June 30, 2018 are not directly comparable
with the year ended June 30, 2017 primarily due to the timing of our acquisition of a controlling interest in TAO Group Holdings LLC ( “ TAO Group ”).
33
Table of Contents
Operating Data
(a)
:
Revenues
Operating income (loss)
Net income (loss)
Years Ended June 30,
2018
2017
2016
2015
2014
(in thousands, except per share data)
$
1,559,095 $
1,318,452 $
1,115,311 $
1,071,551 $
913,615
18,876
134,448
(60,356)
(76,789)
(58,631)
(77,290)
(406)
(40,684)
(114,028)
(116,933)
Less: Net income (loss) attributable to nonredeemable
noncontrolling interests
Less: Net loss attributable to redeemable noncontrolling
interests
Net Income (loss) attributable to The Madison Square Garden
Company’s stockholders
Basic earnings (loss) per common share attributable to The
Madison Square Garden Company’s stockholders
Diluted earnings (loss) per common share attributable to The
Madison Square Garden Company’s stockholders
Weighted-average number of common shares outstanding (b)
:
$
$
$
Basic
Diluted
Balance Sheet Data (a)
:
Total assets
Long-term debt (including current portion), net of deferred
financing costs (c)
Total The Madison Square Garden Company stockholders’ equity
(6,518)
304
(628)
(4,370)
—
—
—
—
—
—
141,594 $
(72,723) $
(77,290) $
(40,684) $
(116,933)
5.99 $
(3.05) $
(3.12) $
(1.63) $
(4.69)
5.94 $
(3.05) $
(3.12) $
(1.63) $
(4.69)
23,639
23,846
23,853
23,853
24,754
24,754
24,928
24,928
24,928
24,928
$
3,736,173 $
3,712,753 $
3,543,950 $
2,148,942 $
2,137,191
105,700
105,433
—
—
—
/ divisional equity
2,536,483
2,408,163
2,586,421
1,223,275
1,191,203
(a)
Operating
and
balance
sheet
data
beginning
in
fiscal
year
2017
includes
results
from
the
acquisitions
of
Boston
Calling
Events,
LLC
(“
BCE
”)
operating
information
from
July
1,
2016
to
June
30,
2017
and
TAO
Group
operating
information
from
February
1,
2017
to
March
26,
2017
.
Operating
and
balance
sheet
data
beginning
in
fiscal
year
2018
includes
results
from
the
acquisitions
of
Counter
Logic
Gaming
(“
CLG
”)
and
Obscura
Digital
(“
Obscura
”)
since
their
acquisition
dates.
See
Item
7
.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
—
Introduction
—
Factors
Affecting
Operating
Results
from
Acquisitions
.
In
addition,
see
“Item
8.
Financial
Statements
and
Supplementary
Data
—
Consolidated
Financial
Statements
—
Notes
to
Consolidated
Financial
Statements
—
Note
2
.
Summary
of
Significant
Accounting
Policies
—
Business
Combinations
and
Noncontrolling
Interests
”
for
more
information
on
our
acquisitions
of
BCE
,
TAO
Group
and
CLG
,
as
well
as
“Item
8.
Financial
Statements
and
Supplementary
Data
—
Consolidated
Financial
Statements
—
Notes
to
Consolidated
Financial
Statements
—
Note
3
.
Acquisitions
”
for
more
information
on
our
current
year’s
acquisitions
of
CLG
and
Obscura
.
(b)
Following
the
Distribution
Date
,
the
Company
had
24,928
common
shares
outstanding
on
September
30,
2015.
This
amount
has
been
utilized
to
calculate
earnings
(loss)
per
share
for
the
periods
prior
to
the
Distribution
Date
as
no
Madison
Square
Garden
common
stock
or
equity
based
awards
were
outstanding
prior
to
September
30,
2015.
(c)
Long-term
debt
presented
above
is
net
of
debt
issuance
costs
of
$3,613
and
$4,567
as
of
June
30,
2018
and
2017
,
respectively.
See
“Part
II
—
Item
8.
Financial
Statements
and
Supplementary
Data
—
Consolidated
Financial
Statements
—
Notes
to
Consolidated
Financial
Statements
—
Note
11
.
Credit
Facilities
”
for
more
information.
34
Table of Contents
Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
the
future
operating
and
future
financial
performance
of
The
Madison
Square
Garden
Company
and
its
direct
and
indirect
subsidiaries
(collectively,
“we,”
“us,”
“our,”
“Madison
Square
Garden,”
“MSG,”
or
the
“Company”),
including
possible
impacts
from
the
timing
and
costs
of
new
venue
construction
and
the
potential
spin-off
of
the
Company’s
sports
businesses
(the
“
Sports
Distribution
”).
See
“Part
I
—
Item
1.
Business
”
for
further
discussion
of
the
Sports
Distribution
.
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 level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level of popularity of the Christmas
Spectacular
Starring
the
Radio
City
Rockettes
(“ Christmas
Spectacular
”) and other entertainment events which are presented in our venues;
costs associated with player injuries, and waivers or contract terminations of players and other team personnel;
changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of
luxury tax;
the level of our capital expenditures and other investments;
general economic conditions, especially in the New York City, Los Angeles, Las Vegas and London metropolitan areas where we have operations;
the demand for sponsorship arrangements and for advertising;
competition, for example, from other teams, other venues and other sports and entertainment options, including the construction of new competing
venues;
Our ability to successfully design, construct, finance and operate new venues in Las Vegas, London and other markets, and the investments, costs and
timing associated with those efforts, including the impact of unexpected construction delays and cost overruns;
changes in laws, National Basketball Association (the “ NBA ”) or National Hockey League (the “ NHL ”) rules, regulations, guidelines, bulletins,
directives, policies and agreements (including the leagues’ respective collective bargaining agreements (each a “ CBA ”) with their players’ associations,
salary caps, revenue sharing, NBA luxury tax thresholds and media rights) or other regulations under which we operate;
any NBA or NHL work stoppage;
seasonal fluctuations and other variation in our operating results and cash flow from period to period;
the level of our expenses, including our corporate expenses;
the successful development of new live productions, enhancements or changes to existing productions and the investments associated with such
development, enhancements, or changes;
the continued popularity and success of the TAO Group restaurants and nightlife and hospitality venues, as well as its existing brands, and the ability to
successfully open and operate new restaurants and nightlife and hospitality venues;
the ability of BCE to attract attendees and performers to its festival;
the evolution of the esports industry and its potential impact on our esports businesses;
the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic
transactions;
our ability to successfully integrate acquisitions, new venues or new businesses into our operations;
the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
35
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against
companies we invest in or acquire;
the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain
tax exemptions and the ability to maintain necessary permits or licenses;
the impact of any government plans to redesign Pennsylvania Station;
business, reputational and litigation risk if there is a loss, disclosure or misappropriation of stored personal information or other breaches of our
information security;
a default by our subsidiaries under their respective credit facilities;
financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
the ability of our investees and others to repay loans and advances we have extended to them;
our ownership of professional sports franchises in the NBA and NHL and certain related transfer restrictions on our common stock;
the tax free treatment of the Distribution;
whether or not we pursue and complete the Sports Distribution and, if so, its impact on our business, financial condition and results of operations; and
the factors described under “Part I — Item 1A. Risk Factors ” included in this Annual Report on Form 10-K.
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
36
Table of Contents
All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
Introduction
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 Annual Report on Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations .
Factors
Affecting
Results
of
Operations
The Company’s financial information for the three months ended September 30, 2015 that is included in the results of operations for the year ended June 30, 2016,
was prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out
financial statements as the Company was not a standalone public company prior to the Distribution Date .
During the first quarter of fiscal year 2017, the Company refined its approach to allocating corporate, performance venues operating and other shared expenses.
Management analyzed the specific support provided by individual corporate and venue personnel, in part using a detailed efforts-based analysis. The Company
considered the new approach to better define segment profitability for users of the financial information and, therefore, made this change in the first quarter of
fiscal year 2017. Fiscal year 2016 results are reflected as originally reported and have not been restated. Had the revised approach been used in fiscal year 2016,
operating income reported in MSG Sports would have increased and operating loss reported in MSG Entertainment would have improved by $6,045 and $337 ,
respectively. These changes in the MSG Sports and MSG Entertainment segments operating income (loss) would have been offset by an increase of $6,382 in the
operating loss of “Corporate and Other” for the year ended June 30, 2016. The adjusted operating income, as defined in “— Consolidated Results of Operations —
Adjusted operating income ,” reported in MSG Sports would have increased and adjusted operating loss reported in MSG Entertainment would have improved
during the year ended June 30, 2016 by $5,908 and $2,680 , respectively. These improvements would have been offset by an increase of $8,588 in the adjusted
operating loss of “Corporate and Other” for the year ended June 30, 2016.
Our MD&A is organized as follows:
Business
Overview.
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.
Results
of
Operations.
This section provides an analysis of our results of operations for the years ended June 30, 2018 , 2017 and 2016 on both a consolidated and
segment basis .
Our segments are MSG Entertainment and MSG Sports.
Liquidity
and
Capital
Resources.
This section provides a discussion of our financial condition, as well as an analysis of our cash flows for the years ended June 30,
2018 , 2017 and 2016 .
The discussion of our financial condition and liquidity includes summaries of (i) our primary sources of liquidity and (ii) our contractual
obligations and off balance sheet arrangements that existed at June 30, 2018 .
Seasonality
of
Our
Business.
This section discusses the seasonal performance of our MSG Sports and MSG Entertainment segments .
Recently
Issued
Accounting
Pronouncements
and
Critical
Accounting
Policies.
This section includes a discussion of 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 .
In
addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K.
Business Overview
The Company is a sports and entertainment business comprised of dynamic and powerful assets and brands. The Company is comprised of two business segments:
MSG Entertainment and MSG Sports, which is built on a foundation of iconic venues and compelling content, including live sports and entertainment events that
we create, produce and present. The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The
Company owns Madison Square Garden (“ The Garden ”) and The Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and
The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement
with respect to the Wang Theatre in Boston. A description of our segments follows:
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Table of Contents
MSG Entertainment
Our MSG Entertainment segment, which represented approximately 50% of our consolidated revenues for the year ended June 30, 2018 , is one of the country’s
leaders in live entertainment .
MSG Entertainment presents or hosts live entertainment events, including concerts, family shows, performing arts events and special
events, in our diverse collection of venues. Those venues include The Garden , The Hulu Theater at Madison Square Garden , Radio City Music Hall, the Beacon
Theatre, the Forum, and The Chicago Theatre. In addition, we have an exclusive booking agreement with respect to the Wang Theatre. The scope of our collection
of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal.
Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows in which case we have economic risk relating to
the event.
MSG Entertainment also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes the Christmas
Spectacular
,
which is the top grossing live holiday family show in North America, featuring the Rockettes. The Christmas
Spectacular
has been performed at Radio City Music
Hall for 85 years and more than one million tickets were sold for performances during the 2017 holiday season.
In July 2016, the Company acquired a controlling interest in BCE , the entertainment production company that owns and operates the Boston Calling Music
Festival. This was followed in January 2017 by the Company’s purchase of a controlling interest in TAO Group, a hospitality group with globally -recognized
entertainment dining and nightlife brands. These companies are part of the MSG Entertainment segment. In November 2017, the Company acquired a 100%
controlling interest in Obscura , a creative studio, globally -recognized for its work in designing and developing next-generation immersive experiences . Third-
party revenues generated by Obscura and related costs are reflected in the MSG Entertainment segment. Any costs incurred by Obscura that are associated with the
Company’s business development initiatives are reported in “Corporate and Other.”
Revenue
Sources
Our primary sources of revenue in our MSG Entertainment segment are ticket sales to our audiences for live events that we produce or promote/co-promote and
license fees for our venues paid by third-party promoters in connection with events that we do not produce or promote/co-promote .
We also generate revenue from
other sources, including facility and ticketing fees, concessions, sponsorships and signage, a portion of suite license fees at The Garden, merchandising and tours of
our venues. The amount of revenue and expense we record in our MSG Entertainment segment for a given event depends to a significant extent on whether we are
promoting or co-promoting the event or are licensing our venue to a third party. In addition, a significant component of the MSG Entertainment segment revenues
are generated by the TAO Group through entertainment dining and nightlife offerings, which primarily consist of food and beverage sales.
Ticket
Sales
and
Suite
Licenses
For our productions and for entertainment events in our venues that we promote, we recognize revenues from the sale of tickets to our audiences. We sell tickets to
the public through our box office, via our web sites and ticketing agencies and through group sales. The amount of revenue we earn from ticket sales depends on
the number of shows and the mix of events that we promote, the capacity of the venue used, the extent to which we can sell to fully utilize the capacity and our
ticket prices. During the fiscal year 2017, we implemented significant changes to how we sell Christmas
Spectacular
tickets. By eliminating block sales to third
party brokers, we brought a significant number of tickets back in-house, which created the opportunity for more customers to buy tickets to the production directly
from us.
The Garden has 21 Event Level suites, 58 Lexus Madison Level suites, and 18 Signature Level suites. Suite licenses at The Garden are generally sold to corporate
customers pursuant to multi-year licenses. 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 The Garden 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 The Garden. Revenues from the sale of suite licenses are shared
between our MSG Entertainment and MSG Sports segments.
Venue
License
Fees
For entertainment events held at our venues that we do not produce, promote or co-promote, we typically earn revenue from venue license fees charged to the third-
party promoter of the event. The amount of license fees we charge varies by venue, as well as by the size of the production and the number of days utilized, among
other factors. Our fees include both the cost of renting space in our venues 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.
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Table of Contents
Facility
and
Ticketing
Fees
For all public and ticketed entertainment events held in our venues, 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 fee we charge,
and vary by venue.
Concessions
We sell food and beverages during substantially all entertainment events held at our venues. 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 The Garden.
Merchandise
We earn revenues from the sale of merchandise relating to our proprietary productions and other live entertainment events that take place at our venues. The
majority of our merchandise revenues are generated through on-site sales during performances of our productions and other live events. We also generate revenues
from the sales of our Christmas
Spectacular
merchandise, such as ornaments and apparel, through traditional retail channels. 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.
Venue
Signage
and
Sponsorship
We earn revenues through the sale of signage space and sponsorship rights in connection with our venues, productions and other live entertainment events. Signage
revenues generally involve the sale of advertising space at The Garden during entertainment events and otherwise in our venues.
Sponsorship rights may require us to use the name, logos and other trademarks of sponsors in our advertising and in promotions for our venues, productions 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 our productions, events and venues in connection with their own advertising and in promotions in our
venues or in the community.
Entertainment
Dining
and
Nightlife
Offerings
We earn revenues from entertainment dining and nightlife offerings through our operations of the TAO Group’s restaurants and nightlife and hospitality venues.
These revenues primarily consist of food and beverage sales and banquet hosting services at TAO Group leased restaurants and nightclubs. In addition, we earn
fees from our real estate partners for operating certain of our restaurants and nightclubs.
Expenses
Our MSG Entertainment segment’s principal expenses are payments made to performers, staging costs and day-of-event costs associated with events, and
advertising costs. We charge a portion of our actual expenses associated with the ownership, lease, maintenance and operation of our venues, along with a portion
of our corporate expenses, to our MSG Entertainment segment. However, the operating results of our MSG Entertainment segment benefit from the fact that no
rent is charged to the segment for use of the Company’s owned venues. We do not allocate to our segments depreciation expense on property and equipment related
to The Garden, The Hulu Theater at Madison Square Garden or the Forum.
Performer
Payments
Our productions are performed by talented actors, dancers, singers, musicians and entertainers. In order to attract and retain this talent, we are required to pay our
performers an amount that is commensurate with both their abilities and the demand for their services from other entertainment companies. Our productions
typically feature ensemble casts (such as the Rockettes), where most of our performers are paid based on a standard “scale,” pursuant to CBA s we negotiate with
the performers’ unions. Certain performers, however, have individually negotiated contracts.
Staging
Costs
Staging costs for our proprietary events as well as other events that we promote include the costs of sets, lighting, display technologies, special effects, sound and
all of the other technical aspects involved in presenting a live entertainment event. These costs vary substantially depending on the nature of the particular show,
but tend to be highest for large-scale theatrical productions, such as the Christmas
Spectacular
. For concerts we promote, the performer usually provides a fully-
produced show. Along with performer salaries, the staging costs associated with a given production are an important factor in the determination of ticket prices.
39
Table of Contents
Day-of-Event
Costs
For days on which MSG Entertainment stages its productions, promotes an event or provides one of our venues 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 provide our venues 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.
Marketing
and
Advertising
Costs
We incur significant costs promoting our productions and other events through various advertising campaigns, including advertising on outdoor platforms and in
newspapers, on television and radio, and on social and digital platforms. 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.
Entertainment
Dining
and
Nightlife
Offerings
Costs
Through our ownership in the operations of the TAO Group restaurants and nightlife and hospitality venues, we incur costs for providing food and beverage as well
as banquet hosting services to our customers. Our dining and nightlife offering costs primarily include the following:
•
•
•
•
labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items, including taxes and fringe benefits;
food and beverage costs;
operating costs, consisting of maintenance, utilities, bank and credit card charges, and any other restaurant-level expenses; and
occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, insurance premiums and taxes.
Factors
Affecting
Operating
Results
The operating results of our MSG Entertainment segment are largely dependent on our ability to attract concerts, family shows and other events to our venues, as
well as the continuing popularity of the Christmas
Spectacular
at Radio City Music Hall. Our MSG Entertainment segment recognized operating losses during the
years ended June 30, 2017 and 2016. The operating results for the year ended June 30, 2017 include a $33,629 write-off of the remaining balance of deferred
production costs related to the New
York
Spectacular
Starring
the
Radio
City
Rockettes
(“ New
York
Spectacular
”) due to the assessments of the show’s creative
direction, timing and scale. The operating results for the year ended June 30, 2016 include a $41,816 write-off of deferred production costs associated with the New
York
Spectacular
due to the creative decision to not include, in the summer of 2016 performances, certain scenes from the previous show of the New
York
Spectacular
.
Our MSG Entertainment segment’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 and nightlife offerings, suite licenses and tickets to our live productions, concerts,
family shows and other events, which would also negatively affect concession and merchandise sales, as well as lower levels of sponsorship and venue signage.
These conditions may also affect the number of concerts, family shows 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. Any new investment may not initially contribute
to operating income, but is intended to become operationally profitable over time. Our results will also be affected by investments in, and the success of, new
productions.
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Table of Contents
MSG Sports
Our MSG Sports segment, which represented approximately 50% of our consolidated revenues for the year ended June 30, 2018 , owns and operates professional
sports franchises, including the New York Knicks (the “Knicks”), a founding member of the NBA, and the New York Rangers (the “Rangers”), one of the “original
six” franchises of the NHL. MSG Sports also owns and operates the New York Liberty (the “Liberty”) of the Women’s National Basketball Association, one of the
league’s founding franchises, and the Hartford Wolf Pack of the American Hockey League (the “AHL”), which is the primary player development team for the
Rangers and is also competitive in its own right in the AHL. Since 2014, the Company has owned and operated an NBA G League team, named the Westchester
Knicks, which plays its home games at the Westchester County Center in White Plains, NY. The Knicks and Rangers play their home games at The Garden. The
Liberty currently play 15 home games at the Westchester County Center, located in White Plains, NY, in addition to two regular season home games at The Garden
. Our professional sports franchises are collectively referred to herein as “our sports teams.” The MSG Sports segment also includes CLG , a premier North
American esports organization, and Knicks Gaming, MSG’s franchise that competes in the NBA 2K League. CLG and Knicks Gaming are collectively referred to
herein as “our esports teams,” and, together with our sports teams, “our teams.” In addition, our sports business also promotes, produces and/or presents a broad
array of live sporting events including professional boxing, college basketball, college hockey, professional bull riding, mixed martial arts, esports, tennis and
college wrestling .
Revenue
Sources
We earn revenue in our MSG Sports segment from several primary sources: ticket sales and a portion of suite rental fees at The Garden, our share of distributions
from NHL and NBA league-wide national and international television contracts and other league-wide revenue sources, venue signage and other sponsorships,
concessions and merchandising .
Our MSG Sports segment also earns substantial fees from MSG Networks for the local media rights to telecast the games of our
professional sports teams .
We also earn venue license fees, primarily from the rental of The Garden to third-party promoters or conferences holding sporting
events at our arena .
The amount of revenue we earn is influenced by many factors, including the popularity and on-court or on-ice performance of our sports teams
and general economic conditions. In particular, when our sports teams have strong on-court and on-ice performance, we benefit from increased demand for tickets,
potentially greater food and merchandise sales from increased attendance and increased sponsorship opportunities. When our sports teams qualify for the playoffs,
we also benefit from the attendance and in-game spending at the playoff games. The year-to-year impact of team performance is somewhat moderated by the fact
that a significant portion of our revenue derives from rights fees, suite rental fees and sponsorship and signage revenue, all of which are generally contracted on a
multi-year basis. Nevertheless, the long-term performance of our business is tied to the success and popularity of our sports teams and our ability to attract other
compelling sports content.
Ticket
Sales,
Suite
Licenses,
Venue
Licenses,
Facility
and
Ticketing
Fees
Ticket sales have historically constituted the largest single source of revenue for our MSG Sports segment .
We sell tickets to our sports teams’ home games
through season tickets, which are typically held by long-term season subscribers, through group sales, and through single-game tickets, which are purchased by
fans either individually or in multi-game packages .
The prices of our tickets vary, depending on the sports team and the location of the seats .
We generally review
and set the price of our tickets before the start of each team’s season .
During the fiscal year 2017 we made changes to our ticketing polices, resulting in fewer full
season tickets sold and more sales of individual and group tickets, as well as partial season plans.
Revenues from the sale of suite licenses are shared between the MSG Entertainment and MSG Sports segments. See “— MSG Entertainment — Revenue Sources
” for further discussion.
In addition to our sports teams’ home games, we also present or host other live sporting events at our venues .
When the Company acts as the promoter or co-
promoter of such events, the Company typically earns revenues from ticket sales and incurs expenses associated with the event .
When these events are promoted
by third-party promoters, the Company typically earns venue license fees from the promoter for use of our venues .
When licensing our venues, the amount
recorded as revenue also includes the event’s variable costs such as the costs of front-of-house and back-of-house staffs, including electricians, laborers, box office
staff, ushers, security and building services, which we pass along to the promoter .
The number and mix of live sporting events, including whether we are the
promoter or co-promoter of an event or license our venues to a third-party promoter, could have a significant impact on the level of revenues and expenses that we
record in our MSG Sports segment.
Our MSG Sports segment also earns revenues in the form of certain fees added to ticket prices for events held at our venues, regardless of whether we act as
promoter or co-promoter for such events .
This currently includes a facility fee the Company charges on tickets it sells to all events at our venues, except for our
sports teams’ season tickets and certain other limited exceptions.
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Table of Contents
Media
Rights
We earn revenue from the licensing of media rights for our sports teams’ home and away games and also through the receipt of our share of fees paid for league-
wide media rights, which are awarded under contracts negotiated and administered by each league.
In connection with the Distribution, the Company and MSG Networks entered into media rights agreements covering the local telecast rights for the Knicks and
Rangers .
The financial success of our MSG Sports segment is significantly dependent on the rights fees we receive from MSG Networks in connection with the
telecast of our Knicks and Rangers games.
National and international telecast arrangements differ by league .
Fees paid by telecasters under these arrangements are pooled by each league and then generally
shared equally among all teams.
Venue
Signage
and
Sponsorships
and
Ad
Sales
Commission
We earn revenues through the sale of signage space at The Garden and sponsorship rights in connection with our teams and certain other sporting events .
Our
strategy is to develop marketing partnerships with world-class brands by creating customized platforms that achieve our partners’ business objectives. Signage
sales generally involve the sale of advertising space within The Garden during our sports teams’ home games and include the sale of signage on the ice and on the
boards of the hockey rink during Rangers games, courtside during Knicks and Liberty games, and/or on the various scoreboards and display panels at The Garden .
We offer both television camera-visible and non-camera-visible signage space.
Sponsorship rights generally require us to use the name, logos and other trademarks of a sponsor in our advertising and in promotions for our teams and during our
sports 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 our teams and venues in connection with their own advertising and in promotions in The Garden or in the community.
In connection with the Distribution, we entered into an advertising sales representation agreement with MSG Networks. Pursuant to the agreement, we have the
exclusive right and obligation to sell advertising availabilities of MSG Networks . We are entitled to and earn commission revenue on such sales. The expense
associated with advertising personnel, which was transferred from MSG Networks in connection with this advertising sales representation agreement , is
recognized in selling, general and administrative expenses.
Concessions
We sell food and beverages during all sporting events held at our venues .
In addition to concession-style sales of food and beverages, which represent the majority
of our concession revenues, we also provide higher-end dining at our full service restaurant and clubs as well as catering for suites at The Garden.
Merchandise
We earn revenues from the sale of our teams’ merchandise both through the in-venue (and in some cases, online) sale of items bearing the logos or other marks of
our teams and through our share of sports league distributions of royalties and other revenues from the sports leagues’ licensing of team and sports league
trademarks, which revenues are generally shared equally among the teams in the sports leagues .
By agreement among the teams, each of the sports leagues in
which we operate acts as an agent for the sports teams to license their logos and other marks, as well as the marks of the leagues, subject to certain rights retained
by the teams to license these marks within their arenas and the geographic areas in which they operate.
Expenses
The most significant expenses in our MSG Sports segment are player and other team personnel salaries and charges for transactions relating to players for career-
ending and season-ending injuries, trades, and waivers and contract termination costs of players and other team personnel, including team executives. We also
incur costs for travel, player insurance, league operating assessments (including a 6% NBA assessment on regular season ticket sales), NHL and NBA revenue
sharing and NBA luxury tax. We charge a portion of our actual expenses associated with the ownership, lease, maintenance and operation of our venues, along with
a portion of our corporate expenses, to our MSG Sports segment. However, the operating results of our MSG Sports segment benefit from the fact that no rent is
charged to the segment for use of the Company’s owned venues. We do not allocate to our segments depreciation expense on property and equipment related to
The Garden, The Hulu Theater at Madison Square Garden or the Forum.
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Table of Contents
Player
Salaries,
Escrow
System/Revenue
Sharing
and
NBA
Luxury
Tax
The amount we pay an individual player is determined by negotiation between the player (typically represented by an agent) and us, and is generally influenced by
the player’s individual playing statistics, the amounts paid to players with comparable playing statistics by other sports teams and restrictions in the CBAs,
including the salary caps and NBA luxury tax. The leagues’ CBAs typically contain restrictions on when players may move between league clubs following
expiration of their contracts and what rights their current and former clubs have.
NBA
CBA.
The NBA CBA expires after the 2023-24 season (although the NBA and the National Basketball Players Association (“ NBPA ”) each have the right to
terminate the CBA following the 2022-23 season). The NBA CBA contains a “soft” salary cap (i.e., a cap on each team’s aggregate player salaries but with certain
exceptions that enable teams to pay players more, sometimes substantially more, than the cap).
NBA
Luxury
Tax.
Amounts in this paragraph are in thousands, except for luxury tax rates. The NBA CBA provides for a luxury tax that is applicable to all teams
with aggregate player salaries exceeding a threshold that is set prior to each season based upon projected league-wide revenues (as defined under the CBA). The
luxury tax rates for teams with aggregate player salaries above such threshold start at $1.50 for each $1.00 of team salary above the threshold up to $5,000 and
scale up to $3.25 for each $1.00 of team salary that is from $15,000 to $20,000 over the threshold, and an additional tax rate increment of $0.50 applies for each
additional $5,000 (or part thereof) of team salary in excess of $20,000 over the threshold. In addition, for teams that are taxpayers in at least three of four previous
seasons, the above tax rates are increased by $1.00 for each increment. Fifty percent of the aggregate luxury tax payments is a funding source for the revenue
sharing plan and the remaining 50% of such payments is distributed in equal shares to non-taxpaying teams. The Knicks incurred a luxury tax expense of $8,300 ,
$38,100 and $5,100 with respect to the 2012-13, 2013-14 and 2014-15 seasons, respectively. For the 2015-16, 2016-17 and 2017-18 seasons, the Knicks were not a
luxury tax payer and we recorded approximately $2,500 , $500 and $2,200 , respectively, of luxury tax proceeds from tax-paying teams . Tax obligations for years
beyond the 2017-18 season will be subject to contractual player payroll obligations and corresponding NBA luxury tax thresholds. The Company recognizes the
estimated amount associated with luxury tax expense or the amount it expects to receive as a non-tax paying team, if applicable, on a straight-line basis over the
NBA regular season as a component of direct operating expenses.
NBA
Escrow
System/Revenue
Sharing
. The NBA CBA also provides that players collectively receive a designated percentage of league-wide revenues (net of
certain direct expenses) as compensation (approximately 51% ), and the teams retain the remainder. The percentage of league-wide revenues paid as compensation
and retained by the teams does not apply evenly across all teams and, accordingly, the Company may pay its players a higher or lower percentage of the Knicks’
revenues than other NBA teams. Throughout each season, NBA teams withhold 10% of each player’s salary and contribute the withheld amounts to an escrow
account. If the league’s aggregate player compensation exceeds the designated percentage of league-wide revenues, some or all of such escrowed amounts are
distributed equally to all NBA teams. In the event that the league’s aggregate player compensation is below the designated percentage of league-wide revenues, the
teams will remit the shortfall to the NBPA for distribution to the players.
The NBA also has a revenue sharing plan that generally requires the distribution of a pool of funds to teams with below-average net revenues (as defined in the
plan), subject to reduction or elimination based on individual team market size and profitability. The plan is funded by a combination of disproportionate
contributions from teams with above-average net revenues, subject to certain profit-based limits (each as defined in the plan); 50% of aggregate league-wide luxury
tax proceeds (see above); and collective league sources, if necessary. Additional amounts may also be distributed on a discretionary basis, funded by assessments
on playoff ticket revenues and through collective league sources.
We record our revenue sharing expense net of the amount we expect to receive from the escrow. Our net provision for these items for the year ended June 30, 2018
was approximately $36,600 . The actual amounts for the 2017-18 season may vary significantly from the recorded provision based on actual operating results for
the league and all NBA teams for the season and other factors.
NHL
CBA.
The NHL CBA expires September 15, 2022 (although the NHL and NHL Players’ Association each have the right to terminate the CBA effective
following the 2019-20 season). The NHL CBA provides for a “hard” salary cap (i.e., teams may not exceed a stated maximum that has been negotiated for the
2013-14 season and is adjusted each season thereafter based upon league-wide revenues ) .
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Table of Contents
NHL
Escrow
System/Revenue
Sharing.
The NHL CBA provides that each season the players receive as player compensation 50% of that season’s league-wide
revenues. Because the aggregate amount to be paid to the players is based upon league-wide revenues and not on a team-by-team basis, the Company may pay its
players a higher or lower percentage of the Rangers’ revenues than other NHL teams pay of their own revenues. In order to implement the salary cap system, NHL
teams withhold a portion of each player’s salary and contribute the withheld amounts to an escrow account .
If the league’s aggregate player compensation for a
season exceeds the designated percentage (50%) of that season’s league-wide revenues, the excess is retained by the league. Any such excess funds are distributed
to all teams in equal shares.
The NHL CBA also provides for a revenue sharing plan. The plan generally requires the distribution of a pool of funds approximating 6.055% of league-wide
revenues to certain qualifying lower-revenue teams and is funded as follows: (a) 50% from contributions by the top ten revenue earning teams (based on pre-season
and regular season revenues) in accordance with a formula; (b) then from payments by teams participating in the playoffs, with each team contributing 35% of its
gate receipts for each home playoff game; and (c) the remainder from centrally-generated NHL sources .
We record our revenue sharing expense net of the amount
we expect to receive from the escrow. Our net provisions for these items for the years ended June 30, 2018 and 2017 were approximately $21,100 and $24,800
(including approximately $6,300 related to the 2016-17 season’s playoff), respectively. The actual amounts for the 2016-17 and 2017-18 seasons may vary
significantly from the recorded provision based on actual operating results for the league and all NHL teams for the season and other factors.
Other
Team
Operating
Expenses
Our teams also pay expenses associated with day-to-day operations, including for travel, equipment maintenance and player insurance. Direct variable day-of-event
costs incurred at The Garden, such as the costs of front-of-house and back-of-house staff, including electricians, laborers, box office staff, ushers, security, and
event production are charged to our MSG Sports segment.
Operating costs of the Company’s training center in Greenburgh, NY are also charged to our MSG Sports segment. The operation of the Hartford Wolf Pack is also
a net Rangers player development expense for our MSG Sports segment.
As members of the NBA and NHL, the Knicks and Rangers, respectively, are also subject to league assessments. The governing bodies of each league determine
the amount of each season’s league assessments that are required from each member team. For the 2017-18 season, the NBA imposed on each team a 6%
assessment on regular season ticket revenue.
Our MSG Sports segment also incurs costs associated with VIP amenities provided to certain ticket holders.
Other
Expenses
MSG Sports also incurs selling, general and administrative expenses.
Factors
Affecting
Operating
Results
The operating results of our MSG Sports segment are largely dependent on the continued popularity and/or on-ice or on-court competitiveness of our Rangers and
Knicks teams, which have a direct effect on ticket sales for the teams’ home games and are each team’s largest single source of revenue, as well as our ability to
attract high-caliber sporting events. As with other sports teams, the competitive positions of our sports teams depend primarily on our ability to develop, obtain and
retain talented players, for which we compete with other professional sports teams. A significant factor in our ability to attract and retain talented players is player
compensation. Our MSG Sports segment results reflect the impact of high costs for player salaries (including NBA luxury tax, if any) and salaries of non-player
team personnel .
In addition, we have incurred significant charges for costs associated with transactions relating to players on our sports teams for season-ending
and career-ending injuries and for trades, waivers and contract terminations of players and other team personnel, including team executives .
Waiver and
termination costs reflect our efforts to improve the competitiveness of our sports teams .
These transactions can result in significant charges as the Company
recognizes the estimated ultimate costs of these events in the period in which they occur, although amounts due to these individuals are generally paid over their
remaining contract terms .
For example, the expense for these items was $27,514 , $42,337 and $7,484 for fiscal years 2018 , 2017 and 2016 , respectively .
These
expenses add to the volatility of the results of our MSG Sports segment .
We expect to continue to pursue opportunities to improve the overall quality of our sports
teams and our efforts may result in continued significant expenses and charges .
Such expenses and charges may result in future operating losses for our MSG
Sports segment although it is not possible to predict their timing or amount. Our MSG Sports segment’s performance has been, and may in the future be, impacted
by work stoppages. See “Part I — Item 1A. Risk Factors — General Risks — Organized Labor Matters May Have a Material Negative Effect on Our Business and
Results of Operations .”
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Table of Contents
In addition to our MSG Sports segment’s future performance being dependent upon the continued popularity and/or on-ice or on-court competitiveness of our
Rangers and Knicks teams, it is also dependent on general economic conditions, in particular those in the New York City metropolitan area, and the effect of these
conditions on our customers. An economic downturn could adversely affect our business and results of operations as it may lead to lower demand for suite licenses
and tickets to the games of our sports teams, which would also negatively affect merchandise and concession sales, as well as decrease levels of sponsorship and
venue signage revenues. These conditions may also affect the number of other live sporting events that this segment is able to present.
Factors Affecting Operating Results from Acquisitions
TAO
Group’s
Operating
Results
The Company completed the TAO Group acquisition on January 31, 2017. TAO Group’s financial statements are not available within the time constraints the
Company requires to ensure the financial accuracy of the operating results. Therefore, the Company records TAO Group’s operating results in its consolidated
statements of operations under the MSG Entertainment segment on a three-month lag basis. As a result, TAO Group’s related operating results for the year ended
June 30, 2018 are for the period from March 27, 2017 to April 1, 2018 . TAO Group’s related operating results for the year ended June 30, 2017 are for the period
from February 1, 2017 to March 26, 2017 . The Company’s results for the year ended June 30, 2016 do not include any of TAO Group’s operating results. In
addition, the Company’s consolidated balance sheets as of June 30, 2018 and 2017 reflects the financial position of TAO Group as of April 1, 2018 and March 26,
2017 , respectively. All disclosures related to TAO Group ’s financial position are therefore also reported as of April 1, 2018 and March 26, 2017 , as applicable.
CLG’s
Operating
Results
The results of operations of the Company and the MSG Sports segment for the year ended June 30, 2018 include CLG’s results of operations from the date of
acquisition, which was July 28, 2017. The Company’s results for the years ended June 30, 2017 and 2016 do not include any of CLG’s operating results.
Obscura’s
Operating
Results
The results of operations of the Company and the MSG Entertainment segment for the year ended June 30, 2018 include Obscura’s results of operations from the
date of acquisition, which was November 20, 2017. The Company’s results for the year ended June 30, 2017 and 2016 do not include any of Obscura’s operating
results. Third-party revenues generated by Obscura and related costs are reflected in the MSG Entertainment segment. Any costs incurred by Obscura that are
associated with the Company’s business development initiatives are reported in “Corporate and Other.”
BCE’s
Operating
Results
The results of operations of the Company and the MSG Entertainment segment for the years ended June 30, 2018 and 2017 include BCE ’s results of operations
from the date of acquisition, which was July 1, 2016. The Company’s results for the year ended June 30, 2016 do not include any of BCE ’s operating results.
Corporate Expenses and Venue Operating Costs
The Company allocates certain corporate costs and its performance venues operating expenses to both reportable segments. Allocated performance venue operating
expenses include the non-event related costs of operating the Company’s performance venues, and include such costs as rent for the Company’s leased venues, real
estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation expense on property and
equipment related to The Garden, The Hulu Theater at Madison Square Garden and the Forum is not allocated to the reportable segments.
Amounts that we collect for ticket sales, sponsorships and suite rentals in advance are recorded as deferred revenue and are recognized as revenues when earned for
both accounting and tax purposes. In connection with the reorganization transactions related to the Distribution, the tax recognition on most of these deferred
revenues was accelerated to the date of the reorganization, rather than being recognized over the course of the year ending June 30, 2016. The applicable tax on the
acceleration of such deferred revenue at the time of the Distribution was approximatel y $152,000 . Such tax was paid by MSG Networks and not the Company.
The Company will not reimburse MSG Networks for the payment of such taxes. As a result, for the year ended June 30, 2016, approximately $348,000 of taxable
revenue that would have been reflected on the Company’s income tax returns were instead reported on MSG Networks’ income tax returns, and consequently, the
Company generated a taxable loss for the year ended June 30, 2016.
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Table of Contents
Purchase Accounting Adjustments
In connection with the BCE, TAO Group, CLG and Obscura acquisitions in the past two fiscal years (“ Recent Business Acquisitions ”), the Company recorded
certain fair value adjustments related to acquired assets and liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business
Combinations.
For the Company’s Recent Business Acquisitions , the Company recognized fair value adjustments primarily for (i) recognition of intangible assets
such as trade names, venue management contracts, favorable leases, and festival rights, (ii) step-up of property and equipment, (iii) step-up of inventory, (iv)
unfavorable lease obligation, and (v) goodwill. The aforementioned fair value adjustments, except for goodwill, will be expensed as incremental non-cash expenses
in the Company’s consolidated statements of operations based on their estimated useful lives (“ Purchase Accounting Adjustments ”). The Company does not
allocate any Purchase Accounting Adjustments to the reporting segments and reports any Purchase Accounting Adjustments as reconciliation items in reporting
segment operating results. See “Part II — Item 8 . Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated
Financial Statements — Note 3 . Acquisitions ” for more information on the Recent Business Acquisitions and “Part II — Item 8 . Financial Statements and
Supplementary Data — Consolidated Financial Statements — Notes to Consolidated Financial Statements — Note 18 . Segment Information ” for more
information on the presentation of Purchase Accounting Adjustments .
Investments in Nonconsolidated Affiliates
The Company’s investments in nonconsolidated affiliates primarily include investments in Brooklyn Bowl Las Vegas, LLC (“ BBLV ”), Azoff MSG
Entertainment LLC (“ AMSGE ”), Tribeca Enterprises LLC (“ Tribeca Enterprises ”), and Fuse Media LLC (“Fuse Media”), which are accounted for under the
equity method of accounting.
In August 2013, the Company acquired an interest in BBLV. In March 2014, BBLV opened a new venue in Las Vegas which brings together live music, bowling
and a restaurant. As a result of BBLV’s liquidity position, the Company evaluated whether or not an impairment of its investment had occurred as of December 31,
2014. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $23,600 to write-off the remaining equity portion of its
investment in BBLV.
In September 2013, the Company acquired a 50% interest in AMSGE . The AMSGE entity owns and operates businesses in the entertainment industry and is
currently focused on music management, performance rights, comedy and productions, and strategic marketing. As of June 30, 2018 , the Company’s investment in
AMSGE was $101,369 . In addition, as of June 30, 2018 , AMSGE had outstanding loans of $63,500 under a $100,000 credit facility with the Company.
In March 2014, the Company acquired a 50% interest in Tribeca Enterprises , the company that owns and operates the Tribeca Film Festival and certain other
businesses. Tribeca Enterprises’ businesses also include Tribeca Studios, a branded entertainment content business that has produced award-winning stories, and
year-round live events. As of June 30, 2018 , the Company’s investment in Tribeca Enterprises was $8,007 . The Company provides a $17,500 revolving credit
facility to Tribeca Enterprises . As of June 30, 2018 , the $17,500 revolving credit facility was fully drawn. In addition, Tribeca Enterprises also owed $2,025 of
payments-in-kind (“PIK”) interest as of June 30, 2018 . PIK interest owed does not reduce availability under the revolving credit facility.
In July 2014, MSG Networks sold Fuse to Fuse Media, Inc., and as part of the transaction MSG Networks received a 15% equity interest in Fuse Media which was
transferred to the Company in connection with the Distribution. In the third quarter of fiscal year 2017, certain Fuse Media warrant holders notified Fuse Media of
their intent to exercise certain put options (which Fuse Media disputed). The purported exercise of the put options triggered an assessment of Fuse Media’s fair
value. This assessment, which was performed during the third quarter of fiscal 2017, resulted in unfavorable fair value measurements of Fuse Media. As a result,
the Company evaluated whether or not an other-than-temporary impairment of its investment had occurred as of the third quarter of fiscal 2017. This evaluation
resulted in the Company recording a pre-tax non-cash impairment charge of $20,613 to write off the carrying value of its equity investment in Fuse Media, which is
reflected in loss in equity method investments in the accompanying consolidated statements of operations for the year ended June 30, 2017.
In addition to the investments discussed above, the Company also has other investments in various sports and entertainment companies and related technologies,
accounted for either under the cost method or equity method. See Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form
10-K for more information on our investments in nonconsolidated affiliates.
In August 2016, the Company acquired a common equity stake of approximately 12% in Townsquare Media, Inc., a leading media, entertainment and digital
marketing solutions company, which is accounted for under available-for-sale securities . See Note 10 to the consolidated financial statements included in Item 8 of
this Annual Report on Form 10-K for more information on our investment in available-for-sale securities .
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Table of Contents
Results of Operations
Comparison
of
the
Year
Ended
June
30,
2018
versus
the
Year
Ended
June
30,
2017
Consolidated
Results
of
Operations
The table below sets forth, for the periods presented, certain historical financial information.
Years Ended June 30,
Change
2018
2017
Amount
Percentage
Revenues
$
1,559,095 $
1,318,452 $
240,643
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income (loss)
Other income (expense):
Loss in equity method investments
Interest income, net
Miscellaneous income
Income (loss) from operations before income taxes
Income tax benefit
Net income (loss)
Less: Net income (loss) attributable to nonredeemable
noncontrolling interests
Less: Net loss attributable to redeemable noncontrolling
interests
Net income (loss) attributable to The Madison Square Garden
945,428
472,305
122,486
18,876
(7,770)
6,167
303
17,576
116,872
134,448
861,381
410,039
107,388
(60,356)
(29,976)
7,647
1,492
(81,193)
4,404
(76,789)
84,047
62,266
15,098
79,232
22,206
(1,480)
(1,189)
98,769
112,468
211,237
(6,518)
304
(6,822)
(628)
(4,370)
3,742
Company’s stockholders
$
141,594 $
(72,723) $
214,317
18 %
10 %
15 %
14 %
NM
74 %
(19)%
(80)%
NM
NM
NM
NM
86 %
NM
NM — Percentage is not meaningful
The following is a summary of changes in segments’ operating results for the year ended June 30, 2018 as compared to the prior year.
Changes attributable to
Revenues
Direct
operating
expenses
Selling,
general and
administrative
expenses
Depreciation
and
amortization
Operating
income (loss)
MSG Entertainment segment (a)
MSG Sports segment (a)
Corporate and Other
Purchase accounting adjustments
Inter-segment eliminations
$
274,258 $
(33,331)
—
—
(284)
104,938 $
(15,896)
120
(4,831)
(284)
72,433
$
7,176
$
(23,027)
12,564
223
73
(1,838)
(5,222)
14,982
—
$
240,643 $
84,047 $
62,266
$
15,098
$
89,711
7,430
(7,462)
(10,374)
(73)
79,232
(a)
See
“Business
Segment
Results”
for
a
more
detailed
discussion
of
the
operating
results
of
our
segments.
47
Table of Contents
Direct
operating
expenses
primarily
include:
•
•
•
•
•
•
•
compensation expense for our sports teams’ players and certain other team personnel;
cost of team personnel transactions for season-ending player injuries (net of anticipated insurance recoveries), trades, and waivers/contract termination
costs of players and other team personnel;
NBA luxury tax, NBA and NHL revenue sharing and league assessments for the MSG Sports segment;
event costs related to the presentation, production and marketing of our live entertainment and other live sporting events;
venue lease, maintenance and other operating expenses;
the cost of concessions, merchandise and food and beverage sold at our venues; and
restaurant operating expenses, inclusive of labor costs.
In connection with the purchase price allocation of the TAO Group acquisition on January 31, 2017, the inventory value was increased by $8,705 and was fully
expensed to direct operating expenses for the year ended June 30, 2017 as the related inventory was consumed. In addition, the direct operating expenses for the
year ended June 30, 2018 principally reflect the amortization of favorable leases in connection with the TAO Group acquisition.
Selling,
general
and
administrative
expenses
Selling, general and administrative expenses primarily consist of administrative costs, including compensation, reorganization costs, professional fees, as well as
sales and marketing costs, including non-event related advertising expenses.
Selling, general and administrative expenses in Corporate and Other for the year ended June 30, 2018 increased $12,564 , or 16% , to $92,166 as compared to the
prior year. The increase was primarily due to higher employee compensation and related benefits, as well as the inclusion of Obscura expenses associated with the
Company’s business development initiatives. The increase was partially offset by a management fee earned for providing management and strategic services to
TAO Group (see “— Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion), which is eliminated in
the Company’s consolidated results of operations presented above, as well as certain favorable adjustments related to contingent payments for the Company’s
business acquisitions.
Depreciation
and
amortization
Depreciation and amortization for the year ended June 30, 2018 increased $15,098 , or 14% , to $122,486 as compared to the prior year primarily due to purchase
accounting adjustments and the inclusion of depreciation and amortization expense related to property and equipment associated with the business acquisitions (see
“— Factors Affecting Operating Results from Acquisitions ” for further discussion), partially offset by certain assets being fully depreciated and amortized.
Operating
loss
-
Corporate
and
Other
Operating loss in Corporate and Other for the year ended June 30, 2018 increased $7,462 , or 5% , to $170,642 as compared to the prior year. The increase was
primarily due to higher selling, general and administrative expenses as discussed above, partially offset by lower depreciation and amortization as a result of certain
assets being fully depreciated and amortized. See Note 18 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for
discussion of depreciation and amortization under Corporate and Other.
Loss
in
equity
method
investments
Loss in equity method investments for the year ended June 30, 2018 improved $22,206 , or 74% , to a loss of $7,770 as compared to the prior year. The year-over-
year improvement is primarily due to a pre-tax non-cash impairment charge of $20,613 recorded during the prior year to write off the carrying value of our equity
investment in Fuse Media.
Interest
income,
net
Net interest income for the year ended June 30, 2018 decreased $1,480 , or 19% , to $6,167 as compared to the prior year primarily due to interest expense incurred
under the TAO Term Loan Facility. See “— Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
The decrease was partially offset by higher interest income earned by the Company as a result of higher interest rates and a change in investment mix. In addition,
during the year ended June 30, 2018 , the Company recognized interest income of $938 , which was received in connection with the repayment of a loan receivable
from one of the Company’s nonconsolidated affiliates that was on a nonaccrual status.
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Table of Contents
Miscellaneous
income
Miscellaneous income in the current year principally consists of a dividend received from the Company’s investment in Townsquare Media Inc., which is classified
as available-for-sale securities (see Note 10 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K ). Miscellaneous
income in the prior year consists principally of the recovery of certain claims in connection with a third-party bankruptcy proceeding.
Income
taxes
On December 22, 2017, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted, which significantly changed the existing U.S. tax
laws, including a reduction in the corporate Federal income tax rate from 35% to 21% effective January 1, 2018. During the second quarter of fiscal year 2018, the
Company was required to recognize the effect of tax law changes in the period of enactment even though certain key aspects of the new law became effective
January 1, 2018. The Company used a blended statutory Federal income tax rate of 28% based upon the number of days that it will be taxed at the former rate of
35% and the number of days it will be taxed at the new rate of 21% to calculate its most recent effective tax rate.
Income tax benefit for the year ended June 30, 2018 was $116,872 and income tax benefit for the year ended June 30, 2017 was $4,404 .
Income tax benefit for the year ended June 30, 2018 of $116,872 differs from the income tax expense derived from applying the blended statutory Federal rate of
28% to pretax income primarily as a result of a deferred income tax benefit of $113,494 related to the revaluation of the Company’s deferred tax assets and
liabilities under provisions contained in the new tax legislation, of which (i) $51,015 was due to the reduction of net deferred tax liabilities in connection with the
lower Federal income tax rate of 21% , and (ii) $62,479 was due to a reduction in the valuation allowance attributable to the new rules, which provide that future
Federal net operating losses have an unlimited carry-forward period. These rules on future Federal net operating losses allow the Company to recognize a portion
of its unrecognized deferred tax assets for future deductible items. Other decreases to the statutory rate include $13,211 of income tax benefit related to a decrease
in the valuation allowance, which offsets the income tax expense attributable to most of the operating income, and $1,974 of income tax benefit related to the
vesting of restricted stock units. These decreases were partially offset by (i) $1,800 of tax expense related to state and local income taxes (net of Federal benefit),
(ii) $1,998 of tax expense primarily related to non-deductible expenses, (iii) $2,006 of tax expense related to consolidated partnership book income attributable to
non-controlling interest, (iv) $846 of tax expense related to a change in state tax rates and (v) $223 of other.
Income tax benefit for the year ended June 30, 2017 of $4,404 differs from the income tax expense derived from applying the statutory Federal rate of 35% to
pretax income primarily as a result of (i) an increase of $30,697 in recorded federal and state valuation allowances, (ii) tax expense of $3,449 related to non-
deductible expenses, (iii) the tax impact of consolidated partnership book income attributable to non-controlling interests of $1,414 , (iv) deferred expense of
$1,329 based on tax amortization on indefinite lived intangibles that are not available as a source of taxable income to support the realization of deferred tax assets,
and (v) expense of $672 recorded due to a state rate change computed as a result of filed state tax returns. This tax expense is offset by (i) $6,716 of state tax
benefit (net of Federal effect), (ii) $6,477 of tax benefit related to other comprehensive income gains recorded in continuing operations and (iii) $354 of other.
Adjusted
operating
income
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before (i) depreciation,
amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or
credits, and (iv) gains or losses on sales or dispositions of businesses, which is referred to as adjusted operating income (loss), a non-GAAP measure. In addition to
excluding the impact of items discussed above, the impact of purchase accounting adjustments related to business acquisitions is also excluded in evaluating the
Company’s consolidated adjusted operating income (loss). The Company has presented the components that reconcile operating income (loss) to adjusted operating
income (loss).
49
Table of Contents
The following is a reconciliation of operating income (loss) to adjusted operating income:
Operating income (loss)
Share-based compensation
Depreciation and amortization (a)
Other purchase accounting adjustments (b)
Adjusted operating income
________________
Years Ended June 30,
Change
2018
2017
Amount
Percentage
$
18,876 $
(60,356) $
79,232
NM
47,563
122,486
4,858
$
193,783 $
41,129
107,388
9,466
97,627 $
96,156
98%
(a)
Depreciation
and
amortization
included
purchase
accounting
adjustments
of
$18,134
and
$3,152
for
the
years
ended
June
30,
2018
and
2017
,
respectively.
(b)
Other
purchase
accounting
adjustments
for
the
year
ended
June
30,
2018
primarily
included
the
amortization
of
favorable
leases
in
connection
with
the
TAO
Group
acquisition.
Other
purchase
accounting
adjustments
for
the
year
ended
June
30,
2017
primarily
included
an
inventory
adjustment
of
$8,705
that
was
expensed
to
direct
operating
expenses
and
associated
with
the
TAO
Group
acquisition
on
January
31,
2017
as
the
related
inventory
was
consumed.
Adjusted operating income for the year ended June 30, 2018 increased $96,156 , or 98% , to $193,783 as compared to the prior year. The net increase is attributable
to the following:
Increase in adjusted operating income of the MSG Entertainment segment
Increase in adjusted operating income of the MSG Sports segment
Other net decreases
Inter-segment eliminations
$
$
95,064
6,542
(5,377)
(73)
96,156
Other net decreases were primarily due to higher employee compensation and related benefits, excluding share-based compensation expense, and the inclusion of
Obscura expenses associated with the Company’s business development initiatives partially offset by a management fee earned for providing management and
strategic services to TAO Group (see “— Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion),
which is eliminated in the Company’s consolidated results of operations presented above. These increases were offset by certain favorable adjustments related to
contingent payments for the Company’s business acquisitions.
Net
income
(loss)
attributable
to
redeemable
and
nonredeemable
noncontrolling
interests
For the year ended June 30, 2018 , the Company recorded net loss attributable to redeemable noncontrolling interests of $628 and a net loss attributable to
nonredeemable noncontrolling interests of $6,518 as compared to $4,370 of net loss attributable to redeemable noncontrolling interests and $304 of net income
attributable to nonredeemable noncontrolling interests for the year ended June 30, 2017 . These amounts represent the share of net income (loss) of TAO Group,
BCE, and CLG that are not attributable to the Company. In addition, the net income (loss) attributable to redeemable and nonredeemable noncontrolling interests
includes a proportional share of expenses related to purchase accounting adjustments. See “— Introduction — Factors Affecting Operating Results from
Acquisitions ” for further discussion.
50
Table of Contents
Business
Segment
Results
MSG
Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income (loss) to adjusted operating
income for the Company’s MSG Entertainment segment.
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income (loss)
Reconciliation to adjusted operating income:
Share-based compensation
Depreciation and amortization
Adjusted operating income
—————
NM — Percentage is not meaningful
Revenues
Years Ended June 30,
Change
2018
2017
Amount
Percentage
$
780,726 $
506,468 $
483,263
192,929
18,515
378,325
120,496
11,339
$
86,019 $
(3,692) $
274,258
104,938
72,433
7,176
89,711
54%
28%
60%
63%
NM
12,500
18,515
$
117,034 $
14,323
11,339
21,970 $
95,064
NM
Revenues for the year ended June 30, 2018 increased $274,258 , or 54% , to $780,726 as compared to the prior year. The net increase is attributable to the
following:
Inclusion of revenues associated with entertainment dining and nightlife offerings
$
208,629
Increase in event-related revenues at The Garden
Increase in event-related revenues at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
Increase in event-related revenues at the Forum
Increase in event-related revenues at The Hulu Theater at Madison Square Garden
Increase in event-related revenues at The Chicago Theatre
Increase in revenues from the presentation of the Christmas
Spectacular
Increase in venue-related sponsorship and signage and suite rental fee revenues
Decrease in revenues from the presentation of the New
York
Spectacular
as a result of no scheduled performances in the current year
Decrease in BCE event-related revenues
Other net increases, primarily due to the inclusion of revenue associated with the acquisition of Obscura
28,390
14,638
11,395
6,912
6,031
5,055
1,140
(11,483)
(2,712)
6,263
274,258
$
The inclusion of revenues associated with entertainment dining and nightlife offerings is the result of the acquisition of a 62.5% interest in TAO Group on January
31, 2017, and primarily reflects revenues generated from food and beverage sales. TAO Group’s operating results are recorded in the Company’s consolidated
statements of operations on a three-month lag basis. As a result, TAO Group’s related revenues for fiscal year 2018 are for the period from March 27, 2017 to April
1, 2018 , as compared to TAO Group’s related revenues for fiscal year 2017, which are for the period from February 1, 2017 to March 26, 2017 . See “—
Introduction — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
The increase in event-related revenues at The Garden was due to a change in the mix of events (including the impact of a large-scale event held during the current
year) and additional events held at the venue during the current year as compared to the prior year.
The increase in event-related revenues at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
, was primarily due to
additional events held at the venue during the current year as compared to the prior year.
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Table of Contents
The increase in event-related revenues at the Forum was due to a change in the mix of events and an additional event held at the venue during the current year as
compared to the prior year.
The increase in event-related revenues at The Hulu Theater at Madison Square Garden was primarily due to a change in the mix of events partially offset by fewer
events held at the venue during the current year as compared to the prior year.
The increase in event-related revenues at The Chicago Theatre was primarily due to additional events held at the venue during the current year as compared to the
prior year.
The increase in revenues from the presentation of the Christmas
Spectacular
was primarily due to higher ticket-related revenue, mainly as a result of higher
average ticket prices and the impact of additional scheduled performances, partially offset by a decrease in average per-show paid attendance in the current year as
compared to the prior year. The Company had 200 scheduled performances of the production this holiday season as compared to 197 scheduled performances in
fiscal year 2017. For the 2017 holiday season, more than one million tickets were sold, representing a low single digit percentage decrease as compared to the 2016
holiday season.
The increase in venue-related sponsorship and signage and suite rental fee revenues was due to higher suite rental fee revenue mainly driven by contractual rate
increases.
The decrease in revenues from the presentation of the New
York
Spectacular
was driven by no scheduled performances in the current year as compared to 56
scheduled performances presented in the prior year. This was a result of the Company’s decision to suspend the planned 2017 presentation announced in February
2017 .
The decrease in BCE event-related revenues was primarily due to a decrease in ticket-related revenue.
Direct
operating
expenses
Direct operating expenses for the year ended June 30, 2018 increased $104,938 , or 28% , to $483,263 as compared to the prior year. The net increase is
attributable to the following:
Inclusion of direct operating expenses associated with entertainment dining and nightlife offerings
Increase in event-related direct operating expenses at The Garden
Increase in event-related direct operating expenses at the Forum
Increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
Increase in BCE event-related direct operating expenses
Increase in event-related direct operating expenses at The Chicago Theatre
Increase in venue operating costs
Increase in event-related direct operating expenses at The Hulu Theater at Madison Square Garden
Increase in direct operating expenses associated with the presentation of the Christmas
Spectacular
Decrease in direct operating expenses associated with the presentation of the New
York
Spectacular
as a result of no scheduled performances
in the current year
Other net increases, principally the inclusion of direct expenses related to Obscura’s third-party business
$
$
112,958
15,273
7,919
4,391
3,954
3,842
3,086
2,429
1,386
(56,196)
5,896
104,938
The inclusion of direct operating expenses associated with entertainment dining and nightlife offerings is the result of the acquisition of a 62.5% interest in TAO
Group on January 31, 2017, and primarily reflects costs associated with food and beverage sales, inclusive of labor costs, as well as venue-related operating
expenses. TAO Group’s operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis. As a result, TAO
Group’s related direct operating expenses for fiscal year 2018 are for the period from March 27, 2017 to April 1, 2018 , as compared to TAO Group’s related direct
operating expenses for fiscal year 2017, which are for the period from February 1, 2017 to March 26, 2017 . See “— Introduction — Factors Affecting Operating
Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
The increase in event-related direct operating expenses at The Garden was due to a change in the mix of events (including the impact of a large-scale event held
during the current year) and additional events held at the venue during the current year as compared to the prior year.
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Table of Contents
The increase in event-related direct operating expenses at the Forum was due to a change in the mix of events as well as one additional event held at the venue
during the current year as compared to the prior year.
The increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
, was due to
additional events partially offset by a change in the mix of events held at the venue during the current year as compared to the prior year.
The increase in BCE event-related direct operating expenses was due to higher costs related to the Boston Calling Music Festival in the current year.
The increase in event-related direct operating expenses at The Chicago Theatre was primarily due to additional events held at the venue during the current year as
compared to the prior year.
The increase in venue operating costs was primarily due to higher labor-related costs at our venues during the current year as compared to the prior year.
The increase in event-related direct operating expenses at The Hulu Theater at Madison Square Garden was due to a change in the mix of events partially offset by
fewer events held at the venue during the current year as compared to the prior year.
The increase in direct operating expenses associated with the presentation of the Christmas
Spectacular
was primarily due to higher labor costs and an increase in
deferred production cost amortization, partially offset by lower marketing expenses during the current year as compared to the prior year. The Company had 200
scheduled performances of the production this holiday season as compared to 197 scheduled performances in fiscal year 2017.
The decrease in direct operating expenses associated with the presentation of the New
York
Spectacular
was driven by no scheduled performances in the current
year as compared to 56 scheduled performances presented in the prior year. This was a result of the Company’s decision to suspend the planned 2017 presentation
announced in February 2017 .
Selling,
general
and
administrative
expenses
Selling, general and administrative expenses for the year ended June 30, 2018 increased $72,433 , or 60% , to $192,929 as compared to the prior year mainly due to
(i) inclusion of TAO Group’s selling, general and administrative costs, including a management fee incurred by TAO Group payable to the Company for providing
management and strategic services and, to a lesser extent, (ii) higher professional fees and (iii) an increase in corporate general and administrative costs. See “—
Introduction — Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
Depreciation
and
amortization
Depreciation and amortization for the year ended June 30, 2018 increased $7,176 , or 63% , to $18,515 as compared to the prior year primarily due to the inclusion
of depreciation and amortization expenses for TAO Group’s property and equipment before the purchase accounting adjustments. See “— Introduction — Factors
Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
Operating
income
(loss)
Operating income for the year ended June 30, 2018 improved $89,711 to $86,019 as compared to the prior year due to higher revenues, partially offset by increases
in direct operating expenses, selling, general and administrative expenses and depreciation and amortization expenses, as discussed above.
Adjusted
operating
income
Adjusted operating income for the year ended June 30, 2018 increased $95,064 to $117,034 as compared to the prior year due to higher revenues, partially offset by
increases in direct operating expenses and selling, general and administrative expenses, as discussed above, excluding share-based compensation expense.
53
Table of Contents
MSG
Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income
for the Company’s MSG Sports segment.
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Reconciliation to adjusted operating income:
Share-based compensation
Depreciation and amortization
Adjusted operating income
Revenues
Years Ended June 30,
Change
2018
2017
Amount
Percentage
$
778,653 $
811,984 $
457,694
186,914
7,481
473,590
209,941
9,319
$
126,564 $
119,134 $
(33,331)
(15,896)
(23,027)
(1,838)
7,430
(4)%
(3)%
(11)%
(20)%
6 %
15,498
7,481
14,548
9,319
$
149,543 $
143,001 $
6,542
5 %
Revenues for the year ended June 30, 2018 decreased $33,331 , or 4% , to $778,653 as compared to the prior year. The net decrease is attributable to the following:
Decrease in professional sports teams’ playoff related revenues
Decrease in revenues from league distributions
Decrease in event-related revenues from other live sporting events
Increase in professional sports teams’ sponsorship and signage revenues and ad sales commission
Increase in local media rights fees from MSG Networks
Increase in professional sports teams’ pre/regular season ticket-related revenues
Increase in suite rental fee revenues
Other net increases, inclusive of certain revenues from CLG
$
(29,333)
(24,820)
(10,817)
12,454
6,528
5,640
4,764
2,253
$
(33,331)
The decrease in professional sports team’s playoff related revenues was primarily due to the Rangers playing six home playoff games as the team advanced to the
second round of the playoffs in the prior year versus not qualifying for playoffs in the current year.
The decrease in revenues from league distributions primarily reflects an NHL expansion fee of $15,500 and approximately $15,000 of non-recurring distributions
from the NHL and NBA, which were both recorded by the Company in fiscal year 2017. These decreases were partially offset by other net increases, inclusive of
league distributions related to CLG, which was acquired on July 28, 2017.
The decrease in event-related revenues from other live sporting events was due to a change in the mix of events held during the current year as compared to the
prior year and one event that generated lower revenue during the current year as compared to the prior year.
The increase in professional sports teams’ sponsorship and signage revenues and ad sales commissions was primarily due to sales of new sponsorship and signage
inventory, increased sales of existing sponsorship and signage inventory and the impact of a marketing partner, upon renewal of its agreement, shifting its
marketing partnership spend from a combination of entertainment and sports entirely to sports.
The increase in local media rights fees from MSG Networks was primarily due to contractual rate increases.
The increase in professional sports teams’ pre/regular season ticket-related revenues was primarily due to higher average Rangers per-game revenue, partially
offset by lower average Liberty and Knicks per-game revenue.
The increase in suite rental fee revenue was primarily due to contractual rate increases.
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Table of Contents
Direct
operating
expenses
Direct operating expenses for the year ended June 30, 2018 decreased $15,896 , or 3% , to $457,694 as compared to the prior year. The net decrease is attributable
to the following:
Decrease in professional sports teams’ playoff related expenses
Decrease in event-related expenses associated with other live sporting events
Decrease in team personnel compensation
Decrease in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
Increase in net provisions for certain team personnel transactions
Increase in other team operating expenses
Other net increases
$
(14,290)
(5,612)
(3,726)
(3,590)
5,535
4,209
1,578
$
(15,896)
The decrease in professional sports teams’ playoff related expenses was primarily due to the Rangers playing six home playoff games as the team advanced to the
second round of the playoffs in the prior year versus not qualifying for playoffs in the current year.
The decrease in event-related expenses associated with other live sporting events was primarily due to a change in the mix of events during the current year as
compared to the prior year, and to a lesser extent, one event that generated lower expense during the current year as compared to the prior year.
The decrease in team personnel compensation was primarily due to lower overall player salaries during the current year as a result of roster changes, partially offset
by higher other team personnel compensation and the inclusion of team personnel compensation for CLG, which was acquired on July 28, 2017.
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax and for certain team personnel transactions were as follows:
Years Ended June 30,
2018
2017
Increase
(Decrease)
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury
tax
Net provisions for certain team personnel transactions
$
55,450 $
27,514
59,040 $
21,979
(3,590)
5,535
The decrease in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax reflects a lower provision for NBA and NHL
revenue sharing expense of $1,878 and a higher estimated NBA luxury tax receipt of $1,712 . Lower NBA and NHL revenue sharing expense primarily reflects an
increase in estimated net player escrow recoveries, partially offset by higher estimated NBA and NHL revenue sharing expense for the 2017-18 season and, to a
lesser extent, net adjustments to prior season’s revenue sharing expense. The increase in estimated NBA luxury tax receipt is based on the Knicks’ roster, which as
of June 30, 2018 did not result in luxury tax for the 2017-18 season. The Knicks were not a luxury tax payer for the 2016-17 season and, therefore, received an
equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. The actual amounts for the 2017-18 season may vary significantly
from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
Team personnel transactions for the year ended June 30, 2018 reflect provisions recorded for (i) waivers/contract terminations of $21,559 , (ii) season-ending
player injuries of $4,273 , which is net of insurance recoveries of $468 and (iii) player trades of $1,682 . Team personnel transactions for the year ended June 30,
2017 reflect provisions recorded for waivers/contract terminations and player trades of $13,979 and $8,000 , respectively.
The increase in other team operating expenses was primarily due to higher day-of-event costs and league expenses.
55
Table of Contents
Selling,
general
and
administrative
expenses
Selling, general and administrative expenses for the year ended June 30, 2018 decreased $23,027 , or 11% , to $186,914 as compared to the prior year primarily due
to lower employee compensation and related benefits, and to a lesser extent, lower marketing costs, partially offset by an increase in corporate general and
administrative costs. The reduction in employee compensation and related benefits as compared to the prior year is primarily driven by severance-related costs in
the prior year, which were attributable to a separation agreement with a team executive.
Depreciation
and
amortization
Depreciation and amortization for the year ended June 30, 2018 decreased $1,838 , or 20% , to $7,481 as compared to the prior year primarily as a result of an
intangible asset becoming fully amortized.
Operating
income
Operating income for the year ended June 30, 2018 increased $7,430 , or 6% , to $126,564 as compared to the prior year primarily due to lower selling, general and
administrative expenses and direct operating expenses, partially offset by a decrease in revenues, as discussed above.
Adjusted
operating
income
Adjusted operating income for the year ended June 30, 2018 increased $6,542 , or 5% , to $149,543 , as compared to the prior year primarily due to lower selling,
general and administrative expenses, excluding share-based compensation expense, and direct operating expenses, partially offset by a decrease in revenues.
56
Table of Contents
Comparison
of
the
Year
Ended
June
30,
2017
versus
the
Year
Ended
June
30,
2016
Consolidated
Results
of
Operations
The table below sets forth, for the periods presented, certain historical financial information.
Years Ended June 30,
Change
2017
2016
Amount
Percentage
Revenues
$
1,318,452 $
1,115,311 $
203,141
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating loss
Other income (expense):
Loss in equity method investments
Interest income, net
Miscellaneous income (expense)
Loss from operations before income taxes
Income tax benefit (expense)
Net loss
Less: Net income attributable to nonredeemable noncontrolling
interests
Less: Net loss attributable to redeemable noncontrolling interests
Net loss attributable to The Madison Square Garden Company’s
861,381
410,039
107,388
(60,356)
(29,976)
7,647
1,492
(81,193)
4,404
(76,789)
304
(4,370)
737,857
333,603
102,482
(58,631)
(19,099)
4,754
(4,017)
(76,993)
(297)
(77,290)
—
—
123,524
76,436
4,906
(1,725)
(10,877)
2,893
5,509
(4,200)
4,701
501
304
(4,370)
stockholders
$
(72,723) $
(77,290) $
4,567
NM — Percentage is not meaningful
The following is a summary of changes in segments’ operating results for the year ended June 30, 2017 as compared to the prior year.
18 %
17 %
23 %
5 %
(3)%
(57)%
61 %
NM
(5)%
NM
1 %
NM
NM
6 %
Changes attributable to
Revenues
Direct
operating
expenses
Selling,
general and
administrative
expenses
Depreciation
and
amortization
Operating
income (loss)
MSG Entertainment segment (a)
MSG Sports segment (a)
Corporate and Other
Purchase accounting adjustments
$
91,078 $
112,922
(859)
—
36,688 $
24,292 $
1,455
$
77,370
—
9,466
27,810
24,334
—
(1,638)
1,937
3,152
$
203,141 $
123,524 $
76,436 $
4,906
$
28,643
9,380
(27,130)
(12,618)
(1,725)
(a)
See
“Business
Segment
Results”
for
a
more
detailed
discussion
relating
to
the
operating
results
of
our
segments.
(b)
See
“Introduction”
for
the
discussion
of
the
Company’s
refinement
of
its
methodologies
used
to
allocate
its
corporate,
performance
venues
operating
and
other
shared
expenses
in
fiscal
year
2017.
Selling,
general
and
administrative
expenses
-
Corporate
and
Other
Selling, general and administrative expenses in Corporate and Other for the year ended June 30, 2017 increased $24,334 , or 44% , to $79,602 as compared to prior
year. The increase was primarily due to (i) an increase in employee compensation and related benefits, inclusive of the impact from the change in allocation
methodology, (ii) higher professional fees primarily associated with the Company’s business development initiatives and (iii) the Company being subject to New
York State and City capital tax for four fiscal quarters in the current year as compared to three fiscal quarters in the prior year.
57
Table of Contents
Depreciation
and
amortization
Depreciation and amortization for the year ended June 30, 2017 increased $4,906 , or 5% , to $107,388 as compared to the prior year primarily due to (i)
depreciation and amortization of assets related to purchase accounting adjustments associated with the fiscal 2017 acquisitions and (ii) depreciation and
amortization expenses of TAO Group’s property and equipment.
Operating
loss
-
Corporate
and
Other
Operating loss in Corporate and Other for the year ended June 30, 2017 increased $27,130 , or 20% , to $163,180 . The increase was primarily due to higher
selling, general and administrative expenses as discussed above.
Loss
in
equity
method
investments
Loss in equity method investments for the year ended June 30, 2017 increased by $10,877 , or 57% , to $29,976 as compared to the prior year. The year-over-year
increase in loss reflects a pre-tax non-cash impairment charge of $20,613 in the third quarter of fiscal year 2017 to write off the carrying value of the Company’s
equity investment in Fuse Media. This increase was partially offset by the non-recurrence of a non-cash impairment charge of $7,270 to write off the carrying value
of the Company’s investment in the Broadway production of Finding
Neverland
during the fourth quarter of fiscal year 2016, as well as improved operating results
for certain of the Company’s joint ventures and, to a lesser extent, a distribution in the current year from an equity method investment that was previously written
off.
Miscellaneous
income
(expense)
Miscellaneous income for the year ended June 30, 2017 consisted principally of the recovery of certain claims in connection with a third-party bankruptcy
proceeding. Miscellaneous expense in the prior year reflected a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of one of
the Company’s cost method investments.
Income
taxes
Income tax benefit for the year ended June 30, 2017 was $4,404 and income tax expense for the year ended June 30, 2016 was $297 .
Income tax benefit for the year ended June 30, 2017 of $4,404 differs from the income tax expense derived from applying the statutory Federal rate of 35% to
pretax income primarily as a result of an increase of $30,697 in recorded federal and state valuation allowances, tax expense of $3,449 related to non-deductible
expense, the tax impact of consolidated partnership book income attributable to non-controlling interests of $1,414 , deferred expense of $1,329 based on tax
amortization on indefinite lived intangibles that are not available as a source of taxable income to support the realization of deferred tax assets, and expense of
$672 recorded due to a state rate change computed as a result of filed state tax returns. This tax expense is offset by a state tax benefit (net of federal effect) of
$6,716 , the tax benefit of other comprehensive income gains recorded in continuing operations of $6,477 and other of $354 .
Income tax expense for the year ended June 30, 2016 of $297 differs from the income tax expense derived from applying the statutory Federal rate of 35% to pretax
income due to the Company not being able to record a tax benefit related to the deferred tax assets established on the operating losses during that year. Due to a
lack of history of achieving operating income from operations, we have provided a full valuation allowance against our deferred tax assets.
Adjusted
operating
income
The following is a reconciliation of operating loss to adjusted operating income:
Operating loss
Share-based compensation (a)
Depreciation and amortization (b)
Other purchase accounting adjustments
Adjusted operating income
________________
Years Ended June 30,
Change
2017
2016
Amount
Percentage
$
(60,356) $
(58,631) $
(1,725)
(3)%
41,129
107,388
9,466
24,476
102,482
—
$
97,627 $
68,327 $
29,300
43 %
(a)
The
increase
in
share-based
compensation
as
compared
to
prior
year,
primarily
reflects
changes
the
Company
made
during
fiscal
year
2016
to
its
long-term
incentive
plans.
These
changes
resulted
in
a
shift
in
the
performance-based
component
of
the
Company’s
long-term
incentive
awards
from
cash
to
performance-based
restricted
stock
units.
(b)
Depreciation
and
amortization
includes
purchase
accounting
adjustments
of
$3,152
for
the
year
ended
June
30,
2017
.
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Adjusted operating income for the year ended June 30, 2017 increased $29,300 , or 43% , to $97,627 as compared to the prior year. The net increase is attributable
to the following:
Increase in adjusted operating income of the MSG Entertainment segment
Increase in adjusted operating income of the MSG Sports segment
Other net decreases
$
$
36,551
11,974
(19,225)
29,300
Other net decreases reflect (i) an increase in employee compensation and related benefits, excluding share-based compensation expense, (ii) higher professional
fees and (iii) the Company being subject to New York State and City capital tax for four fiscal quarters in the current year as compared to three fiscal quarters in
the prior year.
Net
income
(loss)
attributable
to
redeemable
and
nonredeemable
noncontrolling
interests
For the year ended June 30, 2017 , the Company recorded net loss attributable to redeemable noncontrolling interests of $4,370 and a net income attributable to
nonredeemable noncontrolling interests of $304 . These amounts represent the share of net income (loss) of TAO Group and BCE that are not attributable to the
Company. In addition, the net income (loss) attributable to redeemable and nonredeemable noncontrolling interests includes a proportional share of expenses
related to purchase accounting adjustments. See “— Introduction — Factors Affecting Operating Results from Acquisitions ” for further discussion.
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Table of Contents
Business
Segment
Results
MSG
Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating income
(loss) for the Company’s MSG Entertainment segment.
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating loss
Reconciliation to adjusted operating income (loss):
Share-based compensation
Depreciation and amortization
Adjusted operating income (loss)
NM — Percentage is not meaningful
Revenues
Years Ended June 30,
Change
2017
2016
Amount
Percentage
$
506,468 $
415,390 $
378,325
120,496
11,339
341,637
96,204
9,884
$
(3,692) $
(32,335) $
91,078
36,688
24,292
1,455
28,643
22%
11%
25%
15%
89%
14,323
11,339
7,870
9,884
$
21,970 $
(14,581) $
36,551
NM
Revenues for the year ended June 30, 2017 increased $91,078 , or 22% , to $506,468 as compared to the prior year. The net increase is attributable to the following:
Inclusion of revenues associated with entertainment dining and nightlife offerings
Inclusion of BCE events-related revenues
Increase in event-related revenues at the Forum
Increase in revenues from the presentation of the New
York
Spectacular
Increase in revenues from the presentation of the Christmas
Spectacular
Increase in event-related revenues at The Garden
Increase in event-related revenues at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
Increase in venue-related sponsorship and signage and suite rental fee revenues
Increase in event-related revenues at The Hulu Theater at Madison Square Garden
Decrease in event-related revenues at the Beacon Theatre
Decrease in event-related revenues at the Wang Theatre
Other net increases
$
$
34,332
16,357
14,044
7,768
6,778
5,616
4,017
3,001
2,572
(2,926)
(1,085)
604
91,078
The inclusion of revenues associated with entertainment dining and nightlife offerings is the result of the acquisition of TAO Group on January 31, 2017, and
primarily reflects revenues generated from food and beverage sales. TAO Group’s operating results are recorded in the Company’s consolidated statements of
operations on a three-month lag basis. As a result, TAO Group’s related revenues are for the period from February 1, 2017 to March 26, 2017. See “— Introduction
— Factors Affecting Operating Results from Acquisitions — TAO Group’s Operating Results ” for further discussion.
The inclusion of BCE events-related revenues is the result of the acquisition of BCE in July 2016, and principally consists of event-related revenues generated by
the Boston Calling Music Festival, which was held in May 2017. See “— Introduction — Factors Affecting Operating Results from Acquisitions — BCE’s
Operating Results ” for further discussion.
The increase in event-related revenues at the Forum was primarily due to additional events and a change in the mix of events held at the venue during the year
ended June 30, 2017 as compared to the prior year.
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Table of Contents
The increase in revenues from the presentation of the New
York
Spectacular
was primarily due to additional scheduled performances in the year ended June 30,
2017 as compared to the prior year. This was a result of the Company’s decision to shift the timing of the production with the production beginning mid-June 2016
resulting in 56 scheduled performances during fiscal year 2017 versus the prior year production, which began mid-March 2015 with 21 scheduled performances
during fiscal year 2016. The Company announced in February 2017 that it was suspending the planned 2017 presentation of the New
York
Spectacular
.
The increase in revenues from the presentation of the Christmas
Spectacular
was primarily due to higher average ticket prices, inclusive of the impact of
eliminating high volume buyers, during the year ended June 30, 2017 as compared to the prior year. During the 2016 holiday season more than one million tickets
were sold, which represents a low single digit percentage decrease as compared to the 2015 holiday season due to seven fewer scheduled performances.
The increase in event-related revenues at The Garden was due to a change in the mix of events partially offset by fewer events held at the venue during the year
ended June 30, 2017 as compared to the prior year.
The increase in event-related revenues at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
, was due to a change in the
mix of events and additional events held at the venue during the year ended June 30, 2017 as compared to the prior year.
The increase in venue-related sponsorship and signage and suite rental fee revenues was primarily due to new sponsorship inventory as well as increased sales of
existing sponsorship inventory.
The increase in event-related revenues at The Hulu Theater at Madison Square Garden was due to additional events partially offset by a change in the mix of events
held at the venue during the year ended June 30, 2017 as compared to the prior year.
The decrease in event-related revenues at the Beacon Theatre was due to fewer events held at the venue during the year ended June 30, 2017 as compared to the
prior year.
The decrease in event-related revenues at the Wang Theatre was due to a change in the mix of events partially offset by additional events held at the venue during
the year ended June 30, 2017 as compared to the prior year.
Direct
operating
expenses
Direct operating expenses for the year ended June 30, 2017 increased $36,688 , or 11% , to $378,325 as compared to the prior year. The net increase is attributable
to the following:
Inclusion of direct operating expenses associated with entertainment dining and nightlife offerings
Inclusion of BCE events-related direct operating expenses
Increase in event-related direct operating expenses at the Forum
Increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
Increase in event-related direct operating expenses at The Hulu Theater at Madison Square Garden
Increase in event-related direct operating expenses at The Garden
Decrease in direct operating expenses associated with the presentation of the Christmas
Spectacular
Decrease in event-related direct operating expenses at the Beacon Theatre
Decrease in direct operating expenses associated with the New
York
Spectacular
Other net increases
$
$
19,648
13,197
5,799
2,940
2,534
631
(6,464)
(2,002)
(443)
848
36,688
The inclusion of direct operating expenses associated with entertainment dining and nightlife offerings is the result of the acquisition of TAO Group on January 31,
2017, and primarily reflects costs associated with food and beverage sales, inclusive of labor costs, as well as venue related operating expenses. TAO Group’s
operating results are recorded in the Company’s consolidated statements of operations on a three-month lag basis. As a result, TAO Group’s related direct
operating expenses are for the period from February 1, 2017 to March 26, 2017. See “— Introduction — Factors Affecting Operating Results from Acquisitions —
TAO Group’s Operating Results ” for further discussion.
The inclusion of BCE events-related direct operating expenses is the result of the acquisition of BCE in July 2016, and principally consists of direct operating
expenses associated with the Boston Calling Music Festival, which was held in May 2017. In addition, BCE incurred other expenses associated with this festival,
which are reported as selling, general and administrative expenses. See “— Introduction — Factors Affecting Operating Results from Acquisitions — BCE’s
Operating Results ” for further discussion.
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Table of Contents
The increase in event-related direct operating expenses at the Forum was primarily due to additional events and a change in the mix of events held at the venue
during the year ended June 30, 2017 as compared to the prior year.
The increase in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas
Spectacular
and the New
York
Spectacular
, was due to
a change in the mix of events and additional events held at the venue during the year ended June 30, 2017 as compared to the prior year.
The increase in event-related direct operating expenses at The Hulu Theater at Madison Square Garden was due to additional events partially offset by a change in
the mix of events held at the venue during the year ended June 30, 2017 as compared to the prior year.
The increase in event-related direct operating expenses at The Garden was due to a change in mix of events offset by fewer events held at the venue during the year
ended June 30, 2017 as compared to the prior year.
The decrease in direct operating expenses associated with the presentation of the Christmas
Spectacular
was primarily driven by lower costs due to operational
efficiencies, a decrease in deferred production cost amortization, fewer scheduled performances during the year ended June 30, 2017 as compared to the prior year,
as well as a decrease in marketing expenses.
The decrease in event-related direct operating expenses at the Beacon Theatre was primarily due to fewer events and a change in the mix of events held at the
venue during the year ended June 30, 2017 as compared to the prior year.
The decrease in direct operating expenses associated with the New
York
Spectacular
was due to lower write-off of the deferred production costs during fiscal year
2017 as compared to the prior year offset by an increase in the direct operating expenses associated with the presentation of the show.
During the third quarter of fiscal year 2016, the Company recorded a $41,816 write-off of deferred production costs associated with the New
York
Spectacular
due
to the creative decision to not include, in the summer of 2016 performances, certain scenes from the previous show. Due to assessments of the show’s creative
direction, timing and scale, the Company wrote off the remaining balance of deferred production costs related to the New
York
Spectacular
in the amount of
$33,629 during the fourth quarter of fiscal year 2017.
The increase in direct operating expenses associated with the presentation of the New
York
Spectacular
was primarily due to additional scheduled performances in
the year ended June 30, 2017 as compared to the prior year. This was a result of the Company’s decision to shift the timing of the production with the production
beginning mid-June 2016 resulting in 56 scheduled performances during fiscal year 2017 versus the prior year production, which began mid-March 2015 with 21
scheduled performances during fiscal year 2016. The Company announced in February 2017 that it was suspending the planned 2017 presentation of the New
York
Spectacular
.
Selling,
general
and
administrative
expenses
Selling, general and administrative expenses for the year ended June 30, 2017 increased $24,292 , or 25% , to $120,496 as compared to the prior year mainly due to
(i) inclusion of TAO Group’s selling, general and administrative costs, (ii) an increase in corporate general and administrative costs, (iii) higher professional fees
and (iv) an increase in employee compensation and related benefits.
Depreciation
and
amortization
Depreciation and amortization for the year ended June 30, 2017 increased $1,455 , or 15% , to $11,339 as compared to the prior year primarily due to depreciation
and amortization expenses for TAO Group’s property and equipment before the purchase accounting adjustments.
Operating
income
(loss)
Operating loss improved by $28,643 , or 89% to a loss of $3,692 for the year ended June 30, 2017 as compared to the prior year primarily due to higher revenues,
partially offset by increases in direct operating expenses, selling, general and administrative expenses and depreciation and amortization expenses, as discussed
above.
Adjusted
operating
income
(loss)
Adjusted operating income improved by $36,551 to $21,970 for the year ended June 30, 2017 as compared to the prior year primarily due to higher revenues,
partially offset by increases in direct operating expenses and selling, general and administrative expenses, as discussed above. The increase in adjusted operating
income excludes increases in share-based compensation expense and depreciation and amortization expenses for the year ended June 30, 2017 as compared to the
prior year.
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Table of Contents
MSG
Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income
for the Company’s MSG Sports segment.
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Reconciliation to adjusted operating income:
Share-based compensation
Depreciation and amortization
Adjusted operating income
Revenues
Years Ended June 30,
Change
2017
2016
Amount
Percentage
$
811,984 $
699,062 $
112,922
473,590
209,941
9,319
396,220
182,131
10,957
$
119,134 $
109,754 $
77,370
27,810
(1,638)
9,380
16 %
20 %
15 %
(15)%
9 %
14,548
9,319
10,316
10,957
$
143,001 $
131,027 $
11,974
9 %
Revenues for the year ended June 30, 2017 increased $112,922 , or 16% , to $811,984 as compared to the prior year. The net increase is attributable to the
following:
Increase in revenues from league distributions
Increase in professional sports teams’ playoff related revenues
Increase in professional sports teams’ pre/regular season ticket-related revenues
Increase in professional sports teams’ sponsorship and signage revenues and ad sales commission
Increase in event-related revenues from other live sporting events
Increase in local media rights fees from MSG Networks
Increase in suite rental fee revenues
Other net increases
$
66,210
20,694
8,399
6,068
5,552
4,341
1,056
602
$
112,922
The increase in revenues from league distributions primarily reflects the impact from the NBA’s new national media rights agreements, which began with the
2016-17 NBA regular season, and an NHL expansion fee received from the league. The NHL expansion fee of approximately $15,500 is a non-recurring
distribution related to the NHL’s addition of a 31 st team located in Las Vegas, Nevada. In addition, the Company recorded approximately $15,000 of non-recurring
distributions from the NHL and NBA.
The increase in professional sports teams’ playoff related revenues was primarily due to the Rangers playing six home playoff games as the team advanced to the
second round of the playoffs in the year ended June 30, 2017 versus playing two home playoff games in the prior year.
The increase in professional sports teams’ pre/regular season ticket-related revenues was primarily due to higher average per-game revenue, which reflects higher
average ticket prices and the changes made to ticketing polices, resulting in fewer full season tickets sold and more sales of individual and group tickets, as well as
partial season plans.
The increase in professional sports teams’ sponsorship and signage revenues and ad sales commission was primarily due to increased sales of existing sponsorship
and signage inventory.
The increase in event-related revenues from other live sporting events was primarily due to a change in the mix of events during the year ended June 30, 2017 as
compared to the prior year.
The increase in local media rights fees from MSG Networks was due to contractual rate increases.
The increase in suite rental fee revenues was primarily due to contractual rate increases partially offset by other net decreases.
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Table of Contents
Direct
operating
expenses
Direct operating expenses for the year ended June 30, 2017 increased $77,370 , or 20% , to $473,590 as compared to the prior year. The net increase is attributable
to the following:
Increase in team personnel compensation
$
Increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
Increase in net provisions for certain team personnel transactions
Increase in professional sports teams’ playoff related expenses
Increase in event-related expenses associated with other live sporting events
Increase in other team operating expenses
Increase in venue operating costs
Other net increases
31,709
16,699
14,495
9,363
1,967
1,269
1,107
761
$
77,370
The increase in team personnel compensation was primarily due to higher overall player salaries during the current year, mainly a result of the impact of roster
changes in our sports teams. In connection with the NBA’s new national media rights agreements, the NBA’s player salary cap for the 2016-17 regular season
increased significantly, as compared to the salary cap for the 2015-16 regular season.
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax and for certain team personnel transactions were as follows:
Years Ended June 30,
2017
2016
Increase
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury
tax
Net provisions for certain team personnel transactions
$
59,040 $
21,979
42,341 $
7,484
16,699
14,495
The increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax reflects higher net provisions for both NBA
and NHL revenue sharing expense of $14,657 and lower NBA luxury tax credit of $2,042 . Higher NBA and NHL revenue sharing expense reflects higher
estimated NBA and NHL revenue sharing expense for the 2016-17 season and lower estimated net player escrow recoveries. The actual amounts for the NHL’s
2016-17 season may vary significantly from the recorded provision based on actual operating results for the league and all NHL teams for the season and other
factors. The Knicks were not a luxury tax payer for neither the 2016-17 season or the 2015-16 season. We received an equal share of the portion of luxury tax
receipts that were distributed to non-tax paying teams for the 2015-16 season. The luxury tax receipt we expect to receive for the 2016-17 season is lower than the
receipt for the 2015-16 season.
Team personnel transactions for the year ended June 30, 2017 reflect provisions recorded for waivers/contract terminations and player trades of $13,979 and $8,000
, respectively. Team personnel transactions for the year ended June 30, 2016 reflect provisions recorded for waivers/contract terminations.
The increase in professional sports teams’ playoff related expenses was primarily due to the Rangers playing six home playoff games as the team advanced to the
second round of the playoffs in the year ended June 30, 2017 versus playing two home playoff games in the prior year.
The increase in event-related expenses associated with other live sporting events was primarily due to a change in the mix of events during the year ended June 30,
2017 as compared to the prior year.
The increase in other team operating expenses was primarily due to higher team travel expenses, day-of-event costs and other net team operating expense increases
partially offset by a decrease in league assessments.
The increase in venue operating costs was primarily due to higher operating costs at The Garden driven by an increase in labor-related costs slightly offset by
decreases in operating costs at other venues.
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Table of Contents
Selling,
general
and
administrative
expenses
Selling, general and administrative expenses for the year ended June 30, 2017 increased $27,810 , or 15% , to $209,941 as compared to the prior year, primarily
due to higher employee compensation and related benefits, driven by severance-related costs attributable to a separation agreement with a team executive, slightly
offset by other net decreases.
Operating
income
Operating income for the year ended June 30, 2017 increased $9,380 , or 9% , to $119,134 as compared to the prior year primarily due to higher revenues partially
offset by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above.
Adjusted
operating
income
Adjusted operating income for the year ended June 30, 2017 increased $11,974 , or 9% , to $143,001 , as compared to the prior year primarily due to higher
revenues partially offset by an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above.
The increase in adjusted operating income excludes the increase in share-based compensation expense and decrease in depreciation and amortization expenses for
the year ended June 30, 2017 as compared to the prior year.
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Table of Contents
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our businesses and available borrowing capacity under our
$377,000 revolving credit facilities (see “Financing Agreements — Knicks Revolving Credit Facility,” “Financing Agreements — Knicks Unsecured Credit
Facility,” “Financing Agreements — Rangers Revolving Credit Facility” and “Financing Agreements — TAO Credit Facilities” below). Our principal uses of cash
include working capital-related items, capital spending (including our planned construction of large-scale venues in Las Vegas and London), investments and
related loans that we may fund from time to time, repurchases of shares of the Company’s Class A Common Stock, repayment of debt, and the payment of earn-out
obligations and mandatory purchases from prior acquisitions. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing
review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent the Company desires to
access alternative sources of funding through the capital and credit markets, challenging U.S. and global economic conditions could adversely impact our ability to
do so at that time.
We regularly monitor and assess our ability to meet our net funding and investing requirements. Over the next 12 months, we believe we have sufficient liquidity,
including approximately $1,226,000 in unrestricted cash and cash equivalents as of June 30, 2018 , along with available borrowing capacity under our revolving
credit facilities combined with operating cash flows to fund our operations, to pursue the development of the new venues discussed below and other new business
opportunities and to repurchase shares of the Company’s Class A Common Stock.
TAO Group’s principal uses of cash include working capital related-items, investments in new venues, tax-related cash distributions, interest expense payments and
repayment of debt. TAO Group plans to continue to grow its business through the opening of new venues. TAO Group regularly monitors and assesses its ability to
meet its funding and investment requirements. Over the next 12 months, the Company believes that TAO Group has sufficient liquidity from cash on hand, cash
generated from operations and its revolving credit facility to fund its operations, service debt obligations and pursue new business opportunities.
MSG
Spheres
The Company is moving forward with its venue strategy to create the “venue of the future” — which we refer to as “MSG Sphere” for its spherical shape. See
“Part I — Item 1. Business — Our Business — Our Performance Venues — MSG Sphere .”
Our plans are to build the first MSG Sphere in Las Vegas, followed by London. We continue to refine our designs to ensure that we are delivering the most
immersive experience for guests and maximizing the efficiencies that come with constructing two venues that will have similar key features. For Las Vegas, the
Company plans to break ground during September 2018 with the start of site preparations, with the goal to open in fiscal year 2021.
In London, the Company acquired land in 2017 at a cost, net of value added tax, of $79,518 . Subject to the timely completion of the planning and governmental
approval process, our goal is to have our London venue debut approximately one year after the Las Vegas venue.
Cost estimates for MSG Sphere Las Vegas and London have not yet been finalized as the Company continues to refine its design plans. MSG Sphere is an
ambitious project that we believe will drive substantial new and enhanced revenue and adjusted operating income opportunities for the Company. Given the
transformative nature of these venues, we expect that construction of these venues will require greater capital spend than would be required for a traditional arena-
sized venue.
We will continue to explore additional domestic and international markets where we believe next-generation venues such as the MSG Sphere can be successful. As
is the case for any large scale real estate development projects, when the Company moves forward with the planning and construction for the MSG Spheres and
other major new venues, the Company may face unexpected project delays and costs.
In connection with these efforts, the Company will need to pursue additional capital beyond that which is available from cash on hand, cash flows from operations
and borrowings under our revolving credit facilities. There is no assurance that we would be able to obtain such capital. The potential Sports Distribution
contemplates that the Company would retain an approximate two thirds interest in the sports company which, if completed, could provide the Company with an
additional source of funding for its capital and other needs, including for costs associated with the design and construction of MSG Spheres. See also “Part I —
Item 1. Business — Our Business — Our Performance Venues — MSG Sphere .”
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Table of Contents
Stock
Repurchases
On September 11, 2015, the Board authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class
A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of the Company’s 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. As of June 30, 2018 , the Company had $259,639 of availability remaining under its stock repurchase authorization.
Financing
Agreements
Knicks
Revolving
Credit
Facility
On September 30, 2016, Knicks LLC, a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Knicks Credit Agreement ”) with a
syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “ Knicks Revolving Credit Facility ”) to
fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of June 30, 2018 ,
Knicks LLC was in compliance with this financial covenant.
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating
rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging
from 1.00% to 1.125% per annum. Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily
unused commitments under the Knicks Revolving Credit Facility . The Knicks Revolving Credit Facility was undrawn as of June 30, 2018 .
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited
to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast
agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at
any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to
make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility
is greater than 350% of qualified revenues.
The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various
exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities;
(ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility ; (iv)
engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any
Knicks LLC’s collateral.
Knicks
Unsecured
Credit
Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364 -
day term. Knicks LLC renewed this facility with the lender on the same terms effective as of September 29, 2017. This facility was undrawn as of June 30, 2018
and is expected to be renewed on the same terms prior to expiration.
Rangers
Revolving
Credit
Facility
On January 25, 2017, Rangers LLC, a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Rangers Credit Agreement ”) with a
syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “ Rangers Revolving Credit Facility ”)
to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except during an event of default.
The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period. As of June 30, 2018 ,
Rangers LLC was in compliance with this financial covenant. All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain
customary conditions.
Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per
annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum. Rangers LLC is
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Table of Contents
required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving
Credit Facility . The Rangers Revolving Credit Facility was undrawn as of June 30, 2018 .
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not
limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national
broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility
at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to
make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount
under the Rangers Revolving Credit Facility .
The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various
exceptions and baskets set forth in) the Rangers Revolving Credit Facility , including the following: (i) incurring additional indebtedness and contingent liabilities;
(ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility ; (iv)
engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of
Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility .
TAO
Credit
Facilities
On January 31, 2017, TAO Group Intermediate Holdings LLC (“TAOIH”), TAO Group Operating LLC (“TAOG”), and certain of its subsidiaries entered into a
credit and guaranty agreement with a syndicate of lenders providing for a senior secured term loan facility of $110,000 with a term of five years (the “ TAO Term
Loan Facility ”) to fund, in part, the acquisition of TAO Group and a senior secured revolving credit facility of up to $12,000 with a term of five years (the “ TAO
Revolving Credit Facility ,” and together with the TAO Term Loan Facility, the “TAO Credit Facilities”) for working capital and general corporate purposes of
TAOG. The TAO Credit Facilities were obtained without recourse to MSG or any of its affiliates (other than TAOIH and its subsidiaries).
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply
with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the first quarter of calendar year 2021 and through the
remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over
time to 1.15:1.00 by the second quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities. TAOIH was in compliance with
the financial covenants of the TAO Credit Facilities as of April 1, 2018 (the most recent date at which compliance was assessed under the TAO Credit Facilities).
The TAO Revolving Credit Facility was undrawn as of June 30, 2018 .
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net
leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage
multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of
TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum.
The interest rate on the TAO Credit Facilities as of April 1, 2018 was 9.9375% . TAOG is required to pay a commitment fee of 0.50% per annum in respect of the
average daily unused commitments under the TAO Revolving Credit Facility.
All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but
not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and
100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
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Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in
whole or in part (subject to customary breakage costs with respect to LIBOR loans) with premiums due in respect of prepayments of the TAO Term Loan Facility
or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. Beginning
March 31, 2018, TAOG is required to make scheduled amortization payment s under the TAO Term Loan Facility in consecutive quarterly installments equal to
$688 per quarter initially, stepping up over time to $4,125 per quarter by March 31, 2021 and through the final maturity date of the TAO Term Loan Facility with
the final balance payable on such maturity date. TAOG is also required to make mandatory prepayment s under the TAO Credit Facilities in certain circumstances,
including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets
set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making
distributions, dividends and other restricted payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and
(vii) prepaying certain indebtedness.
Long-term debt maturities over the next five years for the TAO Term Loan Facility as of April 1, 2018 (a)
are:
Fiscal year ending June 30, 2019
Fiscal year ending June 30, 2020
Fiscal year ending June 30, 2021
Fiscal year ending June 30, 2022
Fiscal year ending June 30, 2023
Thereafter
_________________
$
5,304
2,063
11,000
90,946
—
—
(a)
The
Company
records
TAO
Group
’s
operating
results
in
its
consolidated
financial
statements
on
a
three-month
lag
basis
(see
Item
8.
Financial
Statements
and
Supplementary
Data
—
Consolidated
Financial
Statements
—
Notes
to
Consolidated
Financial
Statements
—
Note
2
.
Summary
of
Significant
Accounting
Policies
—
Business
Combinations
and
Noncontrolling
Interests
”
for
further
detail).
As
such,
the
long-term
debt
maturities
amounts
disclosed
above
did
not
reflect
a
mandatory
prepayment
of
$2,554
in
May
2018
and
a
scheduled
amortization
payment
of
$688
in
June
2018.
Revolving
Credit
Facilities
Provided
to
Nonconsolidated
Affiliates
In connection with the Company’s investment in AMSGE , the Company provides a $100,000 revolving credit facility to this entity of which $63,500 had been
drawn as of June 30, 2018 . On April 20, 2018, AMSGE repaid $34,000 and the Company agreed that such amounts could be reborrowed.
In connection with the Company’s investment in Tribeca Enterprises, the Company provided a $17,500 revolving credit facility to this entity, which facility was
fully drawn as of June 30, 2018 . Tribeca Enterprises also owed PIK interest of $2,025 on this facility as of June 30, 2018 .
Bilateral
Letters
of
Credit
Lines
The Company has established bilateral credit lines with a bank to issue letters of credit in support of the Company’s business operations. The Company pays fees
for the letters of credit that are credited against interest income the Company receives in return from its investments in notes receivable with the same bank. As of
June 30, 2018 , the Company had $4,110 of letters of credit outstanding pursuant to which fees were credited against note investments. Of which, TAO Group had
three letters of credit outstanding for $1,500 as of April 1, 2018 . See “— Introduction — Factors Affecting Operating Results from Acquisitions — TAO Group’s
Operating Results ” for further discussion.
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Table of Contents
Cash
Flow
Discussion
As of June 30, 2018 , cash and cash equivalents totaled $1,225,638 , as compared to $1,238,114 as of June 30, 2017 . The following table summarizes the
Company’s cash flow activities for the years ended June 30, 2018 , 2017 and 2016 :
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Operating
Activities
Years Ended June 30,
2018
2017
2016
$
220,647 $
216,623 $
(182,357)
(51,097)
331
(264,301)
(158,525)
—
125,785
(115,690)
1,420,011
—
$
(12,476) $
(206,203) $
1,430,106
Net cash provided by operating activities for the year ended June 30, 2018 improved by $4,024 to $220,647 as compared to the prior year primarily due to higher
net income adjusted for non-cash items including (i) a reduction in net deferred tax liabilities as a result of the recently enacted Tax Cuts and Jobs Act effective
January 1, 2018, (ii) a write-off of deferred production costs associated with the New
York
Spectacular
in the prior year, (iii) an impairment charge to write off the
carrying value of the Company’s equity investment in Fuse Media in the prior year, (iv) purchase accounting adjustments related to business acquisitions, primarily
fair value adjustments to inventory in fiscal 2017 and favorable/unfavorable lease agreements of the acquiree, partially offset by increases in depreciation and
amortization and share-based compensation expense in the current year as compared to the prior year. This increase was offset by (i) a severance-related payment
in the current year attributable to a separation agreement with a team executive which was accrued for as of June 30, 2017, (ii) a decrease in cash received related
to deferred revenue primarily due to timing, and (iii) higher cash paid in the prior year for the establishment of restricted cash accounts, partially offset by cash
received in the current year related to a non-recurring league distribution which was accrued for as of June 30, 2017.
Net cash provided by operating activities for the year ended June 30, 2017 improved by $90,838 to $216,623 as compared to the prior year primarily due to an
increase in other assets and liabilities and other non-cash items. The increase in net cash provided by operating activities resulting from changes in assets and
liabilities was primarily due to (i) an increase in deferred revenue primarily due to timing, (ii) a decrease in deferred production costs primarily driven by lower
spending and higher amortization of deferred production costs during the year ended June 30, 2017 as compared to the prior year, (iii) luxury tax receipts during
the current year (for 2015-16 season) as compared to luxury tax payments in the prior year (for 2014-15 season) offset by an increase in a receivable related to non-
recurring distributions from the NHL. The increase in operating cash flows from other non-cash items was primarily due to (i) higher share-based compensation
expense during the current year as compared to the prior year, (ii) an increase in loss in equity method investments primarily due to a pre-tax, non-cash impairment
charge to write off the carrying value of the Company’s equity investment in Fuse Media during the current year, and (iii) amortization of inventory step-up in
connection with the TAO Group acquisition. These increases were partially offset by a higher non-cash write-off of deferred production costs associated with the
New
York
Spectacular
in the prior year as compared to the current year and a benefit from deferred income taxes in the current year.
Investing
Activities
Net cash used in investing activities for the year ended June 30, 2018 decreased by $81,944 to $182,357 as compared to the prior year primarily due to (i) a net
decrease in business acquisitions, (ii) repayments received from loans to nonconsolidated affiliates, and (iii) the acquisition of available-for-sale securities in the
prior year. These decreases were partially offset by (i) higher capital expenditures in the current year, primarily associated with the purchase of land in London and
costs incurred in developing the Company’s new venues in Las Vegas and London, (ii) new investments made in nonconsolidated affiliates, and (iii) a franchise fee
payment made in the current year associated with CLG’s membership in the “League of Legends” North American League Championship Series.
Net cash used in investing activities for the year ended June 30, 2017 increased by $148,611 to $264,301 as compared to the prior year largely driven by the
acquisition of a controlling interest in TAO Group and, to a lesser extent, the acquisition of available-for sale securities and a controlling interest in BCE during the
year ended June 30, 2017. These increases were partially offset by (i) lower capital expenditures primarily due to the purchase of a new aircraft during the prior
year, (ii) a net decrease in outstanding loans to nonconsolidated affiliates under the revolving credit facilities, (iii) payments to acquire notes receivable during the
prior year, (iv) cash received upon the maturity of a note receivable during the during the year ended June 30, 2017 and (v) a decrease in the Company’s acquisition
of its interest in cost method investments as compared to the prior year.
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Table of Contents
Financing
Activities
Net cash used in financing activities for the year ended June 30, 2018 decreased by $107,428 to $51,097 as compared to the prior year largely due to lower
repurchases of shares of the Company’s Class A Common Stock in the current year as compared to the prior year. This decrease was partially offset by (i) higher
taxes paid in lieu of shares issued for equity-based compensation in the current year as compared to the prior year, (ii) distributions to noncontrolling interest
holders related to the acquisition of TAO Group in the current year and (iii) a contingent consideration payment related to the acquisition of CLG in the current
year.
Net cash used in financing activities for the year ended June 30, 2017 was $158,525 as compared to net cash provided by financing activities in the prior year of
$1,420,011 . This change is mainly due to net transfers during the prior year from Former Parent which were primarily comprised of a $1,467,093 cash contribution
and, to a lesser extent, an increase in repurchases of shares of the Company’s Class A Common Stock during the year ended June 30, 2017 .
Contractual
Obligations
and
Off
Balance
Sheet
Arrangements
Future cash payments required under contracts entered into by the Company in the normal course of business and outstanding letters of credit as of June 30, 2018
are summarized in the following table:
Total
Year
1
Years
2-3
Years
4-5
More Than
5 Years
Payments Due by Period
$
$
390,821 $
158,193 $
390,669
4,110
785,600
52,164
4,110
214,467
88,395
873,995 $
56,483
270,950 $
200,317 $
101,046
—
301,363
11,783
313,146 $
26,465 $
96,578
—
123,043
7,462
130,505 $
5,846
140,881
—
146,727
12,667
159,394
Off balance sheet arrangements:
Contractual obligations (a)
Operating lease obligations (b)
Letters of credit (c)
Contractual obligations reflected
on the balance sheet (d)
Total (e)
_________________
(a)
Contractual
obligations
not
reflected
on
the
balance
sheet
consist
principally
of
the
MSG
Sports
segment’s
obligations
under
employment
agreements
that
the
Company
has
with
its
professional
sports
teams’
personnel
that
are
generally
guaranteed
regardless
of
employee
injury
or
termination.
(b)
Operating
lease
obligations
primarily
represent
future
minimum
rental
payments
on
various
long-term,
noncancelable
leases
for
the
Company’s
venues,
including
the
TAO
Group
venues,
CLG
facility,
and
various
corporate
offices.
(c)
Consist
of
letters
of
credit
obtained
by
the
Company
as
collateral
for
lease
agreements.
(d)
Consist
primarily
of
amounts
earned
under
employment
agreements
that
the
Company
has
with
certain
of
its
professional
sports
teams’
personnel
in
the
MSG
Sports
segment.
(e)
Pension
obligations
have
been
excluded
from
the
table
above
as
the
timing
of
the
future
cash
payments
is
uncertain.
See
Note
12
to
the
consolidated
financial
statements
included
in
Item
8
of
this
Annual
Report
on
Form
10-K
for
more
information
on
the
future
funding
requirements
under
our
pension
obligations.
See “ Financing Agreements — Revolving Credit Facilities Provided to Nonconsolidated Affiliates ” above for discussion of the revolving credit facilities provided
by the Company to AMSGE and Tribeca Enterprises.
In connection with the TAO Group and CLG acquisitions, the Company has accrued contingent consideration liabilities as part of the purchase price. See Note 10
to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details of the amount reflected on the balance sheet as of
June 30, 2018 . In addition, see Note 11 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details of the
principal repayments required under the TAO Term Loan Facility .
MSG and a subsidiary of the Las Vegas Sands Corp. entered into a 50-year ground lease in Las Vegas pursuant to which MSG has agreed to construct a large-scale
venue. MSG has announced plans to construct an MSG Sphere on that site. See “Item 1. Business — Our Business — Our Performance Venues — MSG Sphere.”
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Table of Contents
MSG has the right to increase its equity interest in TAO Group through a call right on the equity of the other TAO Group equityholders after the fifth anniversary
of the closing date (January 31, 2022) and prior to such date in certain events. The other TAO Group equityholders have the right to put to TAO Group their equity
interests in TAO Group after the fifth anniversary of the closing and, in certain circumstances to put to MSG prior to the fifth anniversary. The put and call prices
are at fair market value (or in certain circumstances, subject to a discount). Consideration paid upon the exercise of any such put or call right shall be, at MSG’s
option, in cash, debt, or MSG Class A Common Stock, subject to certain limitations.
Other
Matters
During the 90 day period commencing September 20, 2018, and on each five year anniversary thereafter, as well as in certain other specified circumstances, either
of the parties in AMSGE may commence a buy-sell procedure with respect to their interest in the venture.
Seasonality
of
Our
Business
The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in
the second and third quarters of the Company’s fiscal year. The dependence of the MSG Entertainment segment on revenues from the Christmas
Spectacular
generally means it earns a disproportionate share of its revenues and operating income in the second quarter of the Company’s fiscal year. In addition, while it does
not have a material impact on seasonality of our business, the first and third calendar quarters are seasonally lighter quarters for TAO Group as compared to its
second and fourth calendar quarters. As the Company consolidates TAO Group results of operations on a three-month lag basis, the seasonally lighter quarters for
TAO will be reflected in the second and fourth quarters of the Company’s fiscal year.
Recently Issued Accounting Pronouncements and Critical Accounting Policies
Recently
Issued
Accounting
Pronouncements
See Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting
pronouncements.
Critical
Accounting
Policies
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:
Multiple-Deliverable
Transactions
The Company enters into multiple-deliverable arrangements, primarily multi-year sponsorship agreements. The deliverables included in each sponsorship
agreement vary and may include suite licenses, event tickets and various advertising benefits, which include items such as, but not limited to, signage at The
Garden and the Company’s other venues. The timing of revenue recognition for each deliverable is dependent upon meeting the revenue recognition criteria for the
respective deliverable.
The Company allocates revenue to each deliverable within the arrangement based on its relative selling price. For many deliverables in an arrangement, such as
event tickets and certain advertising benefits, the Company has vendor specific objective evidence (“VSOE”) of selling price as it typically sells the same or similar
deliverables regularly on a stand-alone basis. Absent VSOE the Company considers whether third party evidence (“TPE”) is available; however, in most instances
TPE is not available. The Company’s process for determining its estimated selling prices for deliverables without VSOE or TPE 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 deliverable. Key factors considered by the Company in developing a best estimate of selling price for deliverables include, but are not limited to, prices
charged for similar deliverables, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar deliverables sold in other multiple-
deliverable agreements.
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Table of Contents
Impairment
of
Long-Lived
and
Indefinite-Lived
Assets
The Company’s long-lived and indefinite-lived assets accounted for approximately 55% of the Company’s consolidated total assets as of June 30, 2018 and
consisted of the following:
Goodwill
Indefinite-lived intangible assets
Amortizable intangible assets, net of accumulated amortization
Property and equipment, net
$
$
392,513
174,850
243,806
1,253,671
2,064,840
In assessing the recoverability of the Company’s long-lived and indefinite-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 also 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.
Goodwill
Goodwill is tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or changes in circumstances. The Company
performs its goodwill impairment test at the reporting unit level, which is one level below the operating segment level. The Company has two operating and
reportable segments, MSG Entertainment and MSG Sports, consistent with the way management makes decisions and allocates resources to the business.
For purposes of evaluating goodwill for impairment, the Company has three reporting units across its two operating segments, which are MSG Sports, MSG
Entertainment and TAO Group. TAO Group was acquired after the annual goodwill impairment test for fiscal year 2017 and represents a separate reporting unit
within the MSG Entertainment segment for goodwill impairment testing.
The goodwill balance reported on the Company’s consolidated balance sheet as of June 30, 2018 by reporting unit was as follows:
MSG Sports (a)
MSG Entertainment (a)
TAO Group (a)
_________________
$
$
226,955
76,975
88,583
392,513
(a)
The
goodwill
balance
reported
on
the
Company’s
consolidated
balance
sheet
as
of
June
30,
2018
,
as
compared
to
June
30,
2017
,
increased
by
$12,426
.
The
net
increase
primarily
reflects:
(i)
purchase
price
allocations
for
the
CLG
and
Obscura
acquisitions
and
(ii)
measurement
period
adjustments
for
certain
assets
and
liabilities
for
the
TAO
Group
acquisition
.
See
Note
3
and
Note
7
to
the
consolidated
financial
statements
included
in
Item
8
of
this
Annual
Report
on
Form
10-K
for
discussion
of
these
acquisitions.
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 the two-step 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 value of the Company’s reporting units are primarily determined using discounted cash flows and
comparable market transactions. These valuations are based on estimates and assumptions including projected future cash flows, discount rates, 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. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the
amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment
73
Table of Contents
loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be
recognized in a business combination.
The Company elected to perform the qualitative assessment of impairment for all of the Company’s reporting units for the fiscal year 2018 impairment test, and for
the MSG Sports reporting unit for the fiscal year 2017 impairment test. These assessments considered factors such as:
• macroeconomic conditions;
•
•
•
•
•
industry and market considerations;
cost factors;
overall financial performance of the reporting unit;
other relevant company-specific factors such as changes in management, strategy or customers; and
relevant reporting unit specific events such as changes in the carrying amount of net assets.
The Company performed the quantitative assessment of impairment for the MSG Entertainment reporting unit for the fiscal year 2017 impairment test. For MSG
Entertainment, the valuation of the reporting unit in fiscal year 2017 included assumptions for the number and expected financial performance of live entertainment
events and productions, which include, but are not limited to, the level of ticket sales, concessions and sponsorships.
The Company performed its most recent annual impairment test of goodwill during the first quarter of fiscal year 2018 , and there was no impairment of goodwill
identified for any of its reporting units. Based on these impairment tests, the Company’s MSG Sports, MSG Entertainment and TAO Group reporting units had
sufficient safety margins, defined as the excess of the amount by which the estimated fair value of each reporting unit exceeded the respective carrying value of
each reporting unit (including goodwill allocated to each respective reporting unit). For MSG Sports and MSG Entertainment the most recent quantitative
assessments were used in making this determination and due to the proximity of the acquisition date for TAO Group to the goodwill impairment test date, the
initial purchase price was assumed to be the fair value of the TAO Group reporting unit for purposes of the goodwill impairment test. The Company believes that if
the fair value of a reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.
Identifiable
Indefinite-Lived
Intangible
Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or
substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s
consolidated balance sheet as of June 30, 2018 by reportable segment:
Sports franchises (MSG Sports segment) (a)
Trademarks (MSG Entertainment segment)
Photographic related rights (MSG Sports segment)
_________________
$
$
109,429
62,421
3,000
174,850
(a)
The
Identifiable
Indefinite-Lived
Intangible
Assets
balance
reported
on
the
Company’s
consolidated
balance
sheet
as
of
June
30,
2018
,
as
compared
to
June
30,
2017
,
increased
by
$8,000
,
which
reflects
a
franchise
fee
associated
with
CLG
’s
membership
in
the
“League
of
Legends”
North
American
League
Championship
Series
.
74
Table of Contents
The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. In the qualitative
assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that impact whether an indefinite-lived
intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must proceed to conducting a quantitative
analysis, if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) forgoes the qualitative assessment entirely. Under the
quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible
asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
For all periods presented, the Company elected to perform a qualitative assessment of impairment for the indefinite-lived intangible assets in the MSG Sports
segment and the majority of the trademarks in the MSG Entertainment segment. These assessments considered the events and circumstances that could affect the
significant inputs used to determine the fair value of the intangible asset. Examples of such events and circumstances include:
•
•
•
•
•
cost factors;
financial performance;
legal, regulatory, contractual, business or other factors;
other relevant company-specific factors such as changes in management, strategy or customers;
industry and market considerations; and
• macroeconomic conditions.
For the fiscal year 2017 impairment test, the Company performed the quantitative assessment of impairment for a certain trademark reported in the MSG
Entertainment segment. The Company applied the relief from royalty method to determine the fair value of this intangible asset.
The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2018 , and
there were no impairments identified. Based on these impairment tests, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing
the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value. The Company believes that if the fair value
of an indefinite-lived intangible asset exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.
Other
Long-Lived
Assets
For other long-lived assets, including 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 is 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 estimated useful lives and net carrying values of the Company’s intangible assets subject to amortization as of June 30, 2018 are as follows:
Trade names
Venue management contracts
Favorable lease assets
Season ticket holder relationships
Non-compete agreements
Festival rights
Other intangibles
Estimated
Useful Lives
Net Carrying
Value
5 to 25 years
$
12 to 25 years
1.5 to 16 years
15 years
5 to 5.75 years
15 years
0.3 to 15 years
95,172
73,676
48,567
5,826
9,134
7,002
4,429
$
243,806
The Company has recognized intangible assets for trade names, venue management contracts, favorable lease assets, season ticket holder relationships, non-
compete agreements, festival rights and other intangibles as a result of purchase accounting. The Company has determined that these intangible assets have finite
lives.
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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. In light of these facts and circumstances, the Company has determined that its estimated useful lives are appropriate.
Contingent
Consideration
Some of the Company’s acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future operating
targets.
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 will pay to the former owners as a liability in 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.
See Note 10 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information regarding the fair value of the
Company’s contingent consideration liabilities related to the acquisition of TAO Group and CLG.
Defined
Benefit
Pension
Plans
and
Other
Postretirement
Benefit
Plan
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. Effective July 1, 2016, the Company changed the approach used to
measure service and interest cost components of net periodic benefit costs for Pension Plans and Postretirement Plan (as defined in Note 12 to the consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K ), by electing to measure 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.
This was accounted for as a change in accounting estimate, and thus was applied prospectively.
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, 2018 for the Company’s Pension Plans and Postretirement Plan were 4.19% and 4.06% ,
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, 2018 by $5,270 and $140 , 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 3.93% , 3.32% and 3.81% , respectively, for the year ended June 30, 2018 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 3.83% , 3.05% and 3.54% , respectively, for the year ended June 30, 2018 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 $70 and decrease net periodic
benefit cost for Postretirement Plan by $9 for the year ended June 30, 2018 .
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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 expected long-term rate of return on plan assets for the Company’s
funded pension plans was 3.46% for the year ended June 30, 2018 .
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 $291 for the year ended June 30, 2018 .
Another important assumption for our Postretirement Plan is healthcare cost trend rates. We developed our estimate of the healthcare cost trend rates through
examination of the Company’s claims experience and the results of recent healthcare trend surveys.
Assumptions for healthcare cost trend rates used to determine the net periodic benefit cost and benefit obligation for our Postretirement Plan as of and for the year
ended June 30, 2018 are as follows:
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Net Periodic
Benefit Cost
7.25%
5.00%
2027
Benefit
Obligation
7.00%
5.00%
2027
A one percentage point change in assumed healthcare cost trend rates would have the following effects on the net periodic postretirement benefit cost and benefit
obligation for our postretirement plan as of and for the year ended June 30, 2018 :
One percentage point increase
One percentage point decrease
Increase
(Decrease) on
Total of Service
and Interest Cost
Components
Increase
(Decrease) on
Benefit Obligation
$
$
37
(33)
597
(537)
GAAP includes mechanisms that serve to limit the volatility in the Company’s earnings that otherwise would result from recording changes in the value of plan
assets and benefit obligations in our consolidated financial statements in the periods in which those changes occur. For example, while the expected long-term rate
of return on the plans’ assets should, over time, approximate the actual long-term returns, differences between the expected and actual returns could occur in any
given year. These differences contribute to the deferred actuarial gains or losses, which are then amortized over time.
See Note 12 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for more information on our pension plans and other
postretirement benefit plan.
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Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For sensitivity analysis and other information regarding market risks we face in connection with our Pension Plans and Postretirement Plan, see “Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting
Policies — Critical Accounting Policies — Defined Benefit Pension Plans and Other Postretirement Benefit Plan ,” which information is incorporated by reference
herein.
Borrowings under our Knicks Revolving Credit Facility, Knicks Unsecured Credit Facility and Rangers Revolving Credit Facility, collectively, the “MSG Credit
Facilities,” would incur interest, depending on our election, at a floating rate based upon LIBOR, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each
case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. See “ Item 7 .
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financing Agreements ” for more
information on our MSG Credit Facilities. We currently have no interest rate risk exposure with our MSG Credit Facilities as we have no debt outstanding under
our MSG Credit Facilities.
Borrowings under the TAO Credit Facilities incur interest, depending on TAOG’s election, at a floating rate based upon LIBOR, the U.S. Federal Funds Rate or
the U.S. Prime Rate, plus, in each case, an additional spread which is dependent upon the net total leverage ratio at the time. Accordingly, TAO Credit Facilities are
subject to interest rate risk with respect to the tenor of any borrowings incurred. The effect of a hypothetical 100 basis point increase in floating interest rates
prevailing as of April 1, 2018 and continuing for a full year would increase interest expense of the TAO Term Loan Facility amount outstanding by $1,093 . If
appropriate, the TAO entities may seek to reduce such exposure through the use of interest rate swaps or similar instruments that qualify for hedge accounting
treatment. See “ Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources —
Financing Agreements ” for more information on the TAO Credit Facilities.
We are exposed to market risk resulting from foreign currency fluctuations, primarily to the British pound sterling through our net investment position initiated
with our acquisition of land in London. We may evaluate and decide, to the extent desired and practical, to reduce the translation risk of foreign currency
fluctuations on this underlying nonfunctional currency exposure 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.
As of June 30, 2018 , a uniform hypothetical 5% fluctuation in the GBP/USD exchange rate would have resulted in a change of approximately $5,229 in net asset
value. For additional information, see “Item 8. Financial Statements and Supplementary Data — Consolidated Financial Statements — Notes to Consolidated
Financial Statements — Note 8 . Property and Equipment ” for discussion of our recent acquisition of land in London.
We do not have any meaningful commodity risk exposures associated with the operation of our venues.
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Table of Contents
Item 8 . Financial Statements and Supplementary Data
The Financial Statements required by this Item 8 appear beginning on page F-1 of this Annual Report on Form 10-K, and are incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation
of
Disclosure
Controls
and
Procedures
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, 2018 the Company’s disclosure controls and procedures were effective.
Management’s
Report
on
Internal
Control
over
Financial
Reporting
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 Internal
Control
—
Integrated
Framework
(2013)
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, 2018 .
The effectiveness of our internal control over financial reporting as of June 30, 2018 has been audited by KPMG LLP, an independent registered public accounting
firm, as stated in their report which is included herein.
Changes
in
Internal
Control
over
Financial
Reporting
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, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information
None.
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Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information relating to our directors, executive officers and corporate governance will be included in the proxy statement for the 2018 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.
Item 11. Executive Compensation
Information relating to executive compensation will be included in the proxy statement for the 2018 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to the beneficial ownership of our common stock will be included in the proxy statement for the 2018 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.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to certain relationships and related transactions and director independence will be included in the proxy statement for the 2018 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.
Item 14. Principal Accountant Fees and Services
Information relating to principal accountant fees and services will be included in the proxy statement for the 2018 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.
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Table of Contents
Item 15 . Exhibits and Financial Statement Schedules
PART IV
The following documents are filed as part of this report:
1. The financial statements as indicated in the index set forth on page
2. Financial statement schedule:
Schedule supporting consolidated financial statements:
Schedule II — Valuation and Qualifying Accounts
Page
No.
F- 1
86
Schedules other than that listed above have been omitted, since they are either not applicable, not required or the information is
included elsewhere herein.
3. Exhibits:
EXHIBIT NO.
DESCRIPTION
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
Distribution Agreement, dated September 11, 2015, between MSG Networks Inc. and The Madison Square Garden Company
(incorporated by reference to Exhibit 2.1 to Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on September
11, 2015).
Contribution Agreement, dated September 11, 2015, among MSG Networks Inc., MSGN Holdings, L.P. and The Madison Square Garden
Company (incorporated by reference to Exhibit 2.2 to Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on
September 11, 2015).
Amended and Restated Certificate of Incorporation of The Madison Square Garden Company (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed on October 1, 2015).
Amended By-Laws of The Madison Square Garden Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report
on Form 8-K filed on October 1, 2015).
Transfer Consent Agreement, dated September 28, 2015 with the NBA (incorporated by reference to Exhibit 4.1 to the Company’s Form
10-K for the fiscal year ended June 30, 2016 filed on August 19, 2016).
Transfer Consent Agreement, dated September 28, 2015 with the NHL (incorporated by reference to Exhibit 4.2 to the Company’s Form
10-K for the fiscal year ended June 30, 2016 filed on August 19, 2016).
Registration Rights Agreement, dated as of September 15, 2015, by and among The Madison Square Garden Company 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 October 1,
2015).
Registration Rights Agreement, dated as of September 15, 2015, by and among The Madison Square Garden Company and The Dolan
Family Affiliates (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 1, 2015).
Transition Services Agreement, dated September 11, 2015, by and between MSG Networks Inc. and The Madison Square Garden
Company (incorporated by reference to Exhibit 10.1 to Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on
September 11, 2015).
Tax Disaffiliation Agreement, dated September 11, 2015, between MSG Networks Inc. and The Madison Square Garden Company
(incorporated by reference to Exhibit 10.2 to Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on September
11, 2015).
Employee Matters Agreement, dated September 11, 2015, by and between MSG Networks Inc. and The Madison Square Garden
Company (incorporated by reference to Exhibit 10.3 to Amendment No. 6 to the Company’s Registration Statement on Form 10 filed on
September 11, 2015).
The Madison Square Garden Company 2015 Employee Stock Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-
K for the fiscal year ended June 30, 2016 filed on August 19, 2016). †
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Table of Contents
EXHIBIT NO.
DESCRIPTION
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
The Madison Square Garden Company 2015 Cash Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-K
for the fiscal year ended June 30, 2016 filed on August 19, 2016). †
The Madison Square Garden Company 2015 Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.6 to the
Company’s Form 10-K for the fiscal year ended June 30, 2016 filed on August 19, 2016). †
Standstill Agreement, dated September 15, 2015, by and among The Madison Square Garden Company and The Dolan Family Group
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2015).
Form of Indemnification Agreement between The Madison Square Garden Company and its Directors and Executive Officers
(incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24,
2015).
Form of The Madison Square Garden Company Non-Employee Director Award Agreement (incorporated by reference to Exhibit 10.9 to
Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24, 2015). †
Form of The Madison Square Garden Company Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.10 to
Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24, 2015). †
Form of The Madison Square Garden Company Performance Restricted Stock Units Agreement (incorporated by reference to Exhibit
10.11 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24, 2015). †
Form of The Madison Square Garden Company Restricted Stock Units Agreement (2018). †
Form of The Madison Square Garden Company Performance Restricted Stock Units Agreement (2018). †
Form of The Madison Square Garden Company Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-
Q for the quarter ended December 31, 2017 filed on February 8, 2018). †
Lease Agreement, dated December 4, 1997, between RCPI Trust and Radio City Productions LLC, relating to Radio City Music Hall,
(incorporated by reference to Exhibit 10.14 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24,
2015). +
First Amendment to Lease Agreement, dated December 4, 1997, between RCPI Trust and Radio City Productions LLC, dated February
19, 1999 (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on
July 24, 2015).
Second Amendment to Lease Agreement, dated December 4, 1997, between RCPI Landmark Properties, L.L.C. and Radio City
Productions LLC, dated November 6, 2002 (incorporated by reference to Exhibit 10.16 to Amendment No. 3 to the Company’s
Registration Statement on Form 10 filed on July 24, 2015). +
Third Amendment to Lease Agreement, dated December 4, 1997, between RCPI Landmark Properties, L.L.C. and Radio City
Productions LLC, dated August 14, 2008 (incorporated by reference to Exhibit 10.17 to Amendment No. 3 to the Company’s Registration
Statement on Form 10 filed on July 24, 2015). +
Fourth Amendment to Lease Agreement, dated December 4, 1997, between RCPI Landmark Properties, L.L.C. and Radio City
Productions LLC, dated January 24, 2011 (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Company’s
Registration Statement on Form 10 filed on July 24, 2015). +
Guaranty of Lease, between MSG Sports & Entertainment, LLC and RCPI Landmark Properties, L.L.C. (incorporated by reference to
Exhibit 10.19 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24, 2015). +
Formation, Contribution and Investment Agreement, dated as of August 30, 2013 among MSG Holdings, L.P., Entertainment Ventures,
LLC, Azoff Music Management LLC, and, for certain purposes, Irving Azoff and Irving Azoff and Rochelle Azoff, as Co-Trustees of the
Azoff Family Trust of 1997, dated May 27, 1997, as amended, as assigned to MSG Ventures Holdings, LLC (incorporated by reference to
Exhibit 10.20 to Amendment No. 3 to the Company’s Registration Statement on Form 10 filed on July 24, 2015).
Employment Agreement, dated September 16, 2016 between The Madison Square Garden Company and James L. Dolan (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2016 filed on February 3, 2017). †
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Table of Contents
EXHIBIT NO.
DESCRIPTION
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
Employment Agreement, dated June 29, 2015, between MSG Networks Inc. formerly known as The Madison Square Garden Company
and David O’Connor, as assigned to The Madison Square Garden Company formerly known as MSG Spinco, Inc. (incorporated by
reference to Exhibit 10.21 to Amendment No. 4 to the Company’s Registration Statement on Form 10 filed on August 21, 2015). †
Employment Agreement, dated October 15, 2015, between The Madison Square Garden Company and Donna Coleman (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 14, 2015). †
Employment Agreement, dated September 6, 2016, between The Madison Square Garden Company and Joseph F. Yospe (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 9, 2016). †
Employment Agreement, dated September 11, 2015 between MSG Networks Inc. formerly known as The Madison Square Garden
Company and Lawrence J. Burian, as assigned to The Madison Square Garden Company formerly known as MSG Spinco, Inc.
(incorporated by reference to Exhibit 10.24 to the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed on August 19,
2016). †
Amended and Restated Time Sharing Agreement, entered into and effective as of June 17, 2016, between MSG Sports & Entertainment,
LLC and the Dolan Family Office, LLC for the GIV (incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K for the
fiscal year ended June 30, 2016 filed on August 19, 2016).
Amended and Restated Time Sharing Agreement entered into effective as of June 17, 2016, between MSG Sports & Entertainment, LLC
and the Dolan Family Office, LLC for the G550 (incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K for the fiscal
year ended June 30, 2016 filed on August 19, 2016).
Employment Agreement, dated December 15, 2017, between The Madison Square Garden Company and Andrew Lustgarten
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2017). †
Option Agreement, dated December 15, 2017, between The Madison Square Garden Company and Andrew Lustgarten (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 18, 2017). †
Time Sharing Agreement dated as of December 18, 2015, between MSG Sports & Entertainment, LLC and David O’Connor for the G550
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2015).
Dry Lease Agreement, dated January 11, 2017, between MSG Sports & Entertainment, LLC and Quart 2C, LLC for the G550
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 13, 2017).
Dry Lease Agreement, dated January 11, 2017 between MSG Sports & Entertainment, LLC and Quart 2C, LLC for the G450
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 13, 2017).
Time Sharing Agreement, dated January 12, 2017 between MSG Sports & Entertainment, LLC and David O’Connor for the G450
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 13, 2017).
Credit Agreement, dated as of September 30, 2016, by and among New York Knicks, LLC, JPMorgan Chase Bank, N.A. as
administrative agent and collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on October 6, 2016).
Security Agreement, dated as of September 30, 2016, between New York Knicks, LLC and JPMorgan Chase Bank, N.A., as collateral
agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 6, 2016).
Credit Agreement, dated as of January 25, 2017, by and among New York Rangers, LLC, JPMorgan Chase Bank, N.A. as administrative
agent and collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on January 27, 2017).
Security Agreement, dated as of January 25, 2017, between New York Rangers, LLC and JPMorgan Chase Bank, N.A., as collateral agent
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 27, 2017).
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Table of Contents
EXHIBIT NO.
DESCRIPTION
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Transaction Agreement, dated as of January 31, 2017, between MSG TG, LLC, TG Merger Sub, LLC, TG Rollover Holdco LLC, TAO
Group Holdings LLC, TAO Group Intermediate Holdings LLC, TAO Group Operating LLC, TAO Group Management LLC, TG
Member Representative LLC, certain other parties thereto, and solely with respect to specific provisions MSG Entertainment Holdings,
LLC and The Madison Square Garden Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed on February 1, 2017).
Credit and Guaranty Agreement, dated as of January 31, 2017, among TAO Group Operating LLC, TAO Group Intermediate Holdings
LLC, certain subsidiaries of TAO Group Operating LLC, the various lenders thereto, and Goldman Sachs Specialty Lending Group, L.P.
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 1, 2017).
Second Amended and Restated Limited Liability Company Agreement of TAO Group Holdings LLC, dated as of January 31, 2017
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 1, 2017).
First Amendment to the Credit and Guaranty Agreement, dated as of January 31, 2017, among TAO Group Operating LLC, TAO Group
Intermediate Holdings LLC, certain subsidiaries of TAO Group Operating LLC, the various lenders thereto, and Goldman Sachs
Specialty Lending Group, L.P., entered into as of May 19, 2017 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q
for the quarter ended December 31, 2017 filed on February 8, 2018).
Second Amendment to the Credit and Guaranty Agreement, dated as of January 31, 2017, among TAO Group Operating LLC, TAO
Group Intermediate Holdings LLC, certain subsidiaries of TAO Group Operating LLC, the various lenders thereto, and Goldman Sachs
Specialty Lending Group, L.P., entered into as of January 22, 2018 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-
Q for the quarter ended December 31, 2017 filed on February 8, 2018).
Equity Administration Agreement, dated as of September 15, 2015 between Cablevision Systems Corporation and The Madison Square
Garden Company (incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed
on August 19, 2016).
Equity Administration Agreement, dated as of September 15, 2015 between AMC Networks Inc. and The Madison Square Garden
Company (incorporated by reference to Exhibit 10.28 to the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed on
August 19, 2016).
Summary of Office Space Arrangement, between MSG Sports & Entertainment, LLC and the Knickerbocker Group LLC (incorporated
by reference to Exhibit 10.30 to the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed on August 19, 2016).
Summary of Office Space Arrangement, between MSG Sports & Entertainment, LLC and the Charles Dolan Family Office, LLC
(incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the fiscal year ended June 30, 2016 filed on August 19,
2016).
Dry Lease Agreement, dated May 22, 2017, between MSG Sports & Entertainment, LLC and Charles F. Dolan for the G550
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 26, 2017).
Dry Lease Agreement, dated May 22, 2017, between Sterling Aviation, LLC and MSG Sports & Entertainment, LLC for the GV
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 26, 2017).
Time Sharing Agreement, dated May 22, 2017, between MSG Sports & Entertainment, LLC and David O’Connor for the GV
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 26, 2017).
Time Sharing Agreement, dated December 15, 2017, between MSG Sports & Entertainment, LLC and Andrew Lustgarten (for the G450)
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2017 filed on February 8,
2018).
Time Sharing Agreement, dated December 15, 2017, between MSG Sports & Entertainment, LLC and Andrew Lustgarten (for the G550)
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2017 filed on February 8,
2018).
Time Sharing Agreement, dated December 15, 2017, between MSG Sports & Entertainment, LLC and Andrew Lustgarten (for the GV)
(incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2017 filed on February 8,
2018).
Aircraft Support Services Agreement, effective July 1, 2018, between MSG Sports & Entertainment, LLC, Sterling Aviation, LLC and
Charles F. Dolan (for the GV) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 29,
2018).
84
Table of Contents
EXHIBIT NO.
DESCRIPTION
10.55
10.56
10.57
10.58
10.59
10.60
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Aircraft Support Services Agreement, effective July 1, 2018, between MSG Sports & Entertainment, LLC and JDSS (for the G450)
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 29, 2018).
Time Sharing Agreement, effective July 1, 2018, between MSG Sports & Entertainment, LLC and Charles F. Dolan (for the G550)
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 29, 2018).
Time Sharing Agreement, effective July 1, 2018, between MSG Sports & Entertainment, LLC and QUART 2C, LLC (for the G550)
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 29, 2018).
Dry Lease Agreement, effective July 1,2018, between MSG Sports & Entertainment, LLC and Sterling Aviation, LLC (for the GV)
(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 29, 2018).
Dry Lease Agreement, effective July 1, 2018, between MSG Sports & Entertainment, LLC and QUART 2C, LLC (for the G450)
(incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 29, 2018).
Ground Lease Agreement, dated July 16, 2018, by and among Sands Arena Landlord LLC, Venetian Casino Resort, LLC, MSG Las
Vegas, LLC, and MSG Sports & Entertainment, LLC. **
Subsidiaries of the Registrant.
Consent of KPMG LLP.
Powers of Attorney (included on the signature page to this Annual Report on Form 10-K).
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
_________________
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
+
**
†
Confidential
treatment
has
been
granted
with
respect
to
certain
portions
of
this
exhibit.
Omitted
portions
have
been
filed
separately
with
the
Securities
and
Exchange
Commission.
Confidential
treatment
has
been
requested
with
respect
to
certain
portions
of
this
exhibit.
Omitted
portions
have
been
filed
separately
with
the
Securities
and
Exchange
Commission.
This
exhibit
is
a
management
contract
or
a
compensatory
plan
or
arrangement.
Item 16. Form 10-K Summary
The Company has elected not to provide summary information.
85
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
(Additions) / Deductions
Year ended June 30, 2018
Allowance for doubtful accounts
Deferred tax valuation allowance
Year ended June 30, 2017
Allowance for doubtful accounts
Deferred tax valuation allowance
Year ended June 30, 2016
Allowance for doubtful accounts
Deferred tax valuation allowance
_________________
$
$
$
$
$
$
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other Accounts
Deductions
Balance at
End of
Period
(601)
$
(218,639)
(219,240)
$
(647)
130,393 (a)
129,746
$
$
(1,282)
$
(111)
$
(190,602)
(30,697)
(191,884)
$
(30,808)
$
—
—
—
—
—
—
$
$
$
$
471
$
—
471
$
(777)
(88,246)
(89,023)
792
2,660 (b)
3,452
$
$
(601)
(218,639)
(219,240)
(467)
$
(31)
$
(171,336)
(31,301)
(171,803)
$
(31,332)
$
(914) (c)
—
$
(914)
$
130
12,035 (d)
12,165
$
$
(1,282)
(190,602)
(191,884)
(a)
Net
decrease
in
valuation
allowance
reflects
$51,015
of
reduction
to
net
deferred
tax
liabilities
in
connection
with
the
lower
Federal
income
tax
rate
of
21%
and
other
of
$2,453
.
(b)
Net
decrease
in
valuation
allowance
is
primarily
due
to
the
reclassification
of
tax
impact
to
the
accumulated
other
comprehensive
loss.
(c)
The
increase
was
primarily
due
to
a
balance
transfer
made
in
connection
with
the
Distribution.
(d)
Net
decrease
in
valuation
allowance
represents
$15,613
for
pre-Distribution
activity
partially
offset
by
$3,578
recorded
to
accumulated
other
comprehensive
loss.
86
Table of Contents
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 16 th day of August 2018 .
SIGNATURES
The Madison Square Garden Company
By: / s / DONNA COLEMAN
Name: Donna Coleman
Title: Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew Lustgarten and Donna Coleman,
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and
on the dates indicated.
Name
/s/ JAMES L. DOLAN
James L. Dolan
/ s / DONNA COLEMAN
Donna Coleman
/ s / JOSEPH F. YOSPE
Joseph F. Yospe
/ s / FRANK J. BIONDI, JR.
Frank J. Biondi, Jr.
/ s / CHARLES F. DOLAN
Charles F. Dolan
/ s / CHARLES P. DOLAN
Charles P. Dolan
/ s / KRISTIN A. DOLAN
Kristin A. Dolan
Title
Executive Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
Senior Vice President, Controller and
Principal Accounting Officer
Director
Director
Director
Director
87
Date
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
Table of Contents
Name
/ s / MARIANNE DOLAN WEBER
Marianne Dolan Weber
/ s / THOMAS C. DOLAN
Thomas C. Dolan
/ s / JOSEPH J. LHOTA
Joseph J. Lhota
/ s / RICHARD D. PARSONS
Richard D. Parsons
/ s / NELSON PELTZ
Nelson Peltz
/ s / ALAN D. SCHWARTZ
Alan D. Schwartz
/ s / SCOTT M. SPERLING
Scott M. Sperling
/ s / BRIAN G. SWEENEY
Brian G. Sweeney
/ s / VINCENT TESE
Vincent Tese
Title
Director
Director
Director
Director
Director
Director
Director
Director
Director
88
Date
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
August 16, 2018
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Consolidated Balance Sheets as of June 30, 2018 and 2017
Consolidated Statements of Operations for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended June 30, 2018, 2017 and 2016
Consolidated Statements of Equity and Redeemable Noncontrolling Interests for the years ended June 30, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
F- 1
Page
F- 2
F- 3
F- 4
F- 5
F- 6
F- 7
F- 8
F- 9
Table of Contents
To the Stockholders and Board of Directors
The Madison Square Garden Company:
Opinion
on
the
Consolidated
Financial
Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of The Madison Square Garden Company and subsidiaries (the “Company”) as of June 30, 2018
and 2017 , and the related consolidated statements of operations, comprehensive income (loss), equity and redeemable noncontrolling interests and cash flows for
each of the years in the three-year period ended June 30, 2018 , and the related notes and financial statement schedule II (collectively, the “ consolidated financial
statements ”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018
and 2017 , the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2018 , in conformity with U.S. generally
accepted accounting principles.
We also have 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, 2018 , based on criteria established in Internal
Control
—
Integrated
Framework
(2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated 8/16/2018 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis
for
Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
New York, New York
August 16, 2018
F- 2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
The Madison Square Garden Company:
Opinion
on
Internal
Control
Over
Financial
Reporting
We have audited The Madison Square Garden Company ’s (the “Company”) internal control over financial reporting as of June 30, 2018 , based on criteria
established in Internal
Control
—
Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018 , based on criteria established in
Internal
Control
—
Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“ PCAOB ”), the consolidated
balance sheets of the Company as of June 30, 2018 and 2017 , the related consolidated statements of operations, comprehensive income (loss), equity and
redeemable noncontrolling interests, and cash flows for each of the years in the three-year period ended June 30, 2018 , and the related notes and financial
statement schedule II (collectively, the “ consolidated financial statements ”), and our report dated 8/16/2018 expressed an unqualified opinion on those
consolidated financial statements .
Basis
for
Opinion
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 of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition
and
Limitations
of
Internal
Control
Over
Financial
Reporting
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.
/s/ KPMG LLP
New York, New York
August 16, 2018
F- 3
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Table of Contents
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Net related party receivables
Prepaid expenses
Other current assets
Total current assets
Investments and loans to nonconsolidated affiliates
Property and equipment, net
Amortizable intangible assets, net
Indefinite-lived intangible assets
Goodwill
Other assets
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities:
Accounts payable
Net related party payables
Current portion of long-term debt, net of deferred financing costs
Accrued liabilities:
Employee related costs
Other accrued liabilities
Deferred revenue
Total current liabilities
Long-term debt, net of deferred financing costs
Defined benefit and other postretirement obligations
Other employee related costs
Deferred tax liabilities, net
Other liabilities
Total liabilities
Commitments and contingencies (see Note 9)
Redeemable noncontrolling interests
The Madison Square Garden Company Stockholders’ Equity:
$
$
$
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,136 and 19,014 shares outstanding as of June 30, 2018 and
2017, respectively
Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of June 30, 2018 and 2017
Preferred stock, par value $0.01,15,000 shares authorized; none outstanding as of June 30, 2018 and 2017
Additional paid-in capital
Treasury stock, at cost, 1,312 and 1,433 shares as of June 30, 2018 and 2017, respectively
Accumulated deficit
Accumulated other comprehensive loss
Total The Madison Square Garden Company stockholders’ equity
Nonredeemable noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interests and equity
$
June 30,
2018
2017
1,225,638 $
30,982
100,725
567
28,761
28,996
1,415,669
209,951
1,253,671
243,806
174,850
392,513
45,713
3,736,173 $
28,939 $
13,675
4,365
123,992
180,272
414,262
765,505
101,335
49,240
53,501
78,968
56,905
1,105,454
1,238,114
34,000
102,085
2,714
23,358
49,458
1,449,729
242,287
1,159,271
256,975
166,850
380,087
57,554
3,712,753
24,084
17,576
—
138,858
191,344
390,180
762,042
105,433
52,997
47,913
196,436
47,441
1,212,262
76,684
80,630
204
45
—
2,817,873
(223,662)
(11,059)
(46,918)
2,536,483
17,552
2,554,035
3,736,173 $
204
45
—
2,832,516
(242,077)
(148,410)
(34,115)
2,408,163
11,698
2,419,861
3,712,753
See accompanying notes to consolidated financial statements.
F- 4
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenues (a)
Operating expenses:
Direct operating expenses
(b)
Selling, general and administrative expenses (c)
Depreciation and amortization
Operating income (loss)
Other income (expense):
Loss in equity method investments
Interest income (d)
Interest expense
Miscellaneous income (expense)
Income (loss) from operations before income taxes
Income tax benefit (expense)
Net income (loss)
Less: Net income (loss) attributable to nonredeemable noncontrolling interests
Less: Net loss attributable to redeemable noncontrolling interests
Years Ended June 30,
2018
2017
2016
$
1,559,095 $
1,318,452 $
1,115,311
945,428
472,305
122,486
18,876
(7,770)
21,582
(15,415)
303
(1,300)
17,576
116,872
134,448
(6,518)
(628)
861,381
410,039
107,388
(60,356)
(29,976)
11,836
(4,189)
1,492
(20,837)
(81,193)
4,404
(76,789)
304
(4,370)
737,857
333,603
102,482
(58,631)
(19,099)
6,782
(2,028)
(4,017)
(18,362)
(76,993)
(297)
(77,290)
—
—
Net income (loss) attributable to The Madison Square Garden Company’s stockholders
$
141,594 $
(72,723) $
(77,290)
Basic earnings (loss) per common share attributable to The Madison Square Garden Company’s
stockholders
Diluted earnings (loss) per common share attributable to The Madison Square Garden Company’s
stockholders
Weighted-average number of common shares outstanding:
Basic
Diluted
_________________
$
$
5.99 $
(3.05) $
(3.12)
5.94 $
(3.05) $
(3.12)
23,639
23,846
23,853
23,853
24,754
24,754
(a)
Include
revenues
from
related
parties
of
$156,368
,
$150,534
and
$153,538
for
the
years
ended
June
30,
2018
,
2017
and
2016
,
respectively.
(b)
Include
net
charges
from
related
parties
of
$1,082
,
$1,284
and
$1,133
for
the
years
ended
June
30,
2018
,
2017
and
2016
,
respectively.
(c)
Include
net
charges
to
related
parties
of
$5,188
,
$5,852
and
$28,536
for
the
years
ended
June
30,
2018
,
2017
and
2016
,
respectively.
(d)
Interest
income
includes
interest
income
from
nonconsolidated
affiliates
of
$5,696
, $4,157
and
$2,930
for
the
years
ended
June
30,
2018
,
2017
and
2016
,
respectively.
In
addition,
interest
income
includes
interest
income
from
MSG
Networks
of
$307
for
the
year
ended
June
30,
2016
.
See accompanying notes to consolidated financial statements.
F- 5
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss), before income taxes:
Pension plans and postretirement plan:
Years Ended June 30,
2018
2017
2016
$
134,448
$
(76,789)
$
(77,290)
Net unamortized gains (losses) arising during the period
$
(3,415)
$
4,027
$
(9,239)
Amounts reclassified from accumulated other
comprehensive loss:
Amortization of net actuarial loss included in net
periodic benefit cost
Amortization of net prior service credit included in net
periodic benefit cost
Settlement loss
1,319
(37)
87
Cumulative translation adjustments
Net changes related to available-for-sale securities
Other comprehensive income (loss), before income taxes
Income tax expense related to items of other comprehensive
income
Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to
nonredeemable noncontrolling interests
Less: Comprehensive loss attributable to redeemable
noncontrolling interests
Comprehensive income (loss) attributable to The Madison
Square Garden Company’s stockholders
1,365
(48)
—
1,039
(92)
—
(8,292)
—
—
(8,292)
—
(8,292)
(85,582)
—
—
5,344
—
9,629
14,973
(6,477)
8,496
(68,293)
304
(4,370)
(2,046)
(502)
(12,095)
(14,643)
—
(14,643)
119,805
(6,518)
(628)
$
126,951
$
(64,227)
$
(85,582)
See accompanying notes to consolidated financial statements.
F- 6
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation expense
Loss in equity method investments, net of income distributions
Provision for (benefit from) deferred income taxes
Write-off of deferred production costs
Impairment of cost method investments
Purchase accounting adjustments associated with rent-related intangibles and deferred rent
Purchase accounting adjustments associated with amortization of inventory step-up
Other non-cash adjustments
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net
Net related party receivables
Prepaid expenses and other assets
Accounts payable
Net related party payables
Accrued and other liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures, net of acquisitions
Payments to acquire available-for-sale securities
Payments for acquisition of businesses, net of cash acquired
Payments for acquisition of assets
Investments and loans to nonconsolidated affiliates
Loan repayments received from nonconsolidated affiliates
Cash received / (paid) for notes receivable
Capital distribution from equity method investments
Net cash used in investing activities
Cash flows from financing activities:
Net transfers from MSG Networks and MSG Networks’ subsidiaries
Repurchases of common stock
Proceeds from stock option exercises
Taxes paid in lieu of shares issued for equity-based compensation
Noncontrolling interest capital contributions
Distributions to noncontrolling interest holders
Payment of contingent consideration
Principal repayment on long-term debt
Payments for financing costs
Net cash provided by (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Non-cash investing and financing activities:
Years Ended June 30,
2018
2017
2016
$
134,448
$
(76,789) $
(77,290)
122,486
47,563
7,770
(117,311)
—
250
4,628
—
(289)
2,435
2,147
19,389
5,067
(3,901)
(26,617)
22,582
220,647
(191,914)
—
(8,288)
(6,000)
(11,255)
36,600
(1,500)
—
(182,357)
—
(11,830)
—
(34,393)
4,000
(4,124)
(4,000)
(688)
(62)
(51,097)
331
(12,476)
1,238,114
$
1,225,638
$
107,388
41,129
30,831
(4,404)
33,629
—
718
8,705
693
(20,363)
2,826
1,840
2,047
2,301
32,716
53,356
216,623
(44,224)
(23,222)
(192,095)
(1,000)
(8,235)
—
4,475
—
(264,301)
—
(147,967)
7
(7,335)
—
—
—
—
(3,230)
(158,525)
—
(206,203)
1,444,317
1,238,114 $
102,482
24,476
19,099
297
41,816
4,080
—
—
31
(25,053)
(5,096)
(34,354)
9,096
13,687
42,077
10,437
125,785
(71,716)
—
—
(2,000)
(36,417)
—
(7,085)
1,528
(115,690)
1,525,241
(105,736)
787
(281)
—
—
—
—
—
1,420,011
—
1,430,106
14,211
1,444,317
Investments and loans to nonconsolidated affiliates
Capital expenditures incurred but not yet paid
Accrued earn-out liability and other contingencies
Acquisition of assets not yet paid
Non-cash transfers resulting from the Distribution, net
$
16
$
368 $
9,688
4,573
3,000
—
8,834
7,900
—
—
2,237
5,793
—
—
(1,934)
See accompanying notes to consolidated financial statements.
F- 7
Table of Contents
Balance as of June 30, 2015
$
Net loss
Other comprehensive loss
Comprehensive loss
Exercise of stock options
Share-based compensation
Tax withholding associated with
shares issued for equity-based
compensation
Shares issued upon distribution of
Restricted Stock Units
Repurchases of common stock
Net increase in MSG Networks’
Investment
Conversion of MSG Networks’
Investment
Adjustments related to the transfer
of certain assets and liabilities as
a result of the Distribution
Adjustment related to the transfer of
Pension Plans and Postretirement
Plan liabilities as a result of the
Distribution
Balance as of June 30, 2016
Net income (loss)
Other comprehensive income
Comprehensive income (loss)
Exercise of stock options
Share-based compensation
Tax withholding associated with
shares issued for equity-based
compensation
Common stock issued under stock
incentive plans
Repurchases of common stock
Noncontrolling interests from
acquisitions
Balance as of June 30, 2017
Change in accounting policy related
to share-based forfeiture rates
Adoption of ASU 2018-02
Net income (loss)
Other comprehensive loss
Comprehensive income (loss)
Share-based compensation
Tax withholding associated with
shares issued for equity-based
compensation
Common stock issued under stock
incentive plans
Repurchases of common stock
Distributions to noncontrolling
interest holders
Noncontrolling interests from
acquisition
Contribution of joint venture
interests
Balance as of June 30, 2018
$
—
—
$
249
—
—
—
—
—
—
—
—
—
$
249
$
—
—
—
—
—
—
—
—
—
—
—
—
$
249
$
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
AND REDEEMABLE NONCONTROLLING INTERESTS
(in thousands)
Common
Stock
Issued
MSG Networks’
Investment
Additional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total The
Madison Square
Garden Company
Stockholders ’
Equity
— $
—
—
—
—
—
—
—
—
—
1,263,490
$
(1,603)
—
—
—
—
—
—
—
1,525,982
— $
—
—
—
— $
—
—
—
(2,682)
21,514
(281)
(385)
—
—
3,469
—
—
385
(105,736)
—
—
—
249
(2,787,869)
2,787,620
—
566
— $
(40,215)
$
1,223,275
$
(75,687)
—
—
—
—
—
—
—
—
—
—
—
—
(8,292)
—
—
—
—
—
—
—
—
—
(77,290)
(8,292)
(85,582)
787
21,514
(281)
—
(105,736)
1,525,982
—
566
5,896
5,896
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
2,806,352
$
(101,882)
$
(75,687)
$
(42,611)
$
2,586,421
$
—
—
—
(39)
41,264
—
—
—
46
—
(6,003)
(1,332)
(9,058)
9,058
—
—
(147,967)
—
(72,723)
—
—
—
—
—
—
—
—
—
8,496
—
—
—
—
—
—
—
(72,723)
8,496
(64,227)
7
41,264
(7,335)
—
(147,967)
—
2,832,516
$
(242,077)
$
(148,410)
$
(34,115)
$
2,408,163
$
2,403
—
—
—
—
47,592
(34,393)
—
—
—
—
—
—
—
(30,245)
30,245
—
—
—
—
(11,830)
—
—
—
(2,403)
(1,840)
141,594
—
—
—
—
—
—
—
—
—
—
1,840
—
(14,643)
—
—
—
—
—
—
—
—
—
—
141,594
(14,643)
126,951
47,592
(34,393)
—
(11,830)
—
—
—
2,817,873
$
(223,662)
$
(11,059)
$
(46,918)
$
2,536,483
$
See accompanying notes to consolidated financial statements.
F- 8
$
Non -
redeemable
Noncontrolling
Interests
(77,290)
Total Equity
— $ 1,223,275
—
—
—
—
—
21,514
787
(85,582)
(8,292)
—
—
—
—
—
—
(281)
—
(105,736)
1,525,982
—
566
—
5,896
— $ 2,586,421
$
304
—
304
—
—
—
—
—
(72,419)
8,496
(63,923)
7
41,264
(7,335)
—
(147,967)
Redeemable
Noncontrolling
Interests
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,370)
—
(4,370)
—
—
—
—
—
11,394
11,698
11,394
$ 2,419,861
$
85,000
80,630
—
—
—
—
(6,518)
135,076
—
(14,643)
(6,518)
120,433
—
—
—
—
(806)
8,182
47,592
(34,393)
—
(11,830)
(806)
8,182
4,996
17,552
4,996
$ 2,554,035
$
—
—
(628)
—
(628)
—
—
—
—
(3,318)
—
—
76,684
Table of Contents
All amounts included in the following Notes to Consolidated Financial Statements are presented in thousands, except per share data or as otherwise
noted.
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Basis of Presentation
The
Distribution
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “Madison Square Garden”), formerly named MSG Spinco, Inc., was
incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“ MSG Networks ” or “Former Parent”), formerly known as The
Madison Square Garden Company. On September 11, 2015, MSG Networks’ board of directors approved the distribution of all the outstanding common stock of
Madison Square Garden to MSG Networks’ stockholders (the “ Distribution ”), which occurred on September 30, 2015. Each holder of record of MSG Networks
Class A common stock as of close of business on September 21, 2015 (the “Record Date”) received one share of Madison Square Garden Class A common stock,
par value $0.01 per share (“Class A Common Stock”), for every three shares of MSG Networks Class A common stock held. Each holder of record of MSG
Networks Class B common stock as of the Record Date received one share of Madison Square Garden Class B common stock, par value $0.01 per share (“Class B
Common Stock”), for every three shares of MSG Networks Class B common stock held.
Description
of
Business
Madison Square Garden is a live sports and entertainment business. The Company classifies its business interests into two reportable segments: MSG
Entertainment and MSG Sports . MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts and special events, which
are presented or hosted in the Company’s diverse collection of venues along with live offerings through TAO Group Holdings LLC (“ TAO Group ”) and Boston
Calling Events LLC (“ BCE ”). TAO Group is a hospitality group with globally -recognized entertainment dining and nightlife brands: TAO, Marquee, Lavo,
Avenue, The Stanton Social, Beauty & Essex and Vandal. BCE owns and operates New England’s premier Boston Calling Music Festival. MSG Entertainment
also includes the Company’s original production — the Christmas
Spectacular
Starring
the
Radio
City
Rockettes
(the “ Christmas
Spectacular
”). In November
2017, the Company acquired a 100% controlling interest in Obscura Digital (“ Obscura ”), a creative studio, which is now part of the MSG Entertainment segment.
See Note 3 for discussion on certain costs incurred by Obscura.
MSG Sports includes the Company’s professional sports franchises: the New York Knicks (the “Knicks”) of the National Basketball Association (the “NBA”), the
New York Rangers (the “Rangers”) of the National Hockey League (the “NHL”), the New York Liberty (the “Liberty”) of the Women’s National Basketball
Association (the “WNBA”), the Hartford Wolf Pack of the American Hockey League (the “AHL”) and the Westchester Knicks of the NBA G League (the “
NBAGL ”). The MSG Sports segment also includes other live sporting events, including professional boxing, college basketball, professional bull riding, mixed
martial arts, esports, tennis and college wrestling, all of which the Company promotes, produces and/or presents. In July 2017, the Company acquired a controlling
interest in Counter Logic Gaming (“ CLG ”), a premier North American esports organization, which is now part of the MSG Sports segment.
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns the Madison
Square Garden Arena (“The Garden”) and The Hulu Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre
in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the
Wang Theatre in Boston. Additionally, TAO Group operates various restaurants, nightlife and hospitality venues under long-term leases and management contracts
in New York, Las Vegas, Los Angeles, Australia and Singapore.
Basis
of
Presentation
For the periods after the Distribution , the financial information disclosed is presented on a consolidated basis, as the Company became a standalone public
company on September 30, 2015. For the periods prior to the Distribution , the financial information was prepared on a standalone basis derived from the
consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a
standalone public company prior to the Distribution, and separate financial statements were not prepared for the Company historically. As a result, the Company’s
financial statements as of and for the fiscal years ended June 30, 2018, 2017, 2016 are presented on a consolidated basis, except the financial information for the
three months ended September 30, 2015 that is included in the results of operations for the year ended June 30, 2016.
F- 9
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
These combined financial statements for the periods prior to the Distribution reflect the combined historical results of operations and cash flows of Former Parent’s
sports and entertainment businesses, as well as its venues and joint ventures (“ combined financial statements ”), in accordance with generally accepted accounting
principles (“GAAP”) and Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 1-B, Allocation
of
Expenses
and
Related
Disclosure
in
Financial
Statements
of
Subsidiaries,
Divisions
or
Lesser
Business
Components
of
Another
Entity
. References to GAAP issued by the Financial Accounting
Standards Board (“FASB”) in these footnotes are to the FASB
Accounting
Standards
Codification,
also referred to as “ASC.”
The financial information for the three months ended September 30, 2015 that is included in the results of operations for the year ended June 30, 2016 include
allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as
expenses related to finance, human resources, information technology, and facilities, among others. These expenses were allocated on the basis of direct usage
when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. Management believes the assumptions
underlying the combined financial statements , including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the
combined financial statements do not include all of the actual expenses that would have been incurred by the Company and do not reflect its combined results of
operations and cash flows had it been a separate, standalone public company during the periods presented on a combined basis. Actual costs that would have been
incurred if the Company had been a separate, standalone public company would depend on multiple factors, including organizational structure and strategic
decisions made in various areas, including information technology and infrastructure.
After the Distribution, the Company had been providing certain services to MSG Networks through a transition services agreement (“ TSA ”). The Company and
MSG Networks entered into a new services agreement (“ Services Agreement ”) effective July 1, 2017, which provides for each party to furnish substantially the
same services, as well as the executive support services described below, in exchange for service fees. In connection with the expiration of the Services Agreement
on June 30, 2018, the Company entered into an interim agreement with MSG Networks, pursuant to which each party provides the other with the same services on
the same terms. The Company expects to enter into a new services agreement this calendar year which will be retroactive to July 1, 2018.
MSG Networks historically used a centralized approach to cash management and financing of operations, with net earnings reinvested and working capital
requirements met from existing liquid funds. The Company’s cash was available for use and was regularly “swept” by MSG Networks at its discretion.
Accordingly, the cash and cash equivalents held by MSG Networks at the corporate level were not attributed to the Company in the combined statement of cash
flows as of June 30, 2015, which was used to prepare the accompanying consolidated statements of cash flows for the year ended June 30, 2016. Additionally, cash
held in accounts legally owned by the Company was attributed to the combined statement of cash flows as of June 30, 2015. Transfers of cash both to and from
MSG Networks are included as components of MSG Networks’ investment on the consolidated statements of equity and redeemable noncontrolling interests. In
connection with the Distribution, the Company received $1,467,093 of cash from MSG Networks.
MSG Networks’ net investment in the Company has been presented as a component of the Company’s equity in the financial statements. Distributions made by
MSG Networks to the Company or to MSG Networks from the Company are recorded as transfers to and from MSG Networks and the net amount is presented on
the consolidated statements of cash flows as “Net transfers from MSG Networks and MSG Networks’ subsidiaries.” As of the Distribution date, MSG Networks’
net investment in the Company was contributed to Former Parent’s stockholders through the distribution of all the common stock of the Company. The par value of
the Company’s stock was recorded as a component of common stock, with the remaining balance recorded as additional paid-in capital in the consolidated balance
sheet on the Distribution date.
Reclassifications
Certain reclassifications have been made in order to conform to the current period’s presentation. The reclassifications consisted of certain employee related costs
liabilities, which were previously reported in Other liabilities in the accompanying consolidated balance sheets, to Other employee related costs in the
accompanying consolidated balance sheets.
F- 10
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 2 . Summary of Significant Accounting Policies
Principles
of
Consolidation
For the periods prior to the Distribution, the financial statements include certain assets and liabilities that were historically held at Former Parent’s corporate level
but were specifically identifiable or otherwise attributable to the Company. All intercompany transactions between the Company and Former Parent have been
included in the consolidated financial statements as components of MSG Networks’ investment (primarily for balances as of June 30, 2015 and for the activities
during the three months ended September 30, 2015). All significant intracompany transactions and accounts within the Company’s consolidated financial
statements have been eliminated. Expenses related to corporate allocations prior to the Distribution were considered to be effectively settled in the consolidated
financial statements at the time the transaction was recorded, with the offset recorded against MSG Networks’ investment.
Business
Combinations
and
Noncontrolling
Interests
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 if the consideration is non-cash, 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 earnings of any amounts the
Company would have recorded in previous periods if the accounting had been completed at the acquisition date.
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 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.
In July 2016 and 2017, the Company acquired controlling interests in BCE and CLG , respectively. In accordance with ASC Topic 805, Business
Combinations
(“ASC Topic 805”), and ASC Topic 810, Consolidation
(“ASC Topic 810”), the financial position of BCE has been consolidated with the Company’s consolidated
balance sheets as of June 30, 2018 and 2017 . In addition, the financial position of CLG has been consolidated with the Company’s consolidated balance sheet as of
June 30, 2018 . The results of operations for BCE and CLG have been included in the Company’s consolidated results of operations from the date of acquisition in
the MSG Entertainment segment and MSG Sports segment, respectively. The relevant amounts attributable to investors other than the Company are reflected under
“Nonredeemable noncontrolling interests,” “Net income (loss) attributable to nonredeemable noncontrolling interests” and “Comprehensive income (loss)
attributable to nonredeemable noncontrolling interests” on the accompanying consolidated balance sheets, consolidated statements of operations and consolidated
statements of comprehensive income (loss), respectively. See Note 3 for more information regarding the Company’s acquisitions of BCE and CLG .
On January 31, 2017, the Company acquired a controlling interest in TAO Group . In accordance with ASC Topic 805 and ASC Topic 810, the financial position
of TAO Group has been consolidated with the Company’s consolidated balance sheet as of June 30, 2018 . TAO Group’s financial statements are not available
within the time constraints the Company requires to ensure the financial accuracy of the operating results. Therefore, the Company records TAO Group ’s
operating results in its consolidated statements of operations on a three-month lag basis. Any specific events having significant financial impact that occur during
the lag period are included in the Company’s current period results. TAO Group reports on a fiscal year reflecting the retail-based calendar (containing 4-4-5 week
calendar quarters) and its fiscal year periodically results in a 53-week year instead of a normal 52-week year. Accordingly, the Company’s results of operations for
the years ended June 30, 2018 and 2017
F- 11
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
include TAO Group ’s operating results from March 27, 2017 to April 1, 2018 and February 1, 2017 to March 26, 2017 , respectively, as part of the MSG
Entertainment segment. In addition, the Company’s consolidated balance sheets as of June 30, 2018 and 2017 reflect the financial position of TAO Group as of
April 1, 2018 and March 26, 2017 , respectively. All disclosures related to TAO Group 's financial position are therefore also reported as of April 1, 2018 and
March 26, 2017 , as applicable.
The TAO Group purchase agreement contains a put option to require the Company to purchase the other owners’ equity interests under certain circumstances. The
noncontrolling interest combined with the put option is classified as redeemable noncontrolling interest in the consolidated balance sheet, separate from equity. The
relevant amounts attributable to investors other than the Company are reflected under “Redeemable noncontrolling interests,” “Net income (loss) attributable to
redeemable noncontrolling interests” and “Comprehensive income (loss) attributable to redeemable noncontrolling interests” on the accompanying consolidated
balance sheets, consolidated statements of operations and consolidated statements of comprehensive income (loss), respectively. See Note 3 for more information
regarding the Company’s acquisition of TAO Group . The put option can be settled, at the Company’s option, in cash, debt or shares of the Company’s Class A
Common Stock. The ultimate amount paid upon the exercise of the put option will likely be different from the estimated fair value, given the calculation required
pursuant to the TAO Group operating agreement.
Use
of
Estimates
The preparation of the accompanying 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 valuation of accounts receivable, investments, goodwill, intangible assets, other long-lived assets,
tax accruals and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax expense, income tax
expense, performance and share-based compensation, depreciation and amortization, litigation matters and other matters, as well as in the valuation of contingent
consideration and noncontrolling interests resulting from business combination transactions. 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.
Revenue
Recognition
The Company recognizes revenue when the following conditions are satisfied: (a) persuasive evidence of a sales arrangement exists, (b) delivery occurs or services
are rendered, (c) the sales price is fixed or determinable and (d) collectability is reasonably assured. Revenue recognition from the Company’s various revenue
sources is discussed further in each respective segment’s revenue recognition policies below.
MSG
Entertainment
The Company’s MSG Entertainment segment earns revenues from the sale of tickets for events that the Company produces or promotes/co-promotes. In addition,
for entertainment events held at the Company’s venues that MSG Entertainment does not produce or promote/co-promote, revenues are earned from venue license
fees charged to the third-party promoters of the event. Event-related revenues from the sale of tickets, venue license fees from third-party promoters, sponsorships,
concessions and merchandise are recognized when the event occurs. Amounts collected in advance of an event are recorded as deferred revenue and are recognized
as revenues when earned. Deferred revenue reported in the accompanying consolidated balance sheets as of June 30, 2018 and 2017 includes amounts due to the
third-party promoters of $89,513 and $72,400 , respectively.
Revenues from the sale of advertising in the form of venue signage and sponsorships, which are not related to any specific event, are recorded and recognized
ratably over the period of benefit of the respective agreements.
Revenues from the rental of The Garden’s suites are recognized ratably over the period of benefit of the respective agreements for the benefit of both of the
Company’s segments.
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Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Revenues from dining, nightlife and hospitality offerings through TAO Group are recognized at the point food, beverages and/or services are provided to the
customer. In addition, management fee revenues which are derived by the performance of the underlying venues as defined within the specific venue management
agreements are recorded as earned.
MSG
Sports
The Knicks, Rangers and Liberty derive revenues principally from ticket sales and distributions of league-wide national and international television contracts and
other league-wide revenue sources, which are recognized over the respective team’s season. Event-related revenues from other live sporting events, including the
sale of tickets, venue license fees earned in connection with other live sporting events that the Company does not produce or promote, sponsorships, concessions
and merchandise are recognized when the event occurs. Amounts collected in advance of an event are recorded as deferred revenue and are recognized as revenues
when earned. Local media rights revenue recognized by MSG Sports for the licensing of team-related programming to MSG Networks is generally recognized on a
straight-line basis over the fiscal year.
Revenues from the sale of advertising in the form of venue signage and sponsorships, which are not related to any specific event, are recognized ratably over the
period of benefit of the respective agreements.
Revenues from the rental of The Garden’s suites are recognized ratably over the period of benefit of the respective agreements for the benefit of both of the
Company’s segments.
Multiple-Deliverable
Transactions
The Company enters into multiple-deliverable arrangements, primarily multi-year sponsorship agreements. The deliverables included in each sponsorship
agreement vary and may include suite licenses, event tickets and various advertising benefits, which include items such as, but not limited to, signage at The
Garden and the Company’s other venues. The timing of revenue recognition for each deliverable is dependent upon meeting the revenue recognition criteria for the
respective deliverable.
The Company allocates revenue to each deliverable within the arrangement based on its relative selling price. For many deliverables in an arrangement, such as
event tickets and certain advertising benefits, the Company has vendor specific objective evidence (“VSOE”) of selling price as it typically sells the same or similar
deliverables regularly on a stand-alone basis. Absent VSOE, the Company considers whether third party evidence (“TPE”) is available; however, in most instances
TPE is not available. The Company’s process for determining its estimated selling prices for deliverables without VSOE or TPE 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 deliverable. Key factors considered by the Company in developing a best estimate of selling price for deliverables include, but are not limited to, prices
charged for similar deliverables, the Company’s ongoing pricing strategy and policies, and consideration of pricing of similar deliverables sold in other multiple-
deliverable agreements.
Gross
versus
Net
Revenue
Recognition
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. To
the extent the Company acts as the principal, revenue is reported on a gross basis. The determination of whether the Company acts as a principal or an agent in a
transaction is based on an evaluation of several qualitative factors, including for co-promotions where the Company has a 50% or lower economic interest.
Generally, when the Company is the promoter or co-promoter of an event the Company reports revenue on a gross basis. When the Company acts as an agent,
revenue is reported on a net basis. The Company accounts for taxes collected from customers and remitted to governmental authorities on a net basis and excludes
these amounts from revenues.
In connection with the Distribution, the Company entered into an advertising sales representation agreement with MSG Networks. Pursuant to the agreement, the
Company has the exclusive right and obligation to sell advertising availabilities of MSG Networks . The Company is entitled to and earns commission revenue as
MSG Networks records advertising revenue, which is typically recognized when the advertisements are aired. The Company recognizes the advertising
commission revenue on a net basis in accordance with ASC Topic 605-45.
Nonmonetary
Transactions
The Company enters into nonmonetary transactions that involve the exchange of goods or services, such as advertising and promotional benefits as well as tickets,
for other goods or services. Such transactions are measured and recorded at the fair value of the goods or services surrendered unless the goods or services received
have a more readily determinable fair value. In addition, the Company enters into other monetary transactions in which nonmonetary consideration is also included
and the
F- 13
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
entire transaction is recorded at fair value. If the fair values cannot be determined for either the asset(s) surrendered or received within reasonable limits, then the
nonmonetary transaction is measured and recorded at the book value of the item(s) surrendered, which typically is zero.
Direct
Operating
Expenses
Direct operating expenses include, but are not limited to, compensation expense for the Company’s professional sports teams’ players and certain other team
personnel, as well as NBA luxury tax, NBA and NHL revenue sharing and league assessments for the MSG Sports segment; event costs related to the presentation
and production of the Company’s live entertainment and sporting events; and venue lease, maintenance and other operating expenses.
Player
Costs
and
Other
Team
Personnel
Transactions,
NBA
Luxury
Tax,
Escrow
System/Revenue
Sharing
and
League
Assessments
for
the
MSG
Sports
Segment
Player
Costs
and
Other
Team
Personnel
Transactions
Costs incurred to acquire player contracts, including signing bonuses, are deferred and amortized over the applicable NBA or NHL regular season on a straight-line
basis over the fixed contract period of the respective player. The NBA and NHL seasons are typically from mid-October through April and October through April,
respectively. Player salaries are also expensed over the applicable NBA, NHL or WNBA regular season typically on a straight-line basis. In certain player contracts
the annual contractual salary amounts (including any applicable signing bonuses) may fluctuate such that expensing the salary for the entire contract on a straight-
line basis over each regular season more appropriately reflects the economic benefit of the services provided.
In instances where a player sustains what is deemed to be a season-ending or career-ending injury, a provision is recorded, when that determination can be
reasonably made, for the remainder of the player’s seasonal or contractual salary and related costs, together with any associated NBA luxury tax, net of any
anticipated insurance recoveries. When players are traded, waived or contracts are terminated, any remaining unamortized signing bonuses and prepaid salaries are
expensed to current operations. Amounts due to these individuals are generally paid over their remaining contract terms. Team personnel contract termination costs
are recognized in the period in which those events occur. See Note 5 for further discussion of significant team personnel transactions.
The NBA and NHL each have collective bargaining agreements (each a “CBA”) with the respective league’s players association, to which the Company is subject.
The NBA CBA expires after the 2023-24 season (although the NBA and the National Basketball Players Association (“NBPA”) each have the right to terminate
the CBA following the 2022-23 season). The NHL CBA expires on September 15, 2022 (although the NHL and National Hockey League Players’ Association
each have the right to terminate the CBA following the 2019-20 season).
The NBA CBA contains a “soft” salary cap (i.e., a cap on each team’s aggregate player salaries but with certain exceptions that enable teams to pay more,
sometimes substantially more, than the cap). The NHL CBA provides for a “hard” salary cap (i.e., teams may not exceed a stated maximum that has been
negotiated for the 2013-14 season and is adjusted each season thereafter based upon league-wide revenues ).
NBA
Luxury
Tax
Amounts in this paragraph are in thousands, except for luxury tax rates.
The NBA CBA provides for a luxury tax that is applicable to all teams with aggregate player salaries exceeding a threshold that is set prior to each season based
upon projected league-wide revenues (as defined under the CBA). The luxury tax rates for teams with aggregate player salaries above such threshold start at $1.50
for each $1.00 of team salary above the threshold up to $5,000 and scale up to $3.25 for each $1.00 of team salary that is from $15,000 to $20,000 over the
threshold, and an additional tax rate increment of $0.50 applies for each additional $5,000 (or part thereof) of team salary in excess of $20,000 over the threshold.
In addition, for teams that are taxpayers in at least three of four previous seasons, the above tax rates are increased by $1.00 for each increment. Fifty percent of the
aggregate luxury tax payments is a funding source for the revenue sharing plan and the remaining 50% of such payments is distributed in equal shares to non-
taxpaying teams. The Company recognizes the estimated amount associated with luxury tax expense or the amount it expects to receive as a non-tax paying team, if
applicable, on a straight-line basis over the NBA regular season as a component of direct operating expenses.
F- 14
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NBA
and
NHL
Escrow
System/Revenue
Sharing
The NBA CBA also provides that players collectively receive a designated percentage of league-wide revenues (net of certain direct expenses) as compensation
(approximately 51%), and the teams retain the remainder. The percentage of league-wide revenues paid as compensation and retained by the teams does not apply
evenly across all teams and accordingly the Company may pay its players a higher or lower percentage of the Knicks’ revenues than other NBA teams. Throughout
each season, NBA teams withhold 10% of each player’s salary and contribute the withheld amounts to an escrow account. If the league’s aggregate player
compensation exceeds the designated percentage of league-wide revenues, some or all of such escrowed amounts are distributed equally to all NBA teams. In the
event that the league’s aggregate player compensation is below the designated percentage of league-wide revenues, the teams will remit the shortfall to the NBPA
for distribution to the players.
The NBA also has a revenue sharing plan that generally requires the distribution of a pool of funds to teams with below-average net revenues (as defined in the
plan), subject to reduction or elimination based on individual team market size and profitability. The plan is funded by a combination of disproportionate
contributions from teams with above-average net revenues, subject to certain profit-based limits (each as defined in the plan); 50% of aggregate league-wide luxury
tax proceeds; and collective league sources, if necessary. Additional amounts may also be distributed on a discretionary basis, funded by assessments on playoff
ticket revenues and through collective league sources.
The NHL CBA provides that each season the players receive as player compensation 50% of that season’s league-wide revenues, excluding the impact of agreed-
upon aggregate transition payments of $300,000 paid on a deferred basis over three years beginning in 2014. Because the aggregate amount to be paid to the
players is based upon league-wide revenues and not on a team-by-team basis, the Company may pay its players a higher or lower percentage of the Rangers’
revenues than other NHL teams pay of their own revenues. In order to implement the salary cap system, NHL teams withhold a portion of each player’s salary and
contribute the withheld amounts to an escrow account. If the league’s aggregate player compensation for a season exceeds the designated percentage (50%) of that
season’s league-wide revenues, the excess is retained by the league. Any excess funds will be distributed by the NHL to all teams in equal shares.
The NHL CBA provides for a revenue sharing plan which generally requires the distribution of a pool of funds approximating 6.055% of league-wide revenues to
certain qualifying lower-revenue teams. Under the NHL CBA, the pool is funded as follows: (a) 50% from contributions by the top ten revenue earning teams
(based on pre-season and regular season revenues) in accordance with a formula; (b) then from payments by teams participating in the playoffs, with each team
contributing 35% of its gate receipts for each home playoff game; and (c) the remainder from centrally-generated NHL sources. The Rangers are consistently
among the top ten revenue teams and, accordingly, have consistently contributed to the top ten revenue teams component of the plan.
The Company recognizes the amount of its estimated revenue sharing expense associated with the pre-season and regular season, net of the amount the Company
expects to receive from the escrow, on a straight-line basis over the applicable NBA and NHL seasons as a component of direct operating expenses. In years when
the Knicks or Rangers participate in the playoffs, the Company recognizes its estimate of the playoff revenue sharing contribution in the periods when the playoffs
occur.
League
Assessments
As members of the NBA and NHL, the Knicks and Rangers, respectively, are also subject to annual league assessments. The governing bodies of each league
determine the amount of each season’s league assessments that are required from each member team. The Company recognizes its teams’ estimated league
assessments on a straight-line basis over the applicable NBA or NHL season.
Production
Costs
for
the
MSG
Entertainment
Segment
The Company defers certain costs of productions such as creative design, scenery, wardrobes, rehearsal and other related costs for the Company’s proprietary
shows. Deferred production costs are amortized on a straight-line basis over the course of a production’s performance period using the expected life of a show’s
assets, which is currently 5 years. Deferred production costs are subject to recoverability assessments whenever there is an indication of potential impairment.
During the third quarter of fiscal year 2016, the Company recorded a $41,816 write-off of deferred production costs associated with the New
York
Spectacular
Starring
the
Radio
City
Rockettes
(“ New
York
Spectacular
”) due to the creative decision to not include, in the summer of 2016 performances, certain scenes from
the previous show. Subsequently, due to assessments of the show’s creative direction, timing and scale, the Company wrote off the remaining balance of deferred
production costs associated with this production in the amount of $33,629 during the fourth quarter of fiscal year 2017. The Company has $6,288 and $6,702 of net
deferred production costs recorded within other current assets and other assets in the accompanying consolidated balance sheets
F- 15
Table of Contents
as of June 30, 2018 and 2017 , respectively.
Advertising
Expenses
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Advertising costs are typically charged to expense when incurred, however, advertising for productions and other live entertainment events are generally deferred
within interim periods and expensed over the run of the show, but by no later than the end of the fiscal year. Total advertising costs classified in direct operating
and selling, general and administrative expenses were $16,314 , $18,963 and $20,834 for the years ended June 30, 2018 , 2017 and 2016 , respectively.
Income
Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income
Taxes
(“ASC Topic 740”). For the periods before the Distribution, income
taxes as presented herein attribute current and deferred income taxes of MSG Networks to the Company’s stand-alone financial statements in a manner that is
systematic, rational, and consistent with the asset and liability method prescribed by ASC Topic 740. Accordingly, the Company’s income tax provision was
prepared following the separate return method. The separate return method applies ASC Topic 740 to the stand-alone financial statements of each member of the
combined group as if the group member were a separate taxpayer and the benefits of a consolidated return have been reflected where such returns have or could be
filed based on the entities’ jurisdictions included in the combined financial statements. As a result, actual tax transactions included in the consolidated financial
statements of MSG Networks may not be included in the combined financial statements. Similarly, the tax treatment of certain items reflected in the combined
financial statements may not be reflected in the consolidated financial statements and tax returns of MSG Networks. Therefore, portions of items such as net
operating losses, credit carryforwards, other deferred taxes, uncertain tax positions and valuation allowances may exist in the combined financial statements that
may or may not exist in MSG Networks’ consolidated financial statements.
Because the Company’s operations prior to the Distribution were included in MSG Networks’ tax returns, payments to certain tax authorities were made by MSG
Networks, and not by the Company. The Company only maintains taxes payable to/from the taxing authorities for legal entities that are fully-dedicated to the
Company’s business. The Company did not maintain taxes payable to/from MSG Networks and the payments were deemed to settle the annual current tax payable
balances immediately with the legal entities paying the tax in the respective jurisdictions through changes in MSG Networks’ investment.
For the periods after the Distribution, 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.
Interest and penalties, if any, associated with uncertain tax positions are included in income tax expense.
The Company accounts for investment tax credits using the “flow-through” method, under which the tax benefit generated from an investment tax credit is
recorded in the period the credit is generated.
Share-based
Compensation
Prior to Distribution, the Company’s employees participated in MSG Networks’ share-based compensation plans. Share-based compensation expense has been
attributed to the Company based on the awards and terms previously granted to MSG Networks’ employees. For purposes of the combined financial statements , an
allocation of share-based compensation expense related to corporate employees was recorded in addition to the expense attributed to the Company’s direct
employees. The allocated expense includes both directors and corporate executives of MSG Networks, allocated using a proportional allocation method which
management has deemed to be reasonable.
F- 16
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Following the Distribution, 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 (net of estimated forfeitures) 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. Up until the adoption of Accounting Standards Update (“ ASU ”) No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements
to
Employee
Share-based
Payment
Accounting
, the Company estimated forfeitures based upon
historical experience and its expectations regarding future vesting of awards. To the extent actual forfeitures were different from the Company’s estimates, share-
based compensation was adjusted accordingly.
Beginning in the first quarter of fiscal year 2018, upon the adoption of ASU No. 2016-09, the Company elected to account for forfeitures as they occur on a
prospective basis effective July 1, 2017, rather than estimating expected forfeitures as was required under the prior guidance. See “— Recently Adopted
Accounting Pronouncements ” for further discussion on the impact from the adoption of ASU No. 2016-09.
In addition, for the Company’s stock option awards, the Company applies the fair value recognition provisions of ASC Topic 718 “ Compensation
—
Stock
Compensation
”. ASC Topic 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model.
The Company determines the fair value as of the grant date. For awards with graded vesting conditions, the values of the awards are determined by valuing all
vesting tranches in the aggregate as one award using an average expected term. For stock options, the Black-Scholes option pricing model considers, among other
factors, the expected life of the award and the expected volatility of the Company’s stock price.
The Company determines its assumptions for the Black-Scholes option-pricing model in accordance with ASC Topic 718 and SEC Staff Accounting Bulletin
(“SAB”) No. 107, “ Share-Based
Payment
” based on the following:
•
•
•
The expected term of stock options is estimated using the simplified method.
The expected risk-free interest rate is based on the U.S. Treasury interest rate which term is consistent with the expected term of the stock options.
The expected volatility is based on the historical volatility of the Company’s stock price.
In December 2007, the SEC staff issued SAB No. 110, “ Certain
Assumptions
Used
In
Valuation
Methods
—
Expected
Term
”. SAB No. 110 allows companies to
continue to use the simplified method, as defined in SAB No. 107, to estimate the expected term of stock options under certain circumstances. The simplified
method for estimating expected term uses the mid-point between the vesting term and the contractual term of the stock option. The Company has analyzed the
circumstances in which the use of the simplified method is allowed. The Company has opted to use the simplified method for stock options the Company granted in
fiscal year 2018 because management believes that the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to
estimate the expected term.
Earnings
(Loss)
Per
Common
Share
Basic earnings (loss) per common 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 (see Note 13 ) only in the periods in which such effect would have been dilutive. For the
periods when a net loss is reported, the computation of diluted EPS equals the basic EPS calculation since common stock equivalents were antidilutive due to
losses from continuing operations.
Cash
and
Cash
Equivalents
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 in the accompanying
consolidated balance sheets. The Company presents the change in these book cash overdrafts as cash flows from operating activities.
F- 17
Table of Contents
Restricted
Cash
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company’s restricted cash includes cash deposited in escrow accounts. For example, the Company has deposited cash in an interest-bearing escrow account as
credit support and collateral to its workers compensation and general liability insurance obligations. Separately, cash is required to be withheld from player salaries
and deposited in an escrow account which is in the name of the Company pursuant to the NHL CBA. That escrow account will be distributed subsequent to the end
of the season to the players and NHL teams based on the provisions of the NHL CBA. The carrying amount of restricted cash approximates fair value due to the
short-term maturity of these instruments. Changes in restricted cash are reflected in cash flows from either operating or investing activities, depending on the
circumstances to which the changes in the underlying restricted cash relate.
Accounts
Receivable
Accounts receivable is recorded at net realizable value. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible
receivables. The allowance for doubtful accounts is estimated based on the Company’s 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’s allowance for doubtful accounts was $777 and $601 as of June 30,
2018 and 2017 , respectively.
Investments
in
and
Loans
to
Nonconsolidated
Affiliates
The Company’s investments in nonconsolidated affiliates 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, companies are required to allocate 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 equity in earnings (loss) of nonconsolidated
affiliates on 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 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.
In addition to the equity method investments, the Company also has other investments accounted for under the cost method of accounting.
The Company also provides revolving credit facilities to certain of its nonconsolidated affiliates. The outstanding loan balances, including accrued interest, are
reflected in investments in and loans to nonconsolidated affiliates in the accompanying consolidated balance sheets. Interest income on the outstanding loan
balances and related facility fees are recorded currently and are reflected in interest income in the accompanying consolidated statements of operations.
Impairment
of
Investments
The Company reviews its investments at least quarterly 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. See Note 6 for
further discussion of impairments of investments.
Long-Lived
and
Indefinite-Lived
Assets
The Company’s long-lived and indefinite-lived assets consist of property and equipment, goodwill, indefinite-lived intangible assets and amortizable intangible
assets.
Property and equipment is stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets or, with respect to leasehold
improvements, amortized over the shorter of the lease term or the asset’s estimated useful life. 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. In July 2013, the
permit for The Garden was renewed for ten years and these financial statements have been prepared assuming further renewal of that permit.
F- 18
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Identifiable intangible assets with finite useful lives are amortized on a straight-line basis over their respective estimated useful lives. Goodwill and identifiable
intangible assets that have indefinite useful lives are not amortized.
Impairment
of
Long-Lived
and
Indefinite-Lived
Assets
In assessing the recoverability of the Company’s long-lived and indefinite-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 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.
Goodwill is tested annually for impairment as of August 31 st 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 the two-step
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 then
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 Company generally determines the fair value of a reporting unit using an income approach, such as the discounted cash flow method, in
instances when it does not perform the qualitative assessment of goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the
goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair
value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as
the amount of goodwill that would be recognized in a business combination.
The Company performs its goodwill impairment test at the reporting unit level, which is one level below the operating segment level. The Company has two
operating and reportable segments, MSG Sports and MSG Entertainment, consistent with the way management makes decisions and allocates resources to the
business. For the year ended June 30, 2018 , the Company had three reporting units across its two operating segments for goodwill impairment testing purposes:
MSG Sports, MSG Entertainment and TAO Group. During the first quarter of fiscal year 2018, the Company performed its annual impairment test of goodwill and
determined that there were no impairments of goodwill identified for any of its reporting units as of the impairment test date.
Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or
substantive 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. In the qualitative assessment, the Company must evaluate the totality of qualitative factors, including any recent fair value measurements, that
impact whether an indefinite-lived intangible asset other than goodwill has a carrying amount that more likely than not exceeds its fair value. The Company must
proceed to conducting a quantitative analysis if the Company (i) determines that such an impairment is more likely than not to exist, or (ii) foregoes the qualitative
assessment entirely. Under the quantitative assessment, the impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the
estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, then an impairment loss is
recognized in an amount equal to that excess. The Company generally determines the fair value of an indefinite-lived intangible asset using an income approach,
such as the relief from royalty method, in instances when it does not perform the qualitative assessment of the intangible asset.
For other long-lived assets, including 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 is 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.
F- 19
Table of Contents
Contingencies
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
Contingent
Consideration
Some of the Company’s acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future operating
targets.
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 “Other accrued 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.
See Note 10 for more information regarding the fair value of the Company’s contingent consideration liabilities related to the acquisitions.
Defined
Benefit
Pension
Plans
and
Other
Postretirement
Benefit
Plan
As more fully described in Note 12 , certain of our employees participated in defined benefit pension plans (“Shared Plans”) sponsored by MSG Networks prior to
the Distribution, which included participants of other MSG Networks subsidiaries. The Company accounted for the Shared Plans under the guidance of ASC Topic
715, Compensation
-
Retirement
Benefits
. Accordingly, the Company recorded an asset or liability to recognize the funded status of the Shared Plans, as well as a
liability only for any required contributions to the Shared Plans that were accrued and unpaid at the balance sheet date. The related pension expenses attributed to
the Company were based primarily on pensionable compensation of active participants. For the Shared Plans’ liabilities, the consolidated financial statements
reflect the full impact of such plans. The pension expense related to employees of other MSG Networks businesses participating in any of the Shared Plans is
reflected as a contributory credit from MSG Networks to the Company, resulting in a decrease to the expense recognized in the consolidated statements of
operations.
In addition to the Shared Plans, the Company sponsors a plan that certain of our employees participate in, accounted for as a defined benefit pension plan, both
prior to and after the Distribution. Accordingly, the funded and unfunded position of the Direct Plan is recorded in the Company’s consolidated balance sheet.
Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income, until they are amortized as
a component of net periodic benefit cost.
After the Distribution, the Company maintains its own, both funded and unfunded, defined benefit plans, as well as a contributory other postretirement benefit plan,
covering certain full-time employees and retirees. The majority of the defined benefit pension benefits are based on formulas that reflect the employees’ years of
service and compensation during their employment period and participation in the plans. The expense recognized by the Company is determined using certain
assumptions, including the expected long-term rate of return, discount rate and rate of compensation increases, among others. The Company recognizes the funded
status of its defined benefit pension and other postretirement plans (other than multiemployer plans) 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).
F- 20
Table of Contents
Fair
Value
Measurements
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 I — Quoted prices for identical instruments in active markets.
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.
Level III — Instruments whose significant value drivers are unobservable.
Foreign
Currency
Translations
The consolidated financial statements are presented in U.S. Dollars. Assets and liabilities of non-U.S. subsidiaries 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. 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.
Recently
Adopted
Accounting
Pronouncements
In March, the FASB issued Accounting Standards Update (“ ASU ”) No. 2016-07, Investments
-
Equity
Method
and
Joint
Ventures
(Topic
323),
Simplifying
the
Transition
to
the
Equity
Method
of
Accounting
. ASU No. 2016-07 eliminates the requirement for an investor to retrospectively apply the equity method when an
investment that it had accounted for by another method qualifies for use of the equity method. This standard was adopted by the Company prospectively in the first
quarter of fiscal year 2018. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation
-
Stock
Compensation
(Topic
718):
Improvements
to
Employee
Share-based
Payment
Accounting
. ASU No. 2016-09, among other things, (i) requires the income tax effects of all awards to be recognized in the statement of operations when the
awards vest or are settled, (ii) allows an employer to repurchase more of an employee’s shares for tax withholding purposes than currently allowable, without
triggering liability accounting, and provides companies with the option to make a policy election to account for forfeitures as they occur, and (iii) requires
companies to present excess tax benefits as operating activity rather than as financing activity on the statement of cash flows. This standard was adopted by the
Company in the first quarter of fiscal year 2018. In connection with the Company’s election to record forfeitures as they occur, the Company used the modified
retrospective transition method and recorded a cumulative effect of $2,403 , which was an increase in beginning accumulated deficits with the offset by an equal
increase in additional paid in capital. In addition, the Company prospectively adopted the provision regarding the presentation of excess tax benefits in the
statement of cash flows, which did not result in a change in the net cash provided by operating activities for the year ended June 30, 2018 because the Company
currently is in a net operating loss position.
In May 2017, the FASB issued ASU No. 2017-09, Compensation
-
Stock
Compensation
(Topic
718):
Scope
of
Modification
Accounting.
ASU No. 2017-09
provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This standard does
not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting
conditions or award classification and would not be required if the changes are considered non-substantive. This standard was early adopted by the Company
prospectively in the first quarter of fiscal year 2018. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
F- 21
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In February 2018, the FASB issued ASU No. 2018-02, Income
Statement
-
Reporting
Comprehensive
Income
(Topic
220):
Reclassification
of
Certain
Tax
Effects
from
Accumulated
Other
Comprehensive
Income
. The amendments in this update allow a reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard is required to be applied either in the period of adoption or
retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is
recognized. Early adoption is permitted. The Company elected to early adopt this standard in the fourth quarter of fiscal year 2018. The adoption of this standard
resulted in a reclassification of the disproportionate tax effects from accumulated other comprehensive loss to retained earnings (accumulated deficit) in the period
of adoption. See Note 16 for more information.
Recently
Issued
Accounting
Pronouncements
Not
Yet
Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from
Contracts
with
Customers
(Topic
606)
, which supersedes the revenue recognition requirements in
FASB Accounting Standards Codification (“ASC”) Topic 605, Revenue
Recognition
. ASC Topic 606, among other things, (i) is based on the principle that
revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange f or those goods or services, and (ii) requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In
August 2015, the FASB issued ASU No. 2015-14 ,
Revenue
from
Contracts
with
Customers
(Topic
606)
: Deferral
of
the
Effective
Date
, which defers the effective
date of ASU No. 2014-09 for all entities by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue
from
Contracts
with
Customers
(Topic
606),
Principal
versus
Agent
Considerations
(Reporting
Revenue
versus
Net)
, which clarifies the implementation guidance on principal versus agent considerations in
the new revenue recognition standard under ASU No. 2014-09. ASU No. 2016-08 clarifies how an entity should identify the unit of accounting (i.e., the specified
good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB
issued ASU No. 2016-10, Revenue
from
Contracts
with
Customers
(Topic
606):
Identifying
Performance
Obligations
and
Licensing
, which clarifies the principle
in ASU No 2014-09 for determining whether a good or service is separately identifiable from other promises in the contract and, therefore, should be accounted for
separately. ASU No. 2016-10 also clarifies that entities are not required to identify promised goods or services that are immaterial in the context of the contract and
allows entities to elect to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service. In May 2016, the FASB
issued ASU No. 2016-12, Revenue
from
Contracts
with
Customers
(Topic
606)
—
Narrow-Scope
Improvements
and
Practical
Expedients
, which clarifies the
following aspects in ASU No. 2014-09: collectability, presentation of sales taxes and other similar taxes collected from customers, noncash considerations, contract
modifications at transition, completed contracts at transition, and technical correction. In December, the FASB issued ASU No. 2016-20, Technical
Corrections
and
Improvements
to
Topic
606,
Revenue
from
Contracts
with
Customers
, which allows entities not to make quantitative disclosures about remaining performance
obligations in certain cases and requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures.
ASC Topic 606 and the related updates will be effective for the Company beginning in the first quarter of fiscal year 2019 using one of two retrospective
application methods. The Company’s evaluation of the impact this standard will have on its consolidated financial statements is ongoing. Based on the review to
date, the Company believes that for certain revenue streams the adoption of the new accounting standard will affect the timing of revenue recognition across the
quarters of the fiscal year. For example, a vast majority of local media right fees from MSG Networks will now be recognized over the Company’s professional
sports teams’ seasons as opposed to being recognized straight line over the fiscal year. Additionally, season ticket revenue will be recognized as home games are
played as opposed to being recognized straight-line over the Company’s professional sports teams’ seasons. Suite revenue, which used to be recognized straight
line over the fiscal year, will now generally be recognized proportionally in line with the number of events that occur in a given period.
Additionally, certain revenue streams with multi-year arrangements that historically were accounted for following the contractual terms of the respective
agreements will now be accounted for as arrangements containing performance obligations that are considered to be a “series” under the new accounting
standard. If specific criteria are met, series accounting requires the total contract value to be aggregated at the inception of the contract and then recognized as the
Company’s underlying performance obligations are satisfied over the contractual term of the entire multi-year agreement. This rule, which affects the Company’s
accounting for suite licenses and most of MSG’s sponsorship revenue, results in accelerated revenue recognition for newer contracts and lower revenue for more
mature contracts when compared to current accounting rules. Generally for MSG this means that revenues for multi-year suite licenses and sponsorship
arrangements will be recognized straight-line over the multi-year arrangement irrespective of contractual annual fee escalators. The Company plans to adopt the
new standard using
F- 22
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the modified retrospective method. With the exceptions for revenues from suites and sponsorship arrangements, where the Company continues to determine the
amount of the transition adjustment, the Company does not believe the impact of adopting the new revenue standard will be material to the Company’s
consolidated financial position or results of operations.
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments
-
Overall
(Subtopic
825-10):
Recognition
and
Measurement
of
Financial
Assets
and
Financial
Liabilities,
addressing certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard, among other
things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and (ii) simplifies
the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. In February
2018, the FASB issued ASU No. 2018-03, Technical
Corrections
and
Improvements
to
Financial
Instruments
Overall
(Subtopic
825-10):
Recognition
and
Measurement
of
Financial
Assets
and
Financial
Liabilities
, which clarifies certain aspects of the guidance issued in ASU No. 2016-01. Among other items, the
amendment clarifies that an entity that uses the measurement alternative for equity securities without readily determinable fair values can change its measurement
approach to fair value. Once the election is made, the measurement approach is irrevocable and the entity is required to apply the selected approach to that security
and all identical or similar investments of the same issuer. Early adoption of ASU No. 2016-01 is not permitted with the exception of certain provisions related to
the presentation of other comprehensive income. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The Company is
currently evaluating the impact this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic
842)
, which supersedes existing guidance on accounting for leases in FASB ASC Topic 840,
Leases. ASU No. 2016-02, among other things, (i) requires lessees to account for leases as either finance leases or operating leases and generally requires all leases
to be recorded on the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-
use assets and corresponding lease liabilities, and (ii) requires extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by
a lessor is largely unchanged from that applied under previous accounting guidance. In January 2018, the FASB issued ASU No. 2018-01, Leases
(Topic
842)
-
Land
Easement
Practical
Expedient
for
Transition
to
Topic
842
, which provides a lessee or lessor the option to not assess at transition whether existing land
easements, not currently accounted for as leases under the current lease guidance, should be treated as leases under the new standard. The effective date and
transition requirements for ASU No. 2018-01 are the same as ASU No. 2016-02. This standard, as amended, will be effective for the Company beginning in the
first quarter of fiscal year 2020 and is required to be applied using the modified retrospective approach for all leases existing as of the effective date. Early adoption
is permitted; however, the Company currently does not plan to adopt this standard early. The Company’s evaluation of the impact this standard will have on its
consolidated financial statements is ongoing. Based on efforts to date, the adoption of the standard is expected to result in the recognition of right of use assets and
lease liabilities related to the Company’s operating leases.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments
-
Credit
Losses
. ASU 2016-13 replaces the incurred loss impairment methodology in current
U.S. GAAP with a methodology that will require the reflection of expected credit losses and will also require consideration of a broader range of reasonable and
supportable information to determine credit loss estimates. For most financial instruments, the standard will require the use of a forward-looking expected loss
model rather than the incurred loss model for recognizing credit losses, which will generally result in the earlier recognition of credit losses on financial
instruments. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is
currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement
of
Cash
Flows
(Topic
230).
ASU No. 2016-15 addresses eight specific cash flow issues and is
intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard
will be effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted. The adoption of this standard is not expected to
have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income
Taxes
(Topic
740):
Intra-Entity
Transfers
of
Assets
Other
Than
Inventory
. ASU No. 2016-16
requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This standard will be
effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted as of the beginning of an annual reporting period for which
financial statements have not been issued or made available for issuance. The adoption of this standard is not expected to have a material impact on the Company’s
consolidated financial statements.
F- 23
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In November 2016, the FASB issued ASU No. 2016-18, Statement
of
Cash
Flows:
Restricted
Cash
. The primary purpose of ASU No. 2016-18 is to reduce the
diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. This standard will require that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective retrospectively for the
Company beginning in the first quarter of fiscal year 2019, and will result in a change to the Company’s presentation of net cash provided by (used in) operating
activities in the statement of cash flows for the impact of changes in restricted cash balances. Early adoption is permitted in any interim or annual period.
In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations
(Topic
805)
Clarifying
the
Definition
of
a
Business
. The primary purpose of this
ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses, which will affect many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This
standard will be effective for the Company beginning in the first quarter of fiscal year 2019 and is required to be applied prospectively. Early adoption is permitted.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles
-
Goodwill
and
Other
(Topic
350):
Simplifying
the
Accounting
for
Goodwill
Impairment.
ASU
No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the
amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the
Company beginning in the first quarter of fiscal year 2021 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s
consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation
-
Retirement
Benefits
(Topic
715):
Improving
the
Presentation
of
Net
Periodic
Pension
Cost
and
Net
Periodic
Postretirement
Benefit
Cost.
ASU No. 2017-07 requires employers to disaggregate the service cost component from the other components of net
benefit cost and disclose by line item the amount of net benefit cost that is included in the statement of operations or capitalized in assets. The standard requires
employers to report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees
during the period and to report other components of net benefit cost separately and outside the subtotal of operating income. The standard also allows only the
service cost component to be eligible for capitalization. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The
guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost in the
statements of operations and on a prospective basis for the capitalization of the service cost component of net benefit cost in assets. Early adoption is permitted as
of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. For the year ended June 30, 2018
, net periodic pension and other postretirement employee benefit cost reported within operating income totaled $4,386 , of which $205 represented service cost. For
the year ended June 30, 2017 , net periodic pension and other postretirement employee benefit cost reported within operating loss totaled $4,253 , of which $207
represented service cost.
In June 2018, the FASB issued ASU No. 2018-07, Compensation
—
Stock
Compensation
(Topic
718):
Improvements
to
Nonemployee
Share-Based
Payment
Accounting
, which expands the scope of FASB ASC Topic 718 to include all share-based payment transactions for acquiring goods and services from
nonemployees. ASU No. 2018-07 specifies that FASB ASC Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and
services to be used or consumed in its own operations by issuing share-based payment awards. ASU No. 2018-07 also clarifies that Topic 718 does not apply to
share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part
of a contract accounted for under FASB ASC Topic 606. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020, with
early adoption permitted, but no earlier than the adoption of FASB ASC Topic 606. The adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.
F- 24
Table of Contents
Note 3 . Acquisitions
Obscura
Acquisition
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On November 20, 2017, the Company acquired a 100% controlling interest in Obscura , a creative studio, globally -recognized for its work in designing and
developing next-generation immersive experiences . Obscura’s results of operations since the acquisition date, which are included in the Company’s consolidated
statement of operations for the year ended June 30, 2018 , were not material. Pro forma information is not provided since the acquisition was not material when
compared with the Company’s consolidated financial statements. Third-party revenues generated by Obscura and related costs are reflected in the MSG
Entertainment segment. Any costs incurred by Obscura that are associated with the Company’s business development initiatives are reported in “Corporate and
Other.”
CLG
Acquisition
On July 28, 2017, the Company acquired a 65% controlling interest in CLG, a premier North American esports organization. CLG’s results of operations since the
acquisition date, which are included in the Company’s consolidated statement of operations for the year ended June 30, 2018 , were not material. The CLG
financial results of operations are reflected in the MSG Sports segment. Pro forma information is not provided since the acquisition was not material when
compared with the Company’s consolidated financial statements.
TAO
Group
Acquisition
In connection with the Company’s strategy to broaden its portfolio of live offerings, on January 31, 2017 the Company entered into a transaction agreement
pursuant to which it acquired a 62.5% common equity interest and a preferred equity interest in TAO Group , which indirectly owns all of the equity of TAO
Group Operating LLC (“ TAOG ”). TAO Group is engaged in the management and operation of restaurants, nightlife and hospitality venues in Las Vegas, New
York City, Los Angeles, Australia and Singapore. The initial purchase price of $178,627 , including $8,746 to acquire preferred equity in TAO Group , was net of
cash acquired of $11,344 . In addition, the Company will be responsible to pay an earn-out of up to approximately $25,500 , if certain performance conditions
based upon earnings growth are met during the first five years following the transaction.
As a result of the purchase price allocation for this acquisition, the Company recorded $90,193 of goodwill (including certain measurement period adjustments) as
of June 30, 2017. During the year ended June 30, 2018 , the Company recorded additional measurement period adjustments for a total of $1,610 , which were
primarily related to accrued liabilities as of the acquisition date. The carrying amount of goodwill for the TAO Group acquisition was $88,583 as of June 30, 2018 .
In addition, the Company recorded $7,900 as the initial fair value of contingent consideration liabilities as a part of purchase price. See Note 10 for more
information regarding the change in fair value of the Company’s contingent consideration liabilities arisen from this acquisition recorded during the year ended
June 30, 2018.
For the years ended June 30, 2017 and 2016, the Company recognized $7,153 and $2,457 , respectively, of acquisition-related expenses in connection with the
TAO Group acquisition within selling, general and administrative expenses in the accompanying consolidated statements of operations .
In connection with the TAO Group acquisition, TAO Group Intermediate Holdings LLC (“ TAOIH ”), a subsidiary of TAO Group , TAOG and certain of its
subsidiaries obtained a five -year term senior secured term loan facility of $110,000 from a third party group of lenders to fund the acquisition of TAO Group and a
senior secured revolving credit facility of up to $12,000 with a term of five years for working capital and general corporate purposes of TAOG . These credit
facilities are provided without recourse to the Company or any of its affiliates (other than TAOIH and its subsidiaries). See Note 11 for more information regarding
these credit facilities.
F- 25
Table of Contents
BCE
Acquisition
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On July 1, 2016, in connection with the Company’s strategy to broaden its live experience offerings, the Company acquired a controlling interest in BCE, the live
events production company that owns and operates the Boston Calling Music Festival. The Company acquired net tangible assets of $2,221 and based on the
purchase price allocation, the Company recognized $11,610 of amortizable intangible assets, $12,728 of goodwill and $11,394 of initial fair value of the
nonredeemable noncontrolling interest. In addition, an additional $1,750 was placed in escrow during fiscal year 2017 for a potential earn-out. The net adjustment
to the potential earn-out and the amortizable intangible assets (excluding the effect of scheduled amortization expense) recorded for the year ended June 30, 2018
was not material.
Note 4 . Computation of Earnings (Loss) per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings (loss) per common share attributable
to the Company’s stockholders (“EPS”).
Weighted-average shares (denominator):
Weighted-average shares for basic EPS
Dilutive effect of shares issuable under share-based compensation plans
Weighted-average shares for diluted EPS
Anti-dilutive shares
Note 5 . Team Personnel Transactions
Years Ended June 30,
2018
2017
2016
23,639
207
23,846
28
23,853
—
23,853
—
24,754
—
24,754
—
Direct operating and selling, general and administrative expenses in the accompanying consolidated statements of operations include net provisions for transactions
relating to players and certain other team personnel on the Company’s sports teams for (i) waivers/contract termination costs, (ii) trades and (iii) season-ending
injuries (“Team Personnel Transactions”). Team Personnel Transactions amounted to $27,514 , $42,337 and $7,484 for the years ended June 30, 2018 , 2017 and
2016 , respectively.
F- 26
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 6 . Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates which are accounted for under the equity method and cost method of accounting in accordance
with ASC Topic 323, Investments
-
Equity
Method
and
Joint
Ventures
, and ASC Topic 325, Investments
-
Other
, respectively, consisted of the following:
June 30, 2018
Equity method investments:
Azoff MSG Entertainment LLC (“AMSGE”)
Tribeca Enterprises LLC (“Tribeca Enterprises”)
Others
Cost method investments
Ownership
Percentage
50%
50%
Investment
Loan (a)
Total
$
101,369 $
8,007
6,977
10,573
63,500
19,525 (b)
—
—
$
164,869
27,532
6,977
10,573
Total investments and loans to nonconsolidated affiliates
$
126,926 $
83,025
$
209,951
June 30, 2017
Equity method investments:
AMSGE
Brooklyn Bowl Las Vegas, LLC (“BBLV”)
Tribeca Enterprises
Cost method investments
50%
(d)
50%
$
104,024 $
—
12,864
10,775
97,592 (c)
2,662 (d)
14,370 (b)
—
$
201,616
2,662
27,234
10,775
Total investments and loans to nonconsolidated affiliates
$
127,663 $
114,624
$
242,287
_________________
(a)
In
connection
with
the
Company's
investments
in
AMSGE
and
Tribeca
Enterprises,
the
Company
provides
$100,000
and
$17,500
revolving
credit
facilities
to
these
entities,
respectively.
Pursuant
to
their
terms,
the
AMSGE
and
Tribeca
Enterprises
revolving
credit
facilities
will
terminate
on
September
20,
2020
and
June
30,
2021
,
respectively.
During
the
fourth
quarter
of
fiscal
year
2018,
AMSGE
repaid
$34,000
and
the
Company
agreed
that
such
amounts
could
be
reborrowed.
The
$17,500
revolving
credit
facility
to
Tribeca
Enterprises
was
fully
drawn
as
of
June
30,
2018
.
(b)
Includes
outstanding
payments-in-kind
(“PIK”)
interest
of
$2,025
and
$870
as
of
June
30,
2018
and
2017
,
respectively.
PIK
interest
owed
does
not
reduce
availability
under
the
revolving
credit
facility.
(c)
Represents
outstanding
loan
balances,
inclusive
of
amounts
due
to
the
Company
for
interest
of
$92
as
of
June
30,
2017
.
(d)
As
of
June
30,
2017
,
the
Company
was
entitled
to
receive
back
its
capital,
which
was
74%
of
BBLV’s
total
capital,
plus
a
preferred
return,
after
which
the
Company
would
own
a
20%
interest
in
BBLV.
The
outstanding
loan
balance
was
inclusive
of
amounts
due
to
the
Company
for
interest
of
$62
as
of
June
30,
2017
.
In
December
2017,
in
connection
with
the
amendment
of
the
BBLV’s
operating
agreement,
the
Company
received
a
payment
of
$2,662
,
which
represented
the
outstanding
loan
principal
and
accrued
interest
balance.
In
addition,
the
Company
recognized
interest
income
of
$938
for
the
year
ended
June
30,
2018
,
which
was
received
in
connection
with
the
repayment
of
the
loan
receivable
since
the
loan
balance
was
on
a
nonaccrual
status.
As
a
result
of
the
amendment
to
the
BBLV
operating
agreement,
the
Company
now
owns
a
35%
interest
in
BBLV
with
no
preferred
return
as
of
June
30,
2018
.
The Company determined that these investments are not VIEs and therefore each was analyzed under the voting model. The Company determined that due to a
lack of a voting majority and consistent with the accounting for partnership (or similar entities) interests, it does not control these entities. Accordingly, the
Company accounts for these investments under the equity method of accounting or cost method of accounting in accordance with ASC Topic 323 and ASC Topic
325, respectively. In addition, for an investment in a limited liability company in which the Company has an ownership interest that exceeds 3-5%, the Company
also accounts for such investment under the equity method of accounting.
F- 27
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In September 2013, the Company acquired a 50% interest in AMSGE for $125,000 . The AMSGE entity owns and operates businesses in the entertainment
industry and is currently focused on music management, performance rights, strategic marketing and venue management consulting services. As of the acquisition
date the carrying amount of the investment was greater than the Company’s equity in the underlying assets of AMSGE. As such, the Company allocated the
difference to goodwill and amortizable intangible assets of $108,220 and $17,350 , respectively. The difference attributable to amortizable intangible assets is
being amortized on a straight-line basis over the expected useful lives of the intangible assets, which range from 5 to 7 years. In connection with the Company’s
investment in AMSGE, the Company provides a $100,000 revolving credit facility to the entity.
In August 2013, the Company acquired an interest in BBLV. In March 2014, BBLV opened a new venue in Las Vegas which brings together live music, bowling
and a restaurant. The Company does not manage or otherwise control BBLV but has approval rights over certain decisions. Additionally, the Company agreed to
loan up to $2,600 to BBLV. During the second quarter of fiscal year 2015, as a result of BBLV’s liquidity position, the Company evaluated whether or not an
impairment of its investment had occurred. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $23,600 to write-off the
carrying value of its equity investment in BBLV. The impairment charge was based on a comparison of the fair value of the investment, which was determined
using a discounted cash flow analysis, to its carrying value.
In March 2014, the Company acquired a 50% interest in Tribeca Enterprises for $22,500 . Tribeca Enterprises owns and operates the Tribeca Film Festival and
certain other businesses. As of the acquisition date the carrying amount of the investment was greater than the Company’s equity in the underlying assets of
Tribeca Enterprises. As such, the Company allocated the difference to indefinite-lived and amortizable intangible assets of $5,750 and $5,350 , respectively. The
difference attributable to amortizable intangible assets is being amortized straight-line over 10 years, the expected useful life of the intangible asset. In connection
with the Company’s investment in Tribeca Enterprises, the Company has provided a $17,500 revolving credit facility to Tribeca Enterprises as of June 30, 2018.
In July 2018, the Company acquired a 30% interest in a display technology company that we plan to utilize for technology for MSG Sphere, for approximately
$47,244 , which consists of a $42,444 payment at close and a $4,800 deferred payment.
In addition to the investments discussed above, the Company also has other investments in various sports and entertainment companies and related technologies,
accounted for either under the cost method or equity method.
The following is summarized financial information for all of the Company’s equity method investments as required by the guidance in SEC Regulation S-X Rule
4-08(g). The amounts shown below represent 100% of these equity method investments’ financial position and results of operations.
Balance Sheet
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Shareholders’ equity
June 30, 2018
June 30, 2017
$
$
$
149,054 $
414,247
563,301 $
116,695 $
384,580
54,684
7,342
$
563,301 $
Years Ended June 30,
103,319
399,485
502,804
116,454
399,165
59,205
(72,020)
502,804
Results of Operations
Revenues
Loss from continuing operations
Net loss
Net loss attributable to controlling interest
2018
2017
2016
$
308,070 $
328,533 $
(19,016)
(19,016)
(21,845)
(16,923)
(16,923)
(17,399)
280,924
(31,206)
(31,206)
(32,006)
F- 28
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 7 . Goodwill and Intangible Assets
The carrying amounts of goodwill, by reportable segment, as of June 30, 2018 and 2017 are as follows:
MSG Entertainment (a)
MSG Sports (a)
_________________
June 30,
2018
June 30,
2017
$
$
165,558 $
226,955
392,513 $
161,900
218,187
380,087
(a)
The
net
increase
in
the
carrying
amounts
of
goodwill,
as
compared
to
June
30,
2017
, primarily
reflects:
(i)
purchase
price
allocations
for
the
CLG
and
Obscura
acquisitions
in
the
MSG
Entertainment
segment
and
MSG
Sports
segment,
respectively,
and
(ii)
measurement
period
adjustments
for
certain
assets
and
liabilities
for
the
TAO
Group
acquisition
in
the
MSG
Entertainment
segment.
During the first quarter of fiscal year 2018 , the Company performed its annual impairment test of goodwill and determined that there were no impairments of
goodwill identified for any of its reporting units as of the impairment date.
The Company’s indefinite-lived intangible assets as of June 30, 2018 and 2017 are as follows:
Sports franchises (MSG Sports segment) (a)
Trademarks (MSG Entertainment segment)
Photographic related rights (MSG Sports segment)
_________________
June 30,
2018
June 30,
2017
$
$
109,429 $
62,421
3,000
174,850 $
101,429
62,421
3,000
166,850
(a)
The
increase
in
the
carrying
amount
of
indefinite-lived
intangible
assets
in
MSG
Sports
segment
reflects
a
franchise
fee
associated
with
CLG
’s
membership
in
the
“League
of
Legends”
North
American
League
Championship
Series
.
During the first quarter of fiscal year 2018 , the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that
there were no impairments identified.
F- 29
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company’s intangible assets subject to amortization are as follows:
June 30, 2018
Trade names (a)
Venue management contracts
Favorable lease assets
Season ticket holder relationships
Non-compete agreements (b)
Festival rights (c)
Other intangibles (d)
June 30, 2017
Trade names
Venue management contracts
Favorable lease assets
Season ticket holder relationships
Non-compete agreements
Festival rights
Other intangibles
_________________
Estimated Useful
Lives
Gross
Accumulated
Amortization
Net
5 to 25 years
12 to 25 years
1.5 to 16 years
15 years
5 to 5.75 years
15 years
0.3 to 15 years
$
101,830 $
(6,658) $
79,000
54,253
50,032
11,400
8,080
10,064
(5,324)
(5,686)
(44,206)
(2,266)
(1,078)
(5,635)
95,172
73,676
48,567
5,826
9,134
7,002
4,429
$
314,659 $
(70,853) $
243,806
Gross
Accumulated
Amortization
Net
98,530
79,000
54,253
50,032
9,000
9,080
4,217
(1,003) $
(761)
(812)
(40,871)
(261)
(739)
(2,690)
97,527
78,239
53,441
9,161
8,739
8,341
1,527
$
304,112 $
(47,137) $
256,975
(a)
The
increase
in
gross
carrying
amount
of
trade
names,
as
compared
to
June
30,
2017
,
was
attributable
to
the
CLG
and
Obscura
acquisitions.
The
trade
names
were
valued
using
unobservable
inputs
within
Level
III
of
the
fair
value
hierarchy,
utilizing
the
discounted
cash
flow
models
and
relief-from-royalty
approach
with
a
weighted-average
amortization
period
of
approximately
6.5
years.
(b)
The
increase
in
gross
carrying
amount
of
non-compete
agreements,
as
compared
to
June
30,
2017
,
was
attributable
to
the
CLG
acquisition.
The
non-compete
agreement
was
valued
using
unobservable
inputs
within
Level
III
of
the
fair
value
hierarchy,
utilizing
the
discounted
cash
flow
models
with
a
weighted-
average
amortization
period
of
approximately
5
years.
(c)
The
decrease
in
gross
carrying
value
of
festival
rights,
as
compared
to
June
30,
2017
,
was
attributable
to
the
write-off
of
a
specific
intangible
asset
in
connection
with
a
business
decision
to
no
longer
continue
a
certain
BCE-related
festival
during
the
year
ended
June
30,
2018.
(d)
The
other
intangibles,
which
are
attributable
to
the
CLG
and
Obscura
acquisitions,
were
primarily
valued
using
unobservable
inputs
within
Level
III
of
the
fair
value
hierarchy,
utilizing
(i)
the
income
approach
based
on
excess
earning
method
or
incremental
income
method
and
(ii)
cost
approach
based
on
replacement
costs
method
with
a
weighted-average
amortization
period
of
approximately
3.75
years.
Amortization expense for intangible assets, excluding the amortization of favorable lease assets of $4,874 and $812 for the years ended June 30, 2018 and 2017 ,
which is reported in rent expense, was $20,194 , $7,805 , and $6,595 for the years ended June 30, 2018 , 2017 and 2016 , respectively.
F- 30
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each fiscal year from 2019 through 2023
to be as follows:
Fiscal year ending June 30, 2019
Fiscal year ending June 30, 2020
Fiscal year ending June 30, 2021
Fiscal year ending June 30, 2022
Fiscal year ending June 30, 2023
Note 8 . Property and Equipment
$
$
$
$
$
22,262
20,673
18,139
18,029
15,982
As of June 30, 2018 and 2017 , property and equipment consisted of the following assets:
Land
Buildings
Equipment
Aircraft
Furniture and fixtures
Leasehold improvements
Construction in progress
Less accumulated depreciation and
amortization
June 30,
2018
June 30,
2017
Estimated
Useful Lives
$
175,731 $
91,678
1,118,526
1,110,366 Up to 45 years
316,705
38,090
52,293
180,952
84,731
292,935 1 to 20 years
38,090 20 years
49,622 1 to 10 years
176,786 Shorter of term of lease or life of improvement
22,880
1,967,028
1,782,357
(713,357)
(623,086)
$
1,253,671 $
1,159,271
The increase in gross property and equipment during the year ended June 30, 2018 includes the impact of the purchase of land in London during the second quarter
of fiscal year 2018. The purchase price of the land was $79,518 ( £60,000 ), excluding transactional taxes of $20,661 ( £15,590 ). The transactional taxes include a
value-added tax of $15,904 ( £12,000 ), which the Company recovered in full during the third quarter of fiscal year 2018.
Depreciation and amortization expense on property and equipment was $102,292 , $99,583 and $95,887 for the years ended June 30, 2018 , 2017 and 2016 ,
respectively.
F- 31
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 9 . Commitments and Contingencies
Contractual
Obligations
and
Off
Balance
Sheet
Arrangements
The Company has various long-term noncancelable operating lease agreements, primarily for entertainment venues and office space expiring at various dates
through 2038 . Certain leases include renewal provisions at the Company’s option and provide for additional rent based on sales. The rent expense associated with
such operating leases is recognized on a straight-line basis over the initial lease term. The difference between rent expense and rent paid is recorded as deferred
rent. Rent expense including amortization of favorable lease assets and an unfavorable lease liability under these lease agreements totaled $53,591 , $39,044 and
$35,617 for the years ended June 30, 2018 , 2017 and 2016 , respectively.
In addition, the Company has certain future cash payments required under contracts entered into by the Company in the normal course of business and outstanding
letters of credit.
As of June 30, 2018 , future minimum rental payments under leases having noncancelable initial lease terms, other cash payments required under contracts entered
into by the Company in the normal course of business in excess of one year and outstanding letters of credit are as follows:
Off-Balance Sheet Commitments
Operating
Leases (a)
Contractual
Obligations (b)
Letters of
Credits
(c)
Total
Contractual
Obligations
reflected on
the Balance
Sheet (d)
Fiscal year ending June 30, 2019
$
52,164 $
158,193 $
4,110 $
214,467 $
56,483 $
Fiscal year ending June 30, 2020
Fiscal year ending June 30, 2021
Fiscal year ending June 30, 2022
Fiscal year ending June 30, 2023
Thereafter
_________________
50,956
50,090
50,095
46,483
140,881
136,814
63,503
22,930
3,535
5,846
—
—
—
—
—
187,770
113,593
73,025
50,018
146,727
8,932
2,851
4,249
3,213
12,667
$
390,669 $
390,821 $
4,110 $
785,600 $
88,395 $
Total (e)
270,950
196,702
116,444
77,274
53,231
159,394
873,995
(a)
Include
contractually
obligated
minimum
lease
payments
for
operating
leases
having
an
initial
noncancelable
term
in
excess
of
one
year
for
the
Company’s
venues,
including
the
TAO
Group
venues,
CLG
facility,
and
various
corporate
offices.
(b)
Consist
principally
of
the
MSG
Sports
segment’s
obligations
under
employment
agreements
that
the
Company
has
with
its
professional
sports
teams’
personnel
that
are
generally
guaranteed
regardless
of
employee
injury
or
termination.
(c)
Consist
of
letters
of
credit
obtained
by
the
Company
as
collateral
for
lease
agreements.
(d)
Consist
primarily
of
amounts
earned
under
employment
agreements
that
the
Company
has
with
certain
of
its
professional
sports
teams’
personnel
in
the
MSG
Sports
segment.
(e)
Pension
obligations
have
been
excluded
from
the
table
above
as
the
timing
of
the
future
cash
payments
is
uncertain.
See
Note
12
for
information
on
the
future
funding
requirements
under
our
pension
obligations.
In addition, see Note 6 for information on the revolving credit facilities provided by the Company to AMSGE and Tribeca Enterprises as well as the Company’s
investment in a technology company in July 2018.
In connection with the TAO Group and CLG acquisitions, the Company has accrued contingent consideration as part of the purchase price. See Note 10 for further
details of the amount recorded in the accompanying consolidated balance sheet as of June 30, 2018. In addition, see Note 11 for the principal repayments required
under the senior secured term loan facility .
F- 32
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Under the terms of lease agreements and related guaranties, subsidiaries of the Company have certain operating requirements, with one of these subsidiaries being
also required to meet a certain net worth obligation. In the event that these subsidiaries were to fail to meet the required obligations and were unable to avail
themselves of the cure options, the landlord could terminate the lease.
The Company and a subsidiary of the Las Vegas Sands Corp. (“Sands”) entered into a 50-year ground lease in Las Vegas pursuant to which the Company has
agreed to construct a large-scale venue. The Company has announced plans to construct an MSG Sphere on that site. The ground lease will have no fixed rent;
however, if certain return objectives are achieved, Sands will receive 25% of the after-tax cash flow in excess of such objectives.
The Company has the right to increase its equity interest in TAO Group through a call right on the equity of the other TAO Group equityholders after the fifth
anniversary of the closing date (January 31, 2022) and prior to such date in certain events. The other TAO Group equityholders have the right to put their equity
interests in TAO Group after the fifth anniversary of the closing and, in certain circumstances prior to the fifth anniversary. The put and call prices are at fair
market value (or in certain circumstances, subject to a discount). Consideration paid upon exercise of such call right shall be, at MSG’s option, in cash, debt, or
MSG Class A Common Stock, subject to certain limitations.
Legal
Matters
The Company owns 50% of AMSGE, which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights
organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters. GMR engaged in
negotiations with the Radio Music Licensing Committee (“RMLC”), which represents over ten thousand commercial radio stations. On November 18, 2016,
RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania alleging that GMR is violating Section 2 of the
Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate
set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses for songs
which are fully controlled by GMR. GMR and RMLC agreed to an interim license arrangement through September 30, 2017, which has been extended through
September 30, 2018. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20,
2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal
jurisdiction of GMR and that in any event the complaint fails to state a claim. On December 6, 2016, GMR filed a complaint against RMLC in the United States
District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the
Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that
unreasonably restrict competition for public performance licenses. The judge in the Central District of California denied RMLC’s motion to dismiss GMR’s claim
for lack of ripeness and, on the basis that the two cases involve similar facts, stayed the California action in order to assess the status of the Pennsylvania case. On
July 21, 2017, RMLC filed a preliminary injunction motion in the United States District Court for the Eastern District of Pennsylvania to extend the duration of the
interim licenses which GMR had granted to certain radio stations. The district court determined that the jurisdictional matter should be decided prior to addressing
the motion for preliminary injunction and referred the jurisdictional questions to the Magistrate Judge in the United States District Court Eastern District of
Pennsylvania. On November 29, 2017, the Magistrate Judge issued a report and recommendation that personal jurisdiction was not appropriate over GMR in the
Eastern District of Pennsylvania and recommending the dismissal of RMLC’s action without prejudice. RMLC has filed objections to the Magistrate Judge’s report
and recommendation. On May 3, 2018, GMR filed a motion to lift the stay in GMR’s California action on the basis that a continuation of the stay would cause
undue prejudice to GMR. On May 14, 2018, RMLC opposed GMR’s motion to lift the stay and, on May 23, 2018, GMR filed a reply in support of its motion to lift
the stay. On August 14, 2018, the court denied GMR’s motion to lift the stay.
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.
F- 33
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 10 . Fair Value Measurements
The following table presents the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents, marketable securities and
available-for-sale securities:
Assets:
Commercial paper
Money market accounts
Time deposits
Available-for-sale securities
Total assets measured at fair value
Fair Value
Hierarchy
June 30,
2018
2017
I
I
I
I
$
147,098 $
151,887
891,923
20,756
$
1,211,664 $
105,476
102,884
1,007,302
32,851
1,248,513
All assets listed above are classified within Level I of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical
assets in active markets. The carrying amount of the Company’s commercial paper , money market accounts and time deposits approximates fair value due to their
short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheets are as follows:
Assets
Notes receivable, including interest accruals
Available-for-sale securities (a)
Liabilities
Long-term debt, including current portion (b)
_________________
June 30, 2018
June 30, 2017
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
4,116 $
20,756
4,116 $
20,756
2,610 $
32,851
2,610
32,851
109,313
111,588
110,000
110,091
(a)
Aggregate
cost
basis
for
available-for-sale
securities
,
including
transaction
costs,
was
$23,222
as
of
June
30,
2018
and
2017
,
respectively.
The
pretax
unrealized
gain
(loss)
recorded
in
accumulated
other
comprehensive
loss
was
$(2,466)
and
$9,629
as
of
June
30,
2018
and
2017
,
respectively.
The
fair
value
of
the
available-for-sale
securities
is
determined
based
on
quoted
market
prices
in
active
market
at
NYSE,
which
is
classified
as
a
Level
I
input
within
the
fair
value
hierarchy.
(b)
On
January
31,
2017,
TAOIH,
TAOG
and
certain
of
its
subsidiaries
entered
into
a
$110,000
senior
secured
five-year
term
loan
facility.
The
Company’s
long-
term
debt
is
classified
within
Level
II
of
the
fair
value
hierarchy
as
it
is
valued
using
quoted
indices
of
similar
securities
for
which
the
inputs
are
readily
observable.
Contingent
Consideration
Liabilities
In connection with the TAO Group acquisition (see Note 3 for further details), the Company may be required to pay an earn-out of up to approximately $25,500 , if
certain performance conditions based upon earnings growth are met during the first five years following the transaction. The Company recorded $7,900 as the
initial fair value of contingent consideration liabilities as a part of the purchase price. The fair value was estimated using a Monte-Carlo simulation model which
included significant unobservable Level III inputs such as projected financial performance over the earn-out period ( five years) along with estimates for market
volatility and the discount rate applicable to potential cash payouts.
In connection with the CLG acquisition, the Company may be required to make future payments for deferred and contingent consideration up to a total of $9,150
based upon the achievement of certain specified objectives during the three years following the transaction as defined under the membership interest purchase
agreement. The Company recorded $6,586 as the initial fair value of deferred and contingent consideration liabilities as part of the preliminary purchase price
allocation. The fair values of these deferred and contingent consideration liabilities were estimated using weighted probabilities of achievement for the possible
objective and earn-out events and adjusted for a discount rate applicable to the deferred and potential cash payouts.
F- 34
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table provides a reconciliation of the deferred and contingent consideration liabilities in connection with the acquisitions discussed above:
Balance as of June 30, 2017
Purchase price contingent consideration
Contingent consideration payment
Change in fair value of contingent consideration (a)
Balance as of June 30, 2018
_________________
$
$
7,900
6,586
(4,000)
(2,291)
8,195
(a)
The
change
in
fair
value
of
contingent
consideration,
including
accretion,
was
recorded
within
Selling,
general
and
administrative
expenses
in
the
accompanying
consolidated
statement
of
operations
for
the
year
ended
June
30,
2018.
Note 11 . Credit Facilities
Knicks
Revolving
Credit
Facility
On September 30, 2016, New York Knicks, LLC (“ Knicks LLC ”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Knicks
Credit Agreement ”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “ Knicks
Revolving Credit Facility ”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except
during an event of default.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . As of June 30, 2018 ,
Knicks LLC was in compliance with this financial covenant .
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating
rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging
from 1.00% to 1.125% per annum. Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily
unused commitments under the Knicks Revolving Credit Facility . The Knicks Revolving Credit Facility was undrawn as of June 30, 2018 .
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited
to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast
agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at
any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to
make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility
is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the Knicks Credit Agreement and related security agreements contain certain customary representations and
warranties, affirmative covenants and events of default. The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take
certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i)
incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event
of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions
that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
F- 35
Table of Contents
Knicks
Unsecured
Credit
Facility
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a 364 -
day term (the “Knicks Unsecured Credit Facility”). Knicks LLC renewed this facility with the lender on the same terms effective as of September 29, 2017. This
facility was undrawn as of June 30, 2018 and is expected to be renewed on the same terms prior to expiration.
Rangers
Revolving
Credit
Facility
On January 25, 2017, New York Rangers, LLC (“ Rangers LLC ”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Rangers
Credit Agreement ”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “ Rangers
Revolving Credit Facility ”) to fund working capital needs and for general corporate purposes. Amounts borrowed may be distributed to the Company except
during an event of default.
The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . As of June 30, 2018
, Rangers LLC was in compliance with this financial covenant. All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain
customary conditions.
Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per
annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum. Rangers LLC is required to pay a commitment fee ranging from 0.375% to
0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility . The Rangers Revolving Credit Facility was
undrawn as of June 30, 2018 .
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not
limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national
broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility
at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to
make mandatory prepayments in certain circumstances, including without limitation if qualified revenues are less than 17% of the maximum available amount
under the Rangers Revolving Credit Facility.
In addition to the financial covenant described above, the Rangers Credit Agreement and related security agreements contain certain customary representations and
warranties, affirmative covenants and events of default. The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take
certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility, including the following: (i)
incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event
of default under the Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain
actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility.
TAO
Credit
Facilities
On January 31, 2017, TAOIH , TAOG , and certain of its subsidiaries entered into a credit and guaranty agreement with a syndicate of lenders providing for a
senior secured term loan facility of $110,000 with a term of five years (the “ TAO Term Loan Facility ”) to fund, in part, the acquisition of TAO Group and a
senior secured revolving credit facility of up to $12,000 with a term of five years (the “ TAO Revolving Credit Facility ,” and together with the TAO Term Loan
Facility, the “ TAO Credit Facilities ”) for working capital and general corporate purposes of TAOG . The TAO Credit Facilities were obtained without recourse to
MSG or any of its affiliates (other than TAOIH and its subsidiaries).
F- 36
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply
with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the first quarter of calendar year 2021 and through the
remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over
time to 1.15:1.00 by the second quarter of calendar year 2021 and through the remainder of the term of the TAO Credit Facilities. , TAOIH was in compliance with
the financial covenants of the TAO Credit Facilities as of April 1, 2018 (the most recent date at which compliance was assessed under the TAO Credit Facilities) .
The TAO Revolving Credit Facility was undrawn as of June 30, 2018 .
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net
leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage
multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of
TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum.
The interest rate on the TAO Credit Facilities as of April 1, 2018 was 9.9375% . TAOG is required to pay a commitment fee of 0.50% per annum in respect of the
average daily unused commitments under the TAO Revolving Credit Facility . During the years ended June 30, 2018 and 2017 , the Company made interest
payments under the TAO Term Loan Facility of $11,278 and $770 , respectively.
All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but
not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and
100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in
whole or in part (subject to customary breakage costs with respect to LIBOR loans) with premiums due in respect of prepayments of the TAO Term Loan Facility
or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. Beginning
March 31, 2018, TAOG is required to make scheduled amortization payments under the TAO Term Loan Facility in consecutive quarterly installments equal to
$688 per quarter initially, stepping up over time to $4,125 per quarter by March 31, 2021 and through the final maturity date of the TAO Term Loan Facility with
the final balance payable on such maturity date. TAOG is also required to make mandatory prepayments under the TAO Credit Facilities in certain circumstances,
including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets
set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making
distributions, dividends and other restricted payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and
(vii) prepaying certain indebtedness.
F- 37
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Long-term debt maturities over the next five years for the TAO Term Loan Facility (a) are:
Fiscal year ending June 30, 2019
Fiscal year ending June 30, 2020
Fiscal year ending June 30, 2021
Fiscal year ending June 30, 2022
Fiscal year ending June 30, 2023
Thereafter
_________________
$
5,304
2,063
11,000
90,946
—
—
(a)
With
respect
to
the
balances
from
TAO
Term
Loan
Facility
above,
the
Company
reports
the
maturities
on
a
three-month
lag
basis
consistent
with
the
Company's
consolidation
policy.
See
Business
Combinations
and
Noncontrolling
Interests
section
under
Note
2
.
Summary
of
Significant
Accounting
Policies
for
further
discussion
on
consolidation
of
TAO
Group
.
Deferred
Financing
Costs
The following table summarizes the presentation of the TAO Term Loan Facility and the related deferred financing costs in the accompanying consolidated balance
sheets as of June 30, 2018 and 2017 .
Current portion of long-term debt, net of deferred financing costs
Long-term debt, net of deferred financing costs
Total
Long-term debt, net of deferred financing costs
_________________
June 30, 2018
TAO Term Loan
Facility
Deferred Financing
Costs (a)
Total
$
$
5,304 $
104,009
109,313 $
(939) $
(2,674)
(3,613) $
4,365
101,335
105,700
June 30, 2017
TAO Term Loan
Facility
Deferred Financing
Costs (a)
Total
$
110,000 $
(4,567) $
105,433
(a)
With
respect
to
the
TAO
Term
Loan
Facility,
the
deferred
financing
costs
are
amortized
on
a
straight-line
basis
over
the
five-year
term
of
the
facility,
which
approximates
the
effective
interest
method.
The following table summarizes deferred financing costs, net of amortization, related to the Knicks Revolving Credit Facility, Knicks Unsecured Credit Facility,
Rangers Revolving Credit Facility, and TAO Revolving Credit Facility as reported on the accompanying consolidated balance sheet:
Other current assets
Other assets
F- 38
June 30,
2018
June 30,
2017
$
778 $
1,906
806
2,784
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 12 . Pension Plans and Other Postretirement Benefit Plan
Defined
Benefit
Pension
Plans
and
Postretirement
Benefit
Plans
Pre-Distribution
Prior to the Distribution, MSG Networks sponsored a non-contributory, qualified cash balance retirement plan covering its non-union employees (the “Cash
Balance Pension Plan”) and an unfunded non-contributory, non-qualified excess cash balance plan covering certain employees who participate in the underlying
qualified plan (collectively, the “Cash Balance Plans”). Since March 1, 2011, the Cash Balance Pension Plan has also included the assets and liabilities of a frozen
(as of December 31, 2007) non-contributory qualified defined benefit pension plan covering non-union employees hired prior to January 1, 2001. These plans had
participants from each of MSG Networks’ historical businesses (Media, Sports and Entertainment) as well as corporate employees.
Also, MSG Networks historically sponsored an unfunded non-contributory, non-qualified defined benefit pension plan for the benefit of certain employees who
participate in an underlying qualified plan which was merged into the Cash Balance Pension Plan on March 1, 2011 (the “Excess Plan”). As of December 31, 2007,
the Excess 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 these plans.
The Cash Balance Plans have been amended to freeze participation and future benefit accruals effective December 31, 2015 for all employees. Therefore, after
December 31, 2015, no employee of the Company who was not already a participant may become a participant in the plans and no further annual pay credits will
be made for any future year. Existing account balances under the plans will continue to be credited with monthly interest in accordance with the terms of the plans.
In addition, MSG Networks sponsored a non-contributory, qualified defined benefit pension plan covering certain of its union employees (the “Union Plan”).
Benefits payable to retirees under the Union Plan are based upon years of Benefit Service (as defined in the Union Plan document) and this plan is specific to
employees of the businesses constituting Madison Square Garden.
The Cash Balance Plans, Union Plan, and Excess Plan are collectively referred to as the “Pension Plans.”
MSG Networks also sponsored a contributory welfare plan which provides certain postretirement healthcare benefits to certain employees hired prior to January 1,
2001 who are eligible to commence receipt of early or normal benefits under the Cash Balance Pension Plan and their dependents, as well as certain union
employees (“Postretirement Plan”).
For purposes of the combined financial statements issued prior to the Distribution, it was determined that the Company was to be treated as the obligor for the
Pension Plans’ and Postretirement Plan’s liabilities. Therefore, the consolidated financial statements reflect the full impact of such plans on the financial
information for the three months ended September 30, 2015 that is included in the results of operations for the year ended June 30, 2016. The pension expense
related to employees of MSG Networks participating in any of these plans during this period was reflected as a contributory charge from the Company to MSG
Networks, resulting in a decrease to the expense recognized in the consolidated statements of operations.
Post-Distribution
As of the Distribution date, the Company and MSG Networks entered into an employee matters agreement (the “Employee Matters Agreement”) which determined
each company’s obligations after the Distribution with regard to liabilities historically under the former MSG Networks’ Pension Plans and Postretirement Plan.
Under the Employee Matters Agreement, the Company assumed or retained certain of the Pension Plans and the Postretirement Plan previously sponsored by MSG
Networks, as discussed in further detail in “Certain Relationships and Related Party Transactions — Relationship Between MSG and Us After the Distribution —
Employee Matters Agreement” in the Company’s Information Statement filed as Exhibit 99.1 to Amendment No. 6 to the registration statement on Form 10 filed
with the SEC on September 11, 2015.
F- 39
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2018 and 2017 , associated with the Pension Plans and Postretirement Plan based upon actuarial valuations as of those measurement dates.
Change in benefit obligation:
Benefit obligation at beginning of period
$
166,003 $
173,585 $
5,734 $
6,224
Pension Plans
June 30,
Postretirement Plan
June 30,
2018
2017
2018
2017
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Plan settlements paid
Benefit obligation at end of period
Change in plan assets:
85
5,231
(3,153)
(6,424)
(506)
85
4,956
(6,820)
(5,803)
—
161,236
166,003
Fair value of plan assets at beginning of period
114,722
110,261
Actual return on plan assets
Employer contributions
Benefits paid
Plan settlements paid
Fair value of plan assets at end of period
Funded status at end of period
(2,498)
9,760
(6,424)
(506)
(999)
11,263
(5,803)
—
115,054
114,722
120
215
1,436
(755)
—
6,750
—
—
—
—
—
—
122
156
(589)
(179)
—
5,734
—
—
—
—
—
—
$
(46,182) $
(51,281) $
(6,750) $
(5,734)
Amounts recognized in the consolidated balance sheets as of June 30, 2018 and 2017 consist of:
Current liabilities (included in accrued employee related costs)
Non-current liabilities (included in defined benefit and other postretirement
obligations)
Pension Plans
June 30,
Postretirement Plan
June 30,
2018
2017
2018
2017
(3,319) $
(3,818) $
(373) $
(200)
(42,863)
(47,463)
(46,182) $
(51,281) $
(6,377)
(6,750) $
(5,534)
(5,734)
$
$
Accumulated other comprehensive income (loss), before income tax, as of June 30, 2018 and 2017 consists of the following amounts that have not yet been
recognized in net periodic benefit cost:
Actuarial gain (loss)
Prior service credit
Pension Plans
June 30,
Postretirement Plan
June 30,
2018
2017
2018
2017
(37,989) $
(37,317) $
(1,331) $
—
—
7
(37,989) $
(37,317) $
(1,324) $
6
44
50
$
$
F- 40
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Components of net periodic benefit cost for the Pension Plans and Postretirement Plan recognized in direct operating and selling, general and administrative
expenses in the accompanying consolidated statements of operations for the years ended June 30, 2018 , 2017 and 2016 are as follows:
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of unrecognized prior service cost (credit)
Settlement loss recognized (a)
Net periodic benefit cost
_________________
Pension Plans
Years Ended June 30,
Postretirement Plan
Years Ended June 30,
2018
2017
2016
2018
2017
2016
$
85 $
85 $
3,054 $
120 $
122 $
5,231
(2,634)
1,219
—
87
4,956
6,986
(2,383)
(2,960)
1,365
1,039
—
—
14
—
215
—
100
(37)
—
156
—
—
(48)
—
$
3,988 $
4,023 $
8,133 $
398 $
230 $
137
253
—
—
(106)
—
284
(a)
For
the
year
ended
June
30,
2018
,
lump-sum
payments
totaling
$506
were
distributed
to
vested
participants
of
the
non-qualified
excess
cash
balance
plan
,
triggering
the
recognition
of
a
settlement
loss
in
accordance
with
ASC
Topic
715.
Due
to
this
pension
settlement,
the
Company
was
required
to
remeasure
its
pension
plan
liability
as
of
March
31,
2018
.
Discount
rates
used
for
the
projected
benefit
obligation
and
interest
cost
were
3.53%
and
2.16%
as
of
March
31,
2018
,
respectively.
Additionally,
a
settlement
charge
of
$87
was
recognized
in
direct
operating
and
selling,
general
and
administrative
expenses
for
the
year
ended
June
30,
2018
.
The net periodic benefit cost for the Pension Plans and the Postretirement Plan reported in the table above includes $520 and $18 , respectively, of expenses related
to MSG Networks employees. This represents the contributory charges from the Company to MSG Networks for participation in the Pension Plans and the
Postretirement Plan during the year ended June 30, 2016 . In addition, during the year ended June 30, 2016 the Company allocated to MSG Networks $229 and $11
of net periodic benefit cost for the Pension Plans and the Postretirement Plan, respectively, related to corporate employees not specifically identified to either the
Company or MSG Networks.
Other pre-tax changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended June 30, 2018 , 2017 and 2016
are as follows:
Pension Plans
Years Ended June 30,
Postretirement Plan
Years Ended June 30,
2018
2017
2016
2018
2017
2016
Actuarial gain (loss), net
Recognized actuarial loss
Recognized prior service (credit) cost
Settlement loss recognized
$
(1,978) $
3,438 $
(8,532) $
(1,437) $
589 $
1,219
1,365
1,039
—
87
—
—
14
—
100
(37)
—
—
(48)
—
Total recognized in other comprehensive income (loss)
$
(672) $
4,803 $
(7,479) $
(1,374) $
541 $
(707)
—
(106)
—
(813)
The estimated net loss for the Pension Plans and Postretirement Plan expected to be amortized from accumulated other comprehensive income (loss) and
recognized as a component of net periodic benefit cost over the next fiscal year is $1,268 and $114 , respectively. The estimated prior service credit for the
Postretirement Plan expected to be amortized from accumulated other comprehensive income (loss) into net periodic benefit credit over the next fiscal year is $7 .
F- 41
Table of Contents
Funded
Status
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The accumulated benefit obligation for the Pension Plans aggregated to $161,236 and $166,003 at June 30, 2018 and 2017 , respectively. As of June 30, 2018 and
2017 each of the Pension Plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets.
Pension
Plans
and
Postretirement
Plan
Assumptions
Weighted-average assumptions used to determine benefit obligations (made at the end of the period) as of June 30, 2018 and 2017 are as follows:
Discount rate
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend
rate)
Year that the rate reaches the ultimate trend rate
Pension Plans
June 30,
Postretirement Plan
June 30,
2018
2017
2018
2017
4.19%
3.81%
n/a
n/a
n/a
n/a
n/a
n/a
4.06%
7.00%
5.00%
2027
3.54%
7.25%
5.00%
2027
Weighted-average assumptions used to determine net periodic benefit cost (made at the beginning of the period) for the years ended June 30, 2018 , 2017 and 2016
are as follows:
Discount rate
Discount rate - projected benefit obligation (a)
Discount rate - service cost (a)
Discount rate - interest cost (a)
Expected long-term return on plan assets
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
Year that the rate reaches the ultimate trend rate
_________________
Pension Plans
Years Ended June 30,
Postretirement Plan
Years Ended June 30,
2018
2017
2016
2018
2017
2016
n/a
3.81%
3.93%
3.32%
3.46%
n/a
n/a
n/a
n/a
3.61%
3.74%
2.99%
3.38%
n/a
n/a
n/a
4.46%
n/a
n/a
n/a
4.06%
n/a
n/a
n/a
n/a
3.54%
3.83%
3.05%
n/a
n/a
3.27%
3.53%
2.72%
n/a
4.05%
n/a
n/a
n/a
n/a
7.25%
7.25%
7.25%
5.00%
2027
5.00%
2026
5.00%
2021
(a)
Effective
July
1,
2016,
the
Company
changed
the
approach
used
to
measure
service
and
interest
cost
components
of
net
periodic
benefit
costs
for
Pension
Plans
and
Postretirement
Plan.
Previously,
the
Company
measured
service
and
interest
costs
utilizing
a
single
weighted-average
discount
rate
derived
from
the
yield
curve
used
to
measure
the
plans’
obligations.
Beginning
fiscal
year
2017,
the
Company
elected
to
measure
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.
This
change
did
not
affect
the
measurement
of
the
plans’
obligations
and
it
was
accounted
for
as
a
change
in
accounting
estimate,
which
was
applied
prospectively.
F- 42
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 2018 and 2017 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 (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.
Assumed healthcare cost trend rates are a key assumption used for the amounts reported for the Postretirement Plan. A one percentage point change in assumed
healthcare cost trend rates would have the following effects:
Increase (Decrease) in Total of Service and Interest Cost
Components for the
Increase (Decrease) in Benefit
Obligation at
Years Ended June 30,
June 30,
2018
2017
2016
2018
2017
$
37
$
(33)
34
$
(30)
29
$
(27)
597 $
(537)
578
(155)
One percentage point increase
One percentage point decrease
Plan
Assets
and
Investment
Policy
The weighted-average asset allocation of the Pension Plans’ assets at June 30, 2018 and 2017 was as follows:
Asset Classes (a)
:
Fixed income securities
Cash equivalents
_____________________
June 30,
2018
2017
81%
19%
100%
83%
17%
100%
(a)
The
Company’s
target
allocation
for
pension
plan
assets
is
80%
fixed
income
securities
and
20%
cash
equivalents
as
of
June
30,
2018
.
Prior to the Distribution, investment allocation decisions were made by MSG Networks’ Investment and Benefits Committee. After the Distribution, investment
allocation decisions have been made by the Company’s Investment and Benefits Committee, which considers investment advice provided by the Company’s
external investment consultant. The investment consultant 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 consultant also
considers the pension plans’ liabilities when making investment allocation recommendations. The Company's Investment and Benefits Committee's decisions are
influenced by asset/liability studies conducted by the external investment consultant who combines actuarial considerations and strategic investment advice. The
major investment categories of the pension plan assets are in cash equivalents and long duration fixed income securities that are marked-to-market on a daily basis.
As a result, the pension plan assets are subjected to interest-rate risk, specifically to a rising interest rate environment, as the majority of the pension plan assets are
invested in long duration fixed income securities. However, the pension plan assets are structured in an asset/liability framework, and consequently, an increase in
interest rates would cause a corresponding decrease to the overall liability of the pension plans, thus creating a hedge against rising interest rates. Additional risks
involving the asset/liability framework include earning insufficient investment returns to cover future pension plan liabilities and imperfect hedging of such
liabilities. In addition, a portion of the long duration fixed income securities portfolio is invested in non-government securities that are subject to credit risk of the
issuers who might default on interest and/or principal payments.
F- 43
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Investments
at
Estimated
Fair
Value
The cumulative fair values of the individual plan assets at June 30, 2018 and 2017 by asset class are as follows:
Fixed income securities:
U.S. Treasury Securities
U.S. corporate bonds
Foreign issued corporate bonds
Municipal bonds
Money market accounts
Total investments measured at fair value
Contributions
for
Qualified
Defined
Benefit
Pension
Plans
Fair Value
Hierarchy
June 30,
2018
2017
I
II
II
II
I
$
20,130 $
61,381
11,055
353
22,135
$
115,054 $
21,852
62,295
10,979
217
19,379
114,722
During the year ended June 30, 2018 , the Company contributed $9,000 to the Cash Balance Pension Plan and $250 to the Union Plan. The Company expects to
contribute $11,000 and $225 to the Cash Balance Pension Plan and Union Plan, respectively, in fiscal year 2019 .
Estimated
Future
Benefit
Payments
The following table presents estimated future fiscal year benefit payments for the Pension Plans and Postretirement Plan:
Fiscal year ending June 30, 2019
Fiscal year ending June 30, 2020
Fiscal year ending June 30, 2021
Fiscal year ending June 30, 2022
Fiscal year ending June 30, 2023
Fiscal years ending June 30, 2024 – 2028
Defined
Contribution
Pension
Plans
Pension
Plans
Postretirement
Plan
$
17,220 $
8,340
7,420
7,390
7,820
41,700
380
448
496
538
589
3,152
Prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Savings Plan (renamed The Madison Square Garden 401(k) Savings Plan) and
the MSG Holdings, L.P. Excess Savings Plan. In connection with the Distribution, The Madison Square Garden 401(k) Savings Plan was converted into a multiple
employer plan and, pursuant to the Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. Additionally, the
Company established the MSG S&E, LLC Excess Savings Plan (collectively with the MSG 401(k) Savings Plan, the “Savings Plans”), assuming the liabilities
from the MSG Holdings, L.P. Excess Savings Plan relating to the Company’s employees.
For the years ended June 30, 2018 , 2017 and 2016 , expenses related to the Savings Plans, excluding expenses related to MSG Networks’ employees, included in
the accompanying consolidated statements of operations were $8,571 , $8,374 and $4,191 , respectively. These amounts include $89 of expenses related to the
Company’s corporate employees which were allocated to MSG Networks for the year ended June 30, 2016 .
In addition, prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Union Plan (renamed The Madison Square Garden 401(k) Union
Plan, the “Union Savings Plan”). In connection with the Distribution, the Union Savings Plan was converted into a multiple employer plan and, pursuant to the
Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. For the years ended June 30, 2018 , 2017 and 2016 ,
expenses related to the Union Savings Plan included in the accompanying consolidated statements of operations were $533 , $646 and $676 , respectively.
F- 44
Table of Contents
Multiemployer
Plans
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company contributes to a number of multiemployer defined benefit pension plans, multiemployer defined contribution pension plans, and multiemployer
health and welfare plans that provide benefits to retired union-represented employees under the terms of CBAs.
Multiemployer
Defined
Benefit
Pension
Plans
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:
•
•
•
Assets contributed to a multiemployer defined benefit pension plan by one employer may be used to provide benefits to employees of other participating
employers.
If a participating employer stops contributing to a multiemployer defined benefit pension plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
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 following table outlines the Company’s participation in multiemployer defined benefit pension plans for the years ended June 30, 2018 , 2017 and 2016 , and
summarizes the contributions that the Company has made during each period. The “EIN” and “Pension Plan Number” columns provide the Employer Identification
Number and the three-digit plan number for each applicable plan. The most recent Pension Protection Act zone status available as of June 30, 2018 and 2017
relates to the plan’s two most recent years ended which are indicated. Among other factors, plans in the red zone are generally less than 65% funded, plans in the
orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans
in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates
whether a funding improvement plan (“FIP”) for yellow/orange zone plans or a rehabilitation plan (“RP”) for red zone plans is either pending or has been
implemented by the trustees of such plan. The zone status and any FIP or RP information is based on information that the Company received from the plan, and the
zone status is as certified by the plan’s actuary. The last column lists the expiration date(s) or a range of expiration dates of the CBA to which the plans are subject.
There are no other significant changes that affect such comparability.
Plan Name
EIN
National Basketball
Association
Players’ Pension
Plan
Pension Fund of Local
13-5582586
No. 1 of I.A.T.S.E.
13-6414973
Pension
Plan
Number
003
001
National Hockey League
Players’ Retirement
Benefit Plan
All Other
Multiemployer
Defined Benefit
Pension Plans
46-2555356
001
Green as of
4/30/2017
Green as of
4/30/2016
PPA Zone Status
As of June 30,
2018
2017
FIP/RP Status
Pending /
Implemented
Madison Square Garden Contributions
Years Ended June 30,
2018
2017
2016
Surcharge
Imposed
Expiration Date of
CBA
Yellow as of
2/1/2017
Green as of
12/31/2016
Yellow as of
2/1/2016
Green as of
12/31/2015
Implemented
$
1,932
$
1,830
$
2,377
2,325
1,814
2,236
No
No
6/2024 (with certain
termination rights
becoming effective
6/2023)
9/30/2018 - 5/1/2023
9/2022 (with certain
termination rights
becoming effective
9/2020)
1,200
1,364
1,311
No
$
3,457
8,966
$
3,397
8,916
$
3,026
8,387
No
No
F- 45
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company was listed in the following plans’ Form 5500’s as providing more than 5 percent of the total contributions for the following plans and plan years:
Fund Name
Pension Fund of Local No. 1 of I.A.T.S.E
Pension Fund of Wardrobe Attendants Union Local 764
32BJ/Broadway League Pension Fund
Treasurers and Ticket Sellers Local 751 Pension Fund
I.A.T.S.E Local No. 33 Pension Trust Fund
Year Contributions to Plan Exceeded
5 Percent of Total Contributions
(As of Plan’s Year-End)
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
December 31, 2016, 2015 and 2014
August 31, 2017, 2016 and 2015
December 31, 2016
Multiemployer
Defined
Contribution
Pension
Plans
and
Multiemployer
Plans
That
Provide
Health
and
Welfare
Benefits
The Company contributed $7,286 , $6,838 and $6,225 for the years ended June 30, 2018 , 2017 and 2016 , respectively, to multiemployer defined contribution
pension plans. In addition, the Company contributed $2,746 , $1,763 and $1,613 for the years ended June 30, 2018 , 2017 and 2016 , respectively, to multiemployer
plans that provide health and welfare benefits to retired employees.
Note 13 . Share-based Compensation
In connection with the Distribution, the Company adopted its 2015 Employee Stock Plan (the “Employee Stock Plan”) and its 2015 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, restricted stock units
(“RSUs”), stock appreciation rights and other equity-based awards. The Company may grant awards for up to 2,650 shares of Madison Square Garden 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 Madison Square Garden 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, are determined by the Compensation Committee of the Board of Directors (“Compensation Committee”) and may include
terms or conditions based upon performance criteria. RSUs that were awarded under the Employee Stock Plan are generally subject to three-year cliff vesting, or
vest ratably over three years, with some RSUs being subject to certain performance conditions. RSUs that were awarded by the Company to its employees will
settle in shares of the Company’s 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, restricted shares, restricted stock units, stock appreciation
rights and other equity-based awards. The Company may grant awards for up to 160 shares of Madison Square Garden 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 the
Company’s 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, are determined by the
Compensation Committee. Unless otherwise provided in an applicable award agreement, options granted under this plan will be fully vested and exercisable, and
restricted stock units granted under this plan will be fully vested, upon the date of grant and will settle in shares of the Company’s 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’s service on the Board of Directors ceases or, if earlier, upon the director’s death.
F- 46
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Treatment
After
the
Distribution
of
Share-based
Payment
Awards
Initially
Granted
Under
MSG
Networks
Equity
Award
Programs
Prior to the Distribution, certain Company employees and non-employee directors, as well as employees and non-employee directors of MSG Networks (some of
whom are employees or directors of the Company) participated in MSG Networks’ equity award programs (“MSG Networks Stock Plans”). In connection with the
Distribution, each holder of MSG Networks stock options at the Distribution date received Company stock options based on the one for three distribution ratio (i.e.,
one share of the Company’s Class A Common Stock for every three shares of MSG Networks Class A Common Stock). The existing exercise price was allocated
between the existing MSG Networks options and the Company’s new options based upon the ten -day volume-weighted average prices of the MSG Networks Class
A Common Stock and the Company’s Class A Common Stock, taking into account the one for three distribution ratio. As a result of this adjustment, 25.64% of the
pre-Distribution exercise price of options was allocated to the MSG Networks options and 74.36% was allocated to the new Company options. The options with
respect to the Company’s Class A Common Stock were issued under the Employee Stock Plan or the Non-Employee Director Plan, as applicable.
In connection with the Distribution, one restricted stock unit of the Company (“MSG RSUs”) was issued in respect of every three MSG Networks’ restricted stock
units (“Networks RSUs”) that were granted to employees prior to July 1, 2015 and were outstanding as of the Distribution date.
In addition, all Networks RSUs and MSG Networks performance restricted stock units (“Networks PSUs”) granted to the Company’s employees during the three
months ended September 30, 2015 and outstanding as of the Distribution date were converted into MSG RSUs and Company performance restricted stock units
(“MSG PSUs”), respectively. Further, all Networks RSUs and Networks PSUs granted during the three months ended September 30, 2015 to employees that were
employed by both MSG Networks and the Company following the Distribution were converted such that 70% of the value of such grants became MSG RSUs and
MSG PSUs, respectively. All conversions described in this paragraph were calculated based upon the ten -day volume-weighted average price of the Company’s
Class A Common Stock through October 14, 2015. The MSG RSUs and MSG PSUs with respect to the Company’s Class A Common Stock were issued under the
Employee Stock Plan.
Further, in connection with the Distribution, one share of the Company’s Class A Common Stock was issued in respect of every three Networks RSUs outstanding
under MSG Networks’ 2010 Non-Employee Director Plan. These shares were issued under the Non-Employee Director Plan.
As a result of the Distribution, 26 , 432 and 95 of the Company’s stock options, RSUs and PSUs, respectively, were issued to holders of MSG Networks equity
awards.
Share-based
Compensation
Expense
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 are graded vesting and subject to performance conditions to satisfy tax deductibility for executive
officers, in addition to continued employment, the Company uses the graded-vesting method to recognize share-based compensation expense. For MSG PSUs
granted during fiscal year 2016, the Company did not recognize share-based compensation expense during the first quarter of fiscal year 2016 as the performance
conditions were not yet determined and therefore there was not a grant date for accounting purposes. On December 18, 2015, the Company’s Compensation
Committee approved the conversion of the awards to three -year, time-vested awards. Such awards will cliff-vest on the third anniversary of the original grant date
without a performance condition (other than conditions to satisfy tax deductibility for executive officers). As such, the Company began recognizing share-based
compensation expense during the second quarter of fiscal year 2016.
F- 47
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Share-based compensation expense was recognized in the consolidated statements of operations as a component of direct operating expenses or selling, general and
administrative expenses. The following table presents the share-based compensation expense recorded during the years ended June 30, 2018 , 2017 and 2016 .
Company RSUs and PSUs
Company stock options
MSG Networks RSUs
Total share-based compensation expense
Years Ended June 30,
2018
2017
2016
$
$
46,307 $
39,960 $
899
357
—
1,169
47,563 $
41,129 $
18,404
—
6,072
24,476
As of June 30, 2018 , there was $51,627 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 1.8 years for unvested RSUs and PSUs. In addition, the Company had $4,101 of
unrecognized compensation cost related to unvested stock options, which is expected to be recognized over approximately 2.5 years as of June 30, 2018 . There
were no costs related to share-based compensation that were capitalized for the years ended June 30, 2018 , 2017 and 2016 .
Restricted
Stock
Units
Award
Activity
The following table summarizes activity relating to the Company’s RSUs and PSUs for the year ended June 30, 2018 :
Unvested award balance as of June 30, 2017
Granted
Vested
Forfeited
Unvested award balance as of June 30, 2018
Number of
Nonperformance
Based
Vesting
RSUs
PSUs and Performance
Based
Vesting
RSUs
Weighted-Average
Fair Value
Per Share At
Date of Grant
208
131
(96)
(18)
225
464
180
(249)
(137)
258
$
$
$
$
$
172.78
214.08
177.05
185.12
192.41
The fair value of RSUs and PSUs that vested and distributed during the year ended June 30, 2018 was $76,226 . Upon delivery, RSUs granted under the MSG
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, 162 of these RSUs, with an aggregate value of $34,393 were retained by the
Company and reflected as financing activity in the accompanying consolidated statement of cash flows for the year ended June 30, 2018 .
The fair value of RSUs and PSUs that vested during the years ended June 30, 2017 and 2016 was $16,315 and $2,164 , respectively. The weighted-average fair
value per share at grant date of RSUs and PSUs granted during the years ended June 30, 2017 and 2016 was $172.10 and $176.04 , respectively.
F- 48
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock
Options
Award
Activity
The following table summarizes activity related to a holder of the Company’s stock options for the year ended June 30, 2018 :
Balance as of June 30, 2017
Granted
Balance as of June 30, 2018
Exercisable as of June 30, 2018
Number of
Time Vesting
Options
Weighted-Average
Exercise Price Per
Share
Weighted-Average
Remaining Contractual
Term (In Years)
Aggregate Intrinsic
Value
— $
94 $
94 $
— $
—
210.13
210.13
—
$
9.47 $
0 $
—
9,388
—
During the year ended June 30, 2018 , the Company granted 94 stock options that vest ratably over three years and are being expensed on a straight-line basis over
the vesting period of the stock options. The maximum contractual term is 10 years. The Company calculated the fair value of these options on the date of grant
using the Black-Scholes option pricing model, which resulted in a weighted-average grant-date fair value of $53.29 .
The following are key assumptions used to calculate the weighted-average grant-date fair value of stock options:
Expected term
Expected volatility
Risk-free interest rate
Note 14 . Stock Repurchase Program
6 years
20.38%
2.22%
On September 11, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares
of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. 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.
During the year ended June 30, 2018 , the Company repurchased 56 shares of Class A Common Stock for a total cost of $11,685 , including commissions and fees.
These acquired shares have been classified as treasury stock in the accompanying consolidated balance sheet as of June 30, 2018 . As of June 30, 2018 , the
Company had $259,639 of availability remaining under its stock repurchase authorization.
Note 15 . Related Party Transactions
As of June 30, 2018 , members of the Dolan family including trusts for 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 own all of the Company’s outstanding Class B Common Stock and
own approximately 2.8% of the Company’s outstanding Class A Common Stock. Such shares of the Company’s Class A Common Stock and Class B Common
Stock, collectively, represent approximately 71.1% of the aggregate voting power of the Company’s outstanding common stock. Members of the Dolan family are
also the controlling stockholders of MSG Networks and AMC Networks Inc. (“AMC Networks”).
In connection with the Distribution, the Company has entered into various agreements with MSG Networks, including media rights agreements covering the
Knicks and the Rangers games, an advertising sales representation agreement , and the TSA . The Company and MSG Networks replaced the TSA with a services
agreement (“ Services Agreement ”) effective July 1, 2017 , which provides for each party to furnish substantially the same services, as well as the executive
support services described below, in exchange for service fees. In connection with the expiration of the Services Agreement on June 30, 2018, the Company
entered into an interim agreement with MSG Networks, pursuant to which each party provides the other with the same services on the same terms. We expect to
enter into a new services agreement this calendar year which will be retroactive to July 1, 2018.
F- 49
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During fiscal year 2016, the Company had various agreements with Altice USA (formerly Cablevision). These agreements included arrangements with respect to a
number of ongoing commercial relationships. On June 21, 2016, Cablevision was acquired by a subsidiary of Altice N.V. and a change in control occurred, which
resulted in members of the Dolan Family no longer being controlling stockholders of the surviving company, Altice USA. Accordingly, Altice USA is no longer a
related party of the Company, and thus the related party transactions disclosed herein that relate to Cablevision were recognized prior to June 21, 2016.
Beginning in June 2016, the Company agreed to share certain executive support costs, including office space, executive assistants, security and transportation costs,
for (i) the Company’s Executive Chairman with MSG Networks and (ii) the Company’s Vice Chairman with MSG Networks and AMC Networks.
On June 16, 2016, the Company entered into an arrangement with the Dolan Family Office, LLC (“DFO”), AMC Networks and MSG Networks providing for the
sharing of certain expenses associated with executive office space which is available to James L. Dolan (the Executive Chairman, Chief Executive Officer and a
director of the Company, the Executive Chairman and a director of MSG Networks, and a director of AMC Networks), Charles F. Dolan (the Executive Chairman
and a director of AMC Networks and a director of the Company and MSG Networks), and the DFO which is controlled by Charles F. Dolan.
On January 11, 2017, the Company, through a wholly-owned subsidiary, and Quart 2C, LLC (“Q2C”), a company controlled by James L. Dolan, the Company’s
Executive Chairman and Chief Executive Officer, and Kristin A. Dolan, his wife and a director of the Company, entered into reciprocal aircraft lease agreements
pursuant to which the Company and Q2C have agreed from time to time to make available for lease each party’s aircraft to the other party on a non-exclusive basis
for rent at an hourly rate and specified expenses of each flight. On February 8, 2017, the Company, through a wholly-owned subsidiary, and AMC Networks
entered into aircraft time sharing agreements, pursuant to which the Company has agreed from time to time to make the aircraft owned or leased by it available to
AMC Networks for lease on a “time sharing” basis.
On May 22, 2017, the Company, through a wholly-owned subsidiary, and Charles F. Dolan, a director of the Company, entered into an aircraft dry lease agreement
pursuant to which the Company has agreed to make available for lease its G550 aircraft on a non-exclusive basis for rent at an hourly rate and specified expenses of
each flight. Additionally, on May 22, 2017, the Company, through a wholly-owned subsidiary, and Sterling Aviation, LLC, a company controlled by Charles F.
Dolan, also entered into a reciprocal aircraft dry lease agreement pursuant to which Sterling Aviation, LLC has agreed to make available for lease its GV aircraft on
a non-exclusive basis for rent at an hourly rate and specified expenses of each flight.
The Company, through a wholly-owned subsidiary, and MSG Networks are party to an aircraft time sharing agreement, pursuant to which the Company has agreed
from time to time to make its aircraft available to MSG Networks for lease on a “time sharing” basis. Additionally, the Company and MSG Networks have agreed
on an allocation of the costs of certain helicopter use by its shared executives.
Effective July 1, 2018, the Company entered into certain aircraft support agreements with entities controlled by the Company’s Executive Chairman and Chief
Executive Officer and/or Charles F. Dolan, a director of the Company. In connection with these agreements, certain of the aircraft arrangements described above
were replaced with new time sharing and/or dry lease agreements, effective July 1, 2018.
The Company also has certain arrangements with its nonconsolidated affiliates. See Note 6 for information on outstanding loans provided by the Company to its
nonconsolidated affiliates.
F- 50
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Revenues
and
Operating
Expenses
The following table summarizes the composition and amounts of the transactions with the Company’s affiliates, primarily with MSG Networks and Cablevision
(until its sale to Altice N.V. on June 21, 2016). These amounts are reflected in revenues and operating expenses in the accompanying consolidated statements of
operations for the years ended June 30, 2018 , 2017 and 2016 :
Revenues
Operating expenses (credits):
Corporate general and administrative, net — MSG Networks
Consulting fees
Advertising expenses
Transactions with Cablevision
Other, net
Revenues
$
$
Years Ended June 30,
2018
2017
2016
156,368 $
150,534 $
153,538
(9,961) $
(9,832) $
(38,122)
3,929
993
—
933
3,943
1,249
—
72
3,444
1,609
5,651
15
Revenues from related parties primarily consist of local media rights recognized by the Company’s Sports segment from the licensing of team-related
programming to MSG Networks under the media rights agreements covering the Knicks and Rangers, which provide MSG Networks with exclusive media rights
to team games in their local markets, as well as commissions earned in connection with the advertising sales representation agreement pursuant to which the
Company has the exclusive right and obligation to sell MSG Networks’ advertising availabilities. In addition, the Company and Tribeca Enterprises have a service
agreement pursuant to which the Company provides marketing inventory, advertising sales and consulting services to Tribeca Enterprises for a fee. The Company
is also a party to certain commercial arrangements with AMC Networks and its subsidiaries.
Corporate
General
and
Administrative
Expense,
net
-
MSG
Networks
The Company’s corporate overhead expenses are primarily related to centralized functions, including executive compensation, finance, treasury, tax, internal audit,
legal, information technology, human resources and risk management functions. Prior to the Distribution, allocations of corporate overhead and shared services
expense were based on direct usage or the relative proportion of revenue or headcount. In addition, the Company’s Sports and Entertainment segments charged
MSG Networks for various services performed on behalf of Former Parent.
For the year ended June 30, 2018 , Corporate general and administrative expense, net - MSG Networks reflects charges from the Company to MSG Networks
under the Services Agreement of $9,969 . Furthermore, for the years ended June 30, 2017 and 2016 , Corporate general and administrative expense, net - MSG
Networks reflects charges from the Company to MSG Networks under the TSA of $8,507 and $6,595 , respectively, net of general and administrative costs charged
to the Company by MSG Networks, under the TSA, which was replaced by the Services Agreement effective July 1, 2017 .
Consulting
Fees
The Company pays AMSGE and its nonconsolidated affiliates for advisory and consulting services that AMSGE and its nonconsolidated affiliates provide to the
Company, and for the reimbursement of certain expenses in connection with such services. In the fourth quarter of fiscal year 2016, the Company paid $5,000 to
AMSGE for work performed towards securing the right to lease property to be developed in Las Vegas. That amount is included in other assets in the
accompanying consolidated balance sheets as of June 30, 2018 and 2017 and will be amortized over the term of the lease.
F- 51
Table of Contents
Advertising
Expenses
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company incurs advertising expenses for services rendered by its related parties, primarily MSG Networks and Cablevision (until its sale to Altice N.V. on
June 21, 2016), most of which are related to the utilization of advertising and promotional benefits by the Company.
Transactions
with
Cablevision
Amounts represent charges to the Company by Cablevision (until its sale to Altice N.V. on June 21, 2016) for corporate general and administrative expenses and
telephone and other fiber optic transmission services. In addition, transactions with Cablevision included net charges related to a reciprocal aircraft arrangement
between the Company and Cablevision (until its sale to Altice N.V. on June 21, 2016).
Other
Operating
Expenses,
net
The Company and its related parties enter into transactions with each other in the ordinary course of business. Amounts charged to the Company for other
transactions with its related parties are net of amounts charged by the Company to the Knickerbocker Group, LLC, an entity owned by James L. Dolan, the
Executive Chairman, Chief Executive Officer and a director of the Company, for office space equal to the allocated cost of such space and the cost of certain
technology services. In addition, other operating expenses include net charges relating to (i) reciprocal aircraft arrangements between the Company and each of
Q2C and DFO/Sterling Aviation, LLC and (ii) time sharing agreements with MSG Networks and AMC Networks.
Other
See Note 6 for information on outstanding loans provided by the Company to its nonconsolidated affiliates.
Cash
Management
Historically, MSG Networks used a centralized approach to cash management and financing of operations. The Company’s cash was available for use and was
regularly “swept” by MSG Networks at its discretion. Transfers of cash both to and from MSG Networks are included as components of MSG Networks’
investment on the consolidated statements of equity and redeemable noncontrolling interests. The primary components of the net transfers to/from MSG Networks
are cash pooling/general financing activities, various expense allocations to/from MSG Networks, and receivables/payables from/to MSG Networks deemed to be
effectively net settled at the Distribution date.
MSG
Networks’
Investment
All balances and transactions among the Company and MSG Networks and its subsidiaries, which, prior to the Distribution, include intercompany activities, are
shown as components of the Company’s equity. As the books and records of the Company were not kept on a separate basis from MSG Networks prior to the
Distribution, the determination of the average net balance due to or from MSG Networks was not practicable for the periods prior to the Distribution.
F- 52
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 16 . Accumulated Other Comprehensive Loss
The following table details the components of accumulated other comprehensive loss:
Balance as of June 30, 2017
Reclassification of stranded tax effects (a)
Other comprehensive loss before reclassifications,
before income taxes
Amounts reclassified from accumulated other
comprehensive loss, before income taxes (b)
Other comprehensive income (loss)
Balance as of June 30, 2018
Balance as of June 30, 2016
Other comprehensive income (loss) before
reclassifications, before income taxes
Amounts reclassified from accumulated other
comprehensive loss, before income taxes (b)
Income tax expense
Other comprehensive income (loss)
Balance as of June 30, 2017
Pension Plans and
Postretirement
Plan
Cumulative
Translation
Adjustments
Unrealized Gain
(Loss) on Available-
for-sale
Securities
Accumulated
Other
Comprehensive
Loss
(39,408)
$
608
(3,415)
1,369
(2,046)
(40,846)
$
— $
—
(502)
—
(502)
(502)
$
5,293 $
1,232
(12,095)
—
(12,095)
(5,570) $
(34,115)
1,840
(16,012)
1,369
(14,643)
(46,918)
Pension Plans and
Postretirement
Plan
Cumulative Translation
Adjustments
Unrealized Gain
(Loss) on Available-
for-sale
Securities
Accumulated
Other
Comprehensive
Loss
(42,611)
$
— $
— $
4,027
1,317
(2,141)
3,203
(39,408)
$
F- 53
—
—
—
—
— $
9,629
—
(4,336)
5,293
5,293
$
(42,611)
13,656
1,317
(6,477)
8,496
(34,115)
$
$
$
$
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Pension Plans and
Postretirement
Plan
Cumulative Translation
Adjustments
Unrealized Gain (Loss)
on Available-for-sale
Securities
Accumulated
Other
Comprehensive
Loss
Balance as of June 30, 2015
$
(40,215)
$
— $
— $
Adjustment related to the transfer of Pension Plans and
Postretirement Plan liabilities as a result of the
Distribution
Other comprehensive income before reclassifications,
before income taxes
Amounts reclassified from accumulated other
comprehensive loss, before income taxes (b)
Other comprehensive income (loss)
Balance as of June 30, 2016
$
________________
5,896
(9,239)
947
(8,292)
(42,611)
$
—
—
—
—
— $
—
—
—
—
— $
(40,215)
5,896
(9,239)
947
(8,292)
(42,611)
(a)
During
the
fourth
quarter
of
2018,
the
Company
elected
to
early
adopt
ASU
No.
2018-02,
Income
Statement
-
Reporting
Comprehensive
Income
(Topic
220):
Reclassification
of
Certain
Tax
Effects
from
Accumulated
Other
Comprehensive
Income
,
which
allowed
the
Company
to
reclassify
the
stranded
income
tax
effects
resulting
from
the
Tax
Cuts
and
Jobs
Act
from
accumulated
other
comprehensive
income
(loss)
to
retained
earnings
(accumulated
deficit).
(b)
Amounts
reclassified
from
accumulated
other
comprehensive
loss,
before
income
taxes,
represent
amortization
of
net
actuarial
loss
and
net
unrecognized
prior
service
credit
included
in
net
periodic
benefit
cost,
which
is
reflected
in
direct
operating
expenses
and
selling,
general
and
administrative
expenses
in
the
accompanying
consolidated
statements
of
operations
(see
Note
12
).
Note 17 . Income Taxes
On December 22, 2017, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted, which significantly changed the existing U.S. tax
laws, including a reduction in the corporate Federal income tax rate from 35% to 21% effective January 1, 2018. During the second quarter of fiscal year 2018, the
Company was required to recognize the effect of tax law changes in the period of enactment even though certain key aspects of the new law became effective
January 1, 2018. The Company used a blended statutory Federal income rate of 28% based upon the number of days that it will be taxed at the former rate of 35%
and the number of days it will be taxed at the new rate of 21% to calculate its most recent effective tax rate.
For the period prior to the Distribution, the Company did not file separate tax returns as the Company was included in the tax grouping of other MSG Networks
entities within the respective entity’s tax jurisdiction. The income tax provision included in this period has been calculated using the separate return basis, as if the
Company filed a separate tax return.
F- 54
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Income tax expense (benefit) is comprised of the following components:
Current expense:
State and other
Deferred expense (benefit):
Federal
State and other
Income tax expense (benefit)
Years Ended June 30,
2018
2017
2016
$
439 $
439
— $
—
(114,211)
(3,100)
(117,311)
(3,382)
(1,022)
(4,404)
$
(116,872) $
(4,404) $
—
—
325
(28)
297
297
The income tax expense differs from the amount derived by applying the statutory federal rate to pre-tax income principally due to the effect of the following
items:
Federal tax expense (benefit) at statutory federal rate
State income taxes, net of federal benefit
Change in the estimated applicable corporate tax rate used to determine deferred taxes
Nondeductible disability insurance premiums expense
Tax effect of pre-distribution earnings
Federal tax credits
Gains in other comprehensive income
Book income of consolidated partnership attributable to non-controlling interest
Tax effect of indefinite intangible amortization
Change in valuation allowance (a)
Nondeductible expenses and other
Income tax expense (benefit)
_________________
Years Ended June 30,
2018
2017
2016
$
4,933 $
(28,418) $
1,800
(50,169)
1,436
—
—
—
2,006
1,236
(76,925)
(1,189)
(6,716)
672
1,983
—
(354)
(6,477)
1,414
1,329
30,697
1,466
$
(116,872) $
(4,404) $
(26,948)
(6,843)
(192)
1,806
519
(426)
—
—
—
31,301
1,080
297
(a)
For
the
year
ended
June
30,
2018,
the
valuation
allowance
is
revalued
under
provisions
contained
in
the
new
tax
legislation,
comprised
of
the
following:
(i)
$62,479
was
due
to
a
reduction
in
the
valuation
allowance
attributable
to
the
new
rules,
which
provide
that
future
Federal
net
operating
losses
have
an
unlimited
carry-forward
period
and
(ii)
$14,446
,
reduction
in
valuation
allowance
relating
to
current
operations.
For
the
year
ended
June
30,
2016,
the
valuation
allowance
reflects
an
increase
on
the
Company’s
net
deferred
tax
asset
related
to
fiscal
year
2016
activity
from
the
time
of
the
Distribution.
As
part
of
the
Distribution,
MSG
Networks
is
responsible
for
paying
taxes
on
approximately
$348,000
of
deferred
revenue
from
ticket
sales,
sponsorship
and
suite
rentals
collected
in
advance
related
to
the
Company’s
business.
This
initially
created
a
deferred
tax
asset
on
which
the
Company
recorded
a
full
valuation
allowance
at
the
time
of
the
Distribution
as
it
was
more
likely
than
not
that
the
deferred
tax
asset
would
not
be
realized.
F- 55
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and liabilities at June 30, 2018 and 2017 are as follows:
Deferred tax asset:
Net operating loss carryforwards
Tax credit carryforwards
Accrued employee benefits
Accrued expenses
Restricted stock units and stock options
Deferred production costs
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible and other assets
Property and equipment
Prepaid expenses
Investments
Total deferred tax liabilities
Net deferred tax liability
June 30,
2018
2017
73,599 $
104,648
784
66,147
20,053
13,879
—
7,445
181,907 $
(88,246)
93,661 $
(141,676) $
(10,579)
(7,178)
(13,196)
(172,629) $
706
84,809
25,672
28,937
2,843
8,774
256,389
(218,639)
37,750
(198,786)
(17,162)
(7,782)
(10,456)
(234,186)
(78,968) $
(196,436)
$
$
$
$
$
$
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 utilization
of its deductible temporary differences carryforwards. At this time, based on current facts and circumstances, management believes that it is not more likely than
not that the Company will realize the benefit for its net deferred tax asset excluding the deferred tax liability on indefinite lived intangibles, and a valuation
allowance has been recorded on the same.
The federal and state income tax net operating loss carryforwards of $217,989 and $276,266 , respectively will primarily expire in 2036 . The expected benefit
from these net operating loss carryforwards is recorded as a deferred tax asset of $73,599 . At this time, based on current facts and circumstances, management
believes that it is not more likely than not that the Company will realize the benefit for its federal and state net operating loss deferred tax asset, therefore a full
valuation allowance has been recorded.
The Company does not have any recorded unrecognized tax benefit for uncertain tax positions as of June 30, 2018 and 2017 .
The Company was notified during the third quarter of fiscal year 2018 that the Internal Revenue Service was commencing an examination of our federal income
tax returns as filed for the tax year ended June 30, 2016. The Company does not expect the audit to result in any material changes to the return as filed.
F- 56
Table of Contents
Note 18 . Segment Information
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company is comprised of two reportable segments: MSG Entertainment and MSG Sports. In determining its reportable segments, the Company assessed the
guidance of FASB ASC 280-10-50-1, which provides the definition of a reportable segment. In accordance with the FASB's guidance, 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 has evaluated this guidance and determined that there are two reportable
segments. The Company allocates certain corporate costs and its performance venues operating expenses to each of its reportable segments. Allocated venue
operating expenses include the non-event related costs of operating the Company’s venues, and include such costs as rent for the Company’s leased venues, real
estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation and amortization expense related
to The Garden, The Hulu Theater at Madison Square Garden, the Forum, and certain corporate property, equipment and leasehold improvements not allocated to
the reportable segments is reported in “ Corporate and Other .” Additionally, the Company does not allocate any purchase accounting adjustments to the reporting
segments.
During the first quarter of fiscal year 2017, the Company refined its approach to allocating corporate, performance venues operating and other shared expenses.
Management analyzed the specific support provided by individual corporate and venue personnel, in part using a detailed efforts-based analysis. The Company
considered the new approach to better define segment profitability for users of the financial information and, therefore, made this change in the first quarter of
fiscal year 2017. Fiscal year 2016 results are reflected as originally reported and have not been restated. Had the revised approach been used in fiscal year 2016,
operating income reported in MSG Sports would have increased and operating loss reported in MSG Entertainment would have improved by $6,045 and $337 ,
respectively. These changes in the MSG Sports and MSG Entertainment segments operating income (loss) would have been offset by an increase of $6,382 in the
operating loss of “Corporate and Other” for the year ended June 30, 2016. The adjusted operating income, as defined below, reported in MSG Sports would have
increased and adjusted operating loss reported in MSG Entertainment would have improved during the year ended June 30, 2016 by $5,908 and $2,680 ,
respectively. These improvements would have been offset by an increase of $8,588 in the adjusted operating loss of “Corporate and Other” for the year ended June
30, 2016.
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before (i) depreciation,
amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or
credits, and (iv) gains or losses on sales or dispositions of businesses, which is referred to as adjusted operating income (loss) , a non-GAAP measure. In addition to
excluding the impact of the items discussed above, the impact of purchase accounting adjustments related to business acquisitions is also excluded in evaluating the
Company’s consolidated adjusted operating income (loss) . Because it is based upon operating income (loss), adjusted operating income (loss) also excludes
interest expense (including cash interest expense) and other non-operating income and expense items. Management believes that the exclusion of share-based
compensation expense or benefit allows investors to better track the performance of the various operating units of the Company’s business without regard to the
settlement of an obligation that is not expected to be made in cash. 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. The Company has presented the components that
reconcile operating income (loss), the most directly comparable GAAP financial measure to adjusted operating income (loss) .
F- 57
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Information as to the operations of the Company’s reportable segments is set forth below.
Revenues
$
780,726 $
778,653 $
MSG
Entertainment
MSG
Sports
Year ended June 30, 2018
Corporate
and
Other
Purchase
accounting
adjustments
Inter-segment
eliminations
Total
— $
120
— $
(284)
$
1,559,095
4,635
(284)
945,428
483,263
457,694
192,929
186,914
18,515
86,019
7,481
92,166
78,356
126,564
(170,642)
223
18,134
(22,992)
73
—
(73)
472,305
122,486
18,876
(7,770)
21,582
(15,415)
303
$
17,576
86,019
126,564
(170,642)
(22,992)
(73)
18,876
12,500
15,498
19,565
—
—
47,563
18,515
7,481
78,356
—
—
—
18,134
4,858
—
122,486
—
4,858
$
117,034 $
149,543 $
(72,721) $
— $
(73)
$
193,783
Capital expenditures
(c)
$
24,403 $
4,552 $
162,959 $
— $
— $
191,914
F- 58
Direct operating expenses
Selling, general and
administrative expenses
Depreciation and amortization
(a)
(b)
Operating income (loss)
Loss in equity method
investments
Interest income
Interest expense
Miscellaneous income
Income from operations
before income taxes
Reconciliation of operating
income (loss) to adjusted
operating income (loss):
Operating income (loss)
Add back:
Share-based compensation
expense
Depreciation and
amortization
Other purchase accounting
adjustments
Adjusted operating
income (loss)
Other information:
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year ended June 30, 2017
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income (loss)
Loss in equity method investments
Interest income
Interest expense
Miscellaneous income
(d)
(a)
(b)
(e)
(f)
MSG
Entertainment
MSG
Sports
$
506,468
$
811,984 $
Corporate
and
Other
Purchase
accounting
adjustments
378,325
120,496
11,339
(3,692)
473,590
209,941
9,319
— $
—
79,602
83,578
119,134
(163,180)
9,466
—
3,152
(12,618)
Total
— $
1,318,452
861,381
410,039
107,388
(60,356)
(29,976)
11,836
(4,189)
1,492
(81,193)
Loss from operations before income taxes
$
Reconciliation of operating income (loss) to
adjusted operating income (loss):
Operating income (loss)
Add back:
Share-based compensation expense
Depreciation and amortization
Other purchase accounting adjustments
Adjusted operating income (loss)
Other information:
Capital expenditures
$
$
(3,692)
119,134
(163,180)
(12,618)
(60,356)
14,323
11,339
—
14,548
9,319
—
12,258
83,578
—
—
3,152
9,466
21,970
$
143,001 $
(67,344) $
— $
41,129
107,388
9,466
97,627
11,460
$
2,393 $
30,371 $
— $
44,224
F- 59
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Year ended June 30, 2016
MSG
Entertainment
MSG
Sports
Corporate and
Other
$
415,390
$
699,062 $
341,637
96,204
9,884
(32,335)
396,220
182,131
10,957
109,754
859 $
—
55,268
81,641
(136,050)
Revenues
Direct operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income (loss)
Loss in equity method investments
Interest income
Interest expense
Miscellaneous expense
(d)
(a)
(b)
(e)
(f)
Loss from operations before income taxes
$
Total
1,115,311
737,857
333,603
102,482
(58,631)
(19,099)
6,782
(2,028)
(4,017)
(76,993)
Reconciliation of operating income (loss) to adjusted
operating income (loss):
Operating income (loss)
Add back:
Share-based compensation expense
Depreciation and amortization
Adjusted operating income (loss)
Other information:
Capital expenditures
_________________
(32,335)
109,754
(136,050)
(58,631)
7,870
9,884
10,316
10,957
6,290
81,641
$
(14,581)
$
131,027 $
(48,119) $
24,476
102,482
68,327
(c)
$
4,974
$
4,578 $
62,164 $
71,716
(a)
Corporate
and
Other’s
selling,
general
and
administrative
expenses
primarily
consist
of
unallocated
corporate
general
and
administrative
costs,
including
expenses
associated
with
the
Company's
business
development
initiatives.
The
amount
for
the
year
ended
June
30,
2016
include
approximately
$6,900
of
reorganization
costs
which
primarily
consists
of
severance
and
related
benefits.
Such
costs
were
paid
during
fiscal
year
2017.
(b)
Corporate
and
Other
principally
includes
depreciation
and
amortization
on
The
Garden,
The
Hulu
Theater
at
Madison
Square
Garden,
the
Forum,
and
certain
corporate
property,
equipment
and
leasehold
improvement
assets
not
allocated
to
the
Company’s
reportable
segments.
(c)
Corporate
and
Other’s
capital
expenditures
for
the
year
ended
June
30,
2018
are
primarily
associated
with
the
purchase
of
land
in
London
and
costs
incurred
in
developing
the
Company’s
new
venues
in
Las
Vegas
and
London.
See
Note
8
for
more
information
regarding
the
land
purchase.
MSG
Entertainment’s
capital
expenditures
for
the
year
ended
June
30,
2018
are
primarily
associated
with
capital
expenditures
made
by
TAO
Group
and
certain
investments
with
respect
to
Radio
City
Music
Hall.
Corporate
and
Other’s
capital
expenditures
for
the
year
ended
June
30,
2016
are
primarily
associated
with
the
purchase
of
a
new
aircraft,
as
well
as
certain
investments
with
respect
to
The
Garden.
(d)
MSG
Entertainment’s
direct
operating
expenses
for
the
years
ended
June
30,
2017
and
2016
include
$33,629
and
$41,816
,
respectively,
of
write-offs
of
deferred
production
costs
associated
with
the
New
York
Spectacular
production
(see
Note
2
).
(e)
Loss
in
equity
method
investments
for
the
year
ended
June
30,
2017
reflects
a
pre-tax
non-cash
impairment
charge
of
$20,613
to
write
off
the
carrying
value
of
its
equity
investment
in
Fuse
Media.
Loss
in
equity
method
investments
for
the
year
ended
June
30,
2016
reflects
a
pre-tax
non-cash
impairment
charge
of
$7,270
to
write
off
the
carrying
value
of
its
equity
investment
in
Broadway
production
of
Finding
Neverland.
F- 60
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(f)
Miscellaneous
income
for
the
year
ended
June
30,
2017
consists
principally
of
the
recovery
of
certain
claims
in
connection
with
a
third-party
bankruptcy
proceeding.
Miscellaneous
expense
for
the
year
ended
June
30,
2016
primarily
include
a
partial
write-down
of
one
of
the
Company’s
cost
method
investments.
The table below sets forth, for the periods presented, the Company’s consolidated revenues for the years ended June 30, 2018 , 2017 and 2016 by component.
Revenues
Event-related revenues (a)
Media rights revenues (b)
Advertising sales commission, sponsorship and signage revenues (c)
All other revenues (d)
_________________
Years Ended June 30,
2018
2017
2016
$
980,726 $
908,941 $
229,646
76,831
271,892
220,021
74,685
114,805
834,213
179,816
68,661
32,621
$
1,559,095 $
1,318,452 $
1,115,311
(a)
Primarily
consists
of
professional
sports
teams’,
entertainment
and
other
live
sporting
events
revenues.
These
amounts
include
(i)
ticket
sales,
(ii)
other
ticket-
related
revenue,
(iii)
food,
beverage
and
merchandise
sales,
(iv)
venue
license
fees,
and
(v)
event-related
sponsorship
and
signage
revenues.
(b)
Primarily
consists
of
telecast
rights
fees
from
MSG
Networks
and
the
Company’s
share
of
league
distributions.
(c)
Amounts
exclude
event-related
sponsorship
and
signage
revenues.
(d)
Primarily
consists
of
(i)
nonevent-related
food
and
beverage
revenues,
including
TAO
Group
’s
entertainment
dining
and
nightlife
offerings,
(ii)
playoff
revenue,
which
includes
ticket
sales,
food,
beverage
and
merchandise
sales,
and
suite
rental
fees,
and
(iii)
other
non-media
rights
related
league
distributions.
Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States and are primarily concentrated in the
New York metropolitan area.
Note 19 . Concentrations of Risk
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 commercial paper , 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.
The following individual non-affiliated customers accounted for the following percentages of the Company’s consolidated accounts receivable balances:
Customer A
Customer B (a)
_________________
(a)
A
receivable
from
Customer
B
as
of
June
30,
2017
is
primarily
associated
with
a
nonrecurring
transaction.
F- 61
June 30,
2018
2017
10%
4%
10%
11%
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company did not have any non-affiliated customer that represented 10% or more of its consolidated revenues for the years ended June 30, 2018 , 2017 and
2016 . Revenues from MSG Networks amounted to $154,893 , $149,197 and $144,947 for the years ended June 30, 2018 , 2017 and 2016 , which represent 10% ,
11% and 13% , respectively, of the Company’s consolidated revenues (see Note 15 ).
As of June 30, 2018 , approximately 6,900 full-time and part-time employees, who represent approximately 58% of the Company’s workforce, are subject to
CBAs. Approximately 24% are subject to CBAs that expired as of June 30, 2018 and approximately 16% are subject to CBAs that will expire by June 30, 2019 if
they are not extended prior thereto.
Note 20 . Interim Financial Information (Unaudited)
The following is a summary of the Company’s selected quarterly financial data for the years ended June 30, 2018 and 2017 :
Revenues
Operating expenses
Operating income (loss)
Net income (loss)
Net income (loss) attributable to The
Madison Square Garden Company’s
stockholders
Basic earnings (loss) per common share
attributable to The Madison Square
Garden Company’s stockholders
Diluted earnings (loss) per common share
attributable to The Madison Square
Garden Company’s stockholders
$
$
$
$
$
$
Three Months Ended (a)
September 30,
December 31,
March 31,
2017
2017
2018
June 30,
2018
Year ended June 30,
2018
245,215 $
260,720
(15,505) $
(10,867) $
536,302 $
463,865
72,437 $
187,991 $
459,621 $
452,289
7,332 $
7,814 $
317,957 $
363,345
(45,388) $
(50,490) $
1,559,095
1,540,219
18,876
134,448
(11,107) $
189,613 $
9,141 $
(46,053) $
141,594
(0.47) $
8.03 $
0.39 $
(1.94) $
(0.47) $
7.96 $
0.38 $
(1.94) $
F- 62
5.99
5.94
Table of Contents
THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Revenues
Operating expenses
Operating income (loss)
Net income (loss)
Net income (loss) attributable to The
Madison Square Garden Company’s
stockholders
Basic earnings (loss) per common share
attributable to The Madison Square
Garden Company’s stockholders
Diluted earnings (loss) per common share
attributable to The Madison Square
Garden Company’s stockholders
_________________
$
$
$
$
$
$
Three Months Ended (a)
September 30,
December 31,
March 31,
2016
2016
2017
June 30,
2017
Year ended June 30,
2017
181,695 $
214,538
(32,843) $
(28,914) $
445,150 $
386,899
58,251 $
57,421 $
386,033 $
379,327
6,706 $
(17,843) $
305,574 $
398,044
(92,470) $
(87,453) $
1,318,452
1,378,808
(60,356)
(76,789)
(28,626) $
57,726 $
(17,545) $
(84,278) $
(72,723)
(1.19) $
2.41 $
(0.74) $
(3.58) $
(3.05)
(1.19) $
2.39 $
(0.74) $
(3.58) $
(3.05)
(a)
The
operating
results
for
the
periods
in
the
fiscal
year
2018
are
not
directly
comparable
with
the
periods
in
the
fiscal
year
2017
primarily
due
to
the
timing
of
the
Company’
s
acquisition
of
a
controlling
interest
in
TAO
Group
.
TAO
Group’s
operating
results
for
fiscal
year
2018
are
for
the
period
from
March
27,
2017
to
April
1,
2018
,
as
compared
to
TAO
Group’s
operating
results
for
fiscal
year
2017,
which
are
for
the
period
from
February
1,
2017
to
March
26,
2017
.
See
Business
Combinations
and
Noncontrolling
Interests
section
under
Note
2
.
Summary
of
Significant
Accounting
Policies
for
further
discussion
on
consolidation
of
TAO
Group
.
F- 63
FORM OF RESTRICTED STOCK UNITS AGREEMENT
Exhibit 10.12
Dear [Participant Name]:
Pursuant to 2015 Employee Stock Plan (the “ Plan ”), you have been selected by the Compensation Committee of the
Board of Directors (as more fully described in Section 11, the “ Committee ”) of The Madison Square Garden Company (the “
Company ”), effective as of [Grant Date] (the “ Grant Date ”) to receive [#RSUs] restricted stock units (“ Units ”). The Units are
granted subject to the terms and conditions set forth below and in the Plan. Capitalized terms used but not defined in this agreement
(this “ Agreement ”) have the meanings given to them in the Plan. The Units are subject to the terms and conditions set forth below.
In addition, the terms and conditions applicable to all outstanding and unvested restricted stock units previously
granted to you under the Plan are hereby amended as set forth in Annex 3 attached hereto.
1.
Awards
.
Each Unit shall represent an unfunded, unsecured promise by the Company to deliver to you one
share of the Company’s Class A Common Stock, par value $.01 per share (“ Share ”) on the Delivery Date. In accordance with
Section 10(b) of the Plan, in the discretion of the Committee, in lieu of all or any portion of the Shares otherwise deliverable in
respect of your Units, the Company may deliver a cash amount equal to the number of such Shares multiplied by the Fair Market
Value of a Share on the date when Shares would otherwise have been issued, as determined by the Committee.
2.
Vesting
.
Subject to your continuous employment with the Company or one of its Subsidiaries, one-third of
your Units will vest on each of September 15 [year], [year], and [year] (each, a “ Vesting Date ”); provided that fractional Units
eligible to vest on each of the first two Vesting Dates will be rounded up to the nearest whole Unit. Subject to Sections 3 and 4, none
of your Units will vest and you will forfeit all of them if you do not remain continuously employed with the Company or one of its
Subsidiaries from the Grant Date through each respective Vesting Date [provided the Performance Criteria set forth in Annex 2
attached hereto have been satisfied as of the applicable Vesting Date, as determined by the Committee. If the Performance Criteria
have not been satisfied as of a Vesting Date, then the Units that otherwise would have vested on such Vesting Date will remain
unvested, and will vest on the next Vesting Date, provided the Performance Criteria have been satisfied as of that Vesting Date, as
determined by the Committee.] 1
Vesting
in
the
Event
of
Death
and
Other
Circumstances
.
If your employment is terminated as a result of
your death, all of the unvested Units will vest as of the termination date. If your employment is terminated for other reasons, the Committee may,
in its sole discretion determine to vest all or a portion of the unvested Units (but shall be under no obligation to consider doing so).
3.
4.
Change
of
Control/Going
Private
Transaction
.
As set forth in Annex 1 attached hereto, your entitlement to
the Units may be affected in the event of a Change of Control of the Company or a going-private transaction (each as defined in
Annex 1 attached hereto).
_________________
1 To be included for proxy reported officers if applicable.
5.
the extent provided in the Plan.
Transfer
Restrictions
.
You may not transfer, assign, pledge or otherwise encumber the Units, other than to
6.
Right
to
Vote
and
Receive
Dividends
.
You shall not be deemed to be the holder of, or have any of the rights
of a stockholder with respect to any Units unless and until the Company shall have issued and delivered Shares to you and your
name shall have been entered as a stockholder of record on the books of the Company. Pursuant to Section 10(c) of the Plan, all
ordinary (as determined by the Committee in its sole discretion) cash dividends that would have been paid upon any Shares
underlying your Units had such Shares been issued will be retained by the Company for your account until your Units vest and such
dividends will be paid to you (without interest) on the applicable Delivery Date to the extent that your Units vest.
7.
Tax
Representations
and
Tax
Withholding
. You hereby acknowledge that you have reviewed with your
own tax advisors the federal, state and local tax consequences of receiving the Units. You hereby represent to the Company that you
are relying solely on such advisors and not on any statements or representations of the Company, its Affiliates or any of their
respective agents. If, in connection with the Units, the Company is required to withhold any amounts by reason of any federal, state
or local tax, such withholding shall be effected in accordance with Section 16 of the Plan.
8.
Section
409A
.
It is the Company’s intent that payments under this Agreement shall comply with Section
409A of the Internal Revenue Code (“Section 409A”) to the extent applicable, and that the Agreement be administered accordingly.
Notwithstanding anything to the contrary contained in this Agreement or any employment agreement you have entered into with the
Company, to the extent that any payment or benefit under this Agreement is determined by the Company to constitute “non-qualified
deferred compensation” subject to Section 409A and is payable to you by reason of termination of your employment, then (a) such
payment or benefit shall be made or provided to you only upon a “separation from service” as defined for purposes of Section 409A
under applicable regulations and (b) if you are a “specified employee” (within the meaning of Section 409A and as determined by
the Company), such payment or benefit shall not be made or provided before the date that is six months after the date of your
separation from service (or your earlier death). Each payment under this Agreement shall be treated as a separate payment under
Section 409A.
9.
Delivery
.
Subject to Sections 7, 10 and 13 and except as otherwise provided in this Agreement, the Shares
will be delivered in respect of vested Units (if any) on the first to occur of the following events (i) to you on or promptly after the
applicable Vesting Date (but in no case more than 15 days after such date), (ii) in the event of your death to your estate after your
death and during the calendar year in which your death occurs (or such later date as may be permitted under Section 409A) and (iii)
in the event of any other termination of your employment (including pursuant to the provisions of Annex 1 ) to you on the ninetieth
(90th) day following termination of your employment (the “ Delivery Date ”). Unless otherwise determined by the Committee,
delivery of the Shares at the Delivery Date will be by book-entry credit to an account in your name that the Company has established
at a custody agent (the “ custodian ”). The Company’s transfer agent, Wells Fargo Bank, N.A. shall act as the custodian of the
Shares; however , the Company may in its sole discretion appoint another custodian to replace Wells Fargo Bank, N.A. On the
Delivery Date, if you have complied with your obligations under this
Agreement and provided that your tax obligations with respect to the vested Units are appropriately satisfied, we will instruct the
custodian to electronically transfer your Shares to a brokerage or other account on your behalf (or make such other arrangements for
the delivery of the Shares to you as we reasonably determine).
10.
Right
of
Offset
. You hereby agree that the Company shall have the right to offset against its obligation to
deliver shares of Class A Common Stock, cash or other property under this Agreement to the extent that it does not constitute “non-
qualified deferred compensation” pursuant to Section 409A, any outstanding amounts of whatever nature that you then owe to the
Company or any of its Subsidiaries.
11.
The
Committee
. For purposes of this Agreement, the term “Committee” means the Compensation
Committee of the Board of Directors of the Company or any replacement committee established under, and as more fully defined in,
the Plan.
determinations to be made in connection with this Agreement, and its determinations shall be final, binding and conclusive.
12.
Committee
Discretion
. The Committee has full discretion with respect to any actions to be taken or
13.
Amendment
.
The Committee reserves the right at any time to amend the terms and conditions set forth in
this Agreement, except that the Committee shall not make any amendment or revision in a manner unfavorable to you (other than if
immaterial), without your consent. No consent shall be required for amendments made pursuant to Section 12 of the Plan, except
that, for purposes of Section 19 of the Plan, Section 4 and Annex 1 of this Agreement are deemed to be “terms of an Award
Agreement expressly refer[ring] to an Adjustment Event.” Any amendment of this Agreement shall be in writing and signed by an
authorized member of the Committee or a person or persons designated by the Committee.
14.
Units
Subject
to
the
Plan
.
The Units covered by this Agreement are subject to the Plan.
Subsidiaries
. For purposes of this Agreement, “ Subsidiaries
” shall mean any entities that are controlled,
directly or indirectly, by the Company, or in which the Company owns, directly or indirectly, more than 50% of the equity interests.
15.
16.
Entire
Agreement
.
Except for any employment agreement between you and the Company or any of its
Subsidiaries in effect as of the date of the grant hereof (as such employment agreement may be modified, renewed or replaced), this
Agreement and the Plan constitute the entire understanding and agreement of you and the Company with respect to the Units covered
hereby and supersede all prior understandings and agreements. Except as provided in Sections 8 and 15, in the event of a conflict
among the documents with respect to the terms and conditions of the Units covered hereby, the documents will be accorded the
following order of authority: the terms and conditions of the Plan will have highest authority followed by the terms and conditions of
your employment agreement, if any, followed by the terms and conditions of this Agreement.
17.
Successors
and
Assigns
.
The terms and conditions of this Agreement shall be binding upon, and shall
inure to the benefit of, the Company and its successors and assigns.
18.
Governing
Law
.
This Agreement shall be deemed to be made under, and in all respects be interpreted,
construed and governed by and in accordance with, the laws of the State of New York without regard to conflict of law principles.
19.
Jurisdiction
and
Venue
.
You irrevocably submit to the jurisdiction of the courts of the State of New York
and the Federal courts of the United States located in the Southern District of the State of New York in respect of the interpretation
and enforcement of the provisions of this Agreement, and hereby waive, and agree not to assert, as a defense that you are not subject
thereto or that the venue thereof may not be appropriate. You agree that the mailing of process or other papers in connection with
any action or proceeding in any manner permitted by law shall be valid and sufficient service.
20.
Waiver
. No waiver by the Company at any time of any breach by you of, or compliance with, any term or
condition of this Agreement or the Plan to be performed by you shall be deemed a waiver of the same term or condition, or of any
similar or any dissimilar term or condition, whether at the same time or at any prior or subsequent time.
21.
Severability
. The provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any term or condition hereof shall not affect the validity or enforceability of the other terms and conditions set
forth herein.
22.
Exclusion
from
Compensation
Calculation
. By acceptance of this Agreement, you shall be deemed to be
in agreement that the Units covered hereby shall be considered special incentive compensation and will be exempt from inclusion as
“wages” or “salary” in pension, retirement, life insurance and other employee benefits arrangements of the Company and its
Affiliates, except as determined otherwise by the Company. In addition, each of your beneficiaries shall be deemed to be in
agreement that all such shares be exempt from inclusion in “wages” or “salary” for purposes of calculating benefits of any life
insurance coverage sponsored by the Company or any of its Affiliates.
No
Right
to
Continued
Employment
. Nothing contained in this Agreement or the Plan shall be construed
to confer on you any right to continue in the employ of the Company or any Affiliate, or derogate from the right of the Company or
any Affiliate, as applicable, to retire, request the resignation of, or discharge you, at any time, with or without cause.
23.
define or limit the construction of the terms and conditions of this Agreement.
24.
Headings
.
The headings in this Agreement are for purposes of convenience only and are not intended to
25.
26.
Effective
Date
.
Upon execution by you, this Agreement shall be effective from and as of the Grant Date.
Signatures
.
Execution of this Agreement by the Company may be in the
form of an electronic, manual or similar signature (including, without limitation, an electronic acknowledgement of acceptance), and
such signature shall be treated as an original signature for all purposes.
THE MADISON SQUARE GARDEN COMPANY
By:
Name:
Title:
By your electronic acknowledgement of acceptance, you (i) acknowledge that a complete copy of the Plan and an executed
original of this Agreement have been made available to you and (ii) agree to all of the terms and conditions set forth in the
Plan and this Agreement.
By:
Name:
Title:
Annex 1
RESTRICTED STOCK UNITS AGREEMENT
In the event of a “Change of Control” of the Company or a “going private transaction,” as defined below, your entitlement to
Units shall be as follows:
1.
If the Company or the “surviving entity,” as defined below (if any), has shares of common stock (or partnership
units) traded on a national stock exchange or on the over-the-counter market as reported on the New York Stock Exchange or any
other stock exchange, the Committee shall, no later than the effective date of the transaction which results in a Change of Control or
going private transaction, [deem the Performance Criteria to be satisfied and] either (A) convert your unvested Units into an amount
of cash equal to (i) the number of your unvested Units multiplied by (ii) the “offer price per share,” the “acquisition price per share”
or the “merger price per share,” each as defined below, whichever of such amounts is applicable or (B) arrange to have the Surviving
Entity grant to you an award of restricted stock units (or partnership units) for shares of the surviving entity on the same terms and
with a value equivalent to your unvested Units which will, in the good faith determination of the Committee, provide you with an
equivalent profit potential.
2.
If the Company or the Surviving Entity does not have shares of common stock (or partnership units) traded on a
national stock exchange or on the over-the-counter market as reported on the New York Stock Exchange or any other stock
exchange, the Committee shall [deem the Performance Criteria to be satisfied and] convert your unvested Units into an amount of
cash equal to the amount calculated as per Paragraph 1(A) above.
3.
Provided that you remain continuously employed with the Company, one of its Subsidiaries or the Surviving Entity
through the date of the earliest event described in any of (a), (b) or (c) below, any award provided for in Paragraph 1(A) or 2 shall
become payable to you (or your estate), and any substitute restricted stock unit award of the Surviving Entity provided in Paragraph
1(B) shall vest, at the earlier of (a) each applicable date on which your Units would otherwise have vested had they continued in
effect, (b) the date of your death, or (c) the date on which your employment with the Company, one of its Subsidiaries or the
Surviving Entity is terminated (i) by the Company, one of its Subsidiaries or the Surviving Entity other than for Cause, (ii) by you
for “good reason,” as defined below or (iii) by you for any reason at least six (6) months, but not more than nine (9) months after the
effective date of the Change of Control or going private transaction; provided that clause (iii) herein shall not apply in the event that
your rights in the Units are converted into a right to receive an amount of cash in accordance with Paragraph 1(A). The amount
payable in cash shall be payable together with interest from the effective date of the Change of Control or going private transaction
until the date of payment at (a) the weighted average cost of capital of the Company immediately prior to the effectiveness of the
Change of Control or going private transaction, or (b) if the Company (or the Surviving Entity) sets aside the funds in a trust or other
funding arrangement, the actual earnings of such trust or other funding arrangement.
4.
As used herein,
“ Cause
” means your (i) commission of an act of fraud, embezzlement, misappropriation, willful misconduct, gross
negligence or breach of fiduciary duty against the Company or any of its Affiliates, or (ii) commission of any act or omission
that results in a conviction, plea of no contest, plea of nolo
contendere
, or imposition of unadjudicated probation for any
crime involving moral turpitude or any felony.
“ Change
of
Control
” means the acquisition, in a transaction or a series of related transactions, by any person or
group, other than Charles F. Dolan or members of the immediate family of Charles F. Dolan or trusts for the benefit of
Charles F. Dolan or his immediate family (or an entity or entities controlled by any of them) or any employee benefit plan
sponsored or maintained by the Company, of the power to direct the management of the Company or substantially all its
assets (as constituted immediately prior to such transaction or transactions).
“ Surviving
Entity
” means the entity that owns, directly or indirectly, after consummation of any transaction,
substantially all of the Company’s assets (as constituted immediately prior to such transaction). If any such entity is at least
majority-owned, directly or indirectly, by any entity (a “parent entity”) which has shares of common stock (or partnership
units) traded on a national stock exchange or the over-the-counter market, as reported on the New York Stock Exchange or
any other stock exchange, then such parent entity shall be deemed to be the Surviving Entity provided that it there shall be
more than one such parent entity, the parent entity closest to ownership of the Company’s assets shall be deemed to be the
Surviving Entity.
“ Going
private
transaction
” means a transaction involving the purchase of Company securities described in Rule
13e-3 to the Securities and Exchange Act of 1934.
“ Good
reason
” means
a.
without your express written consent any reduction in your base salary or target bonus opportunity,
or any material impairment or material adverse change in your working conditions (as the same may from time to
time have been improved or, with your written consent, otherwise altered, in each case, after the Grant Date) at any
time after or within ninety (90) days prior to the Change of Control including, without limitation, any material
reduction of your other compensation, executive perquisites or other employee benefits (measured, where applicable,
by level or participation or percentage of award under any plans of the Company), or material impairment or material
adverse change of your level of responsibility, authority, autonomy or title, or to your scope of duties;
any failure by the Company to comply with any of the provisions of this Agreement, other than an
insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by you;
b.
c.
the Company’s requiring you to be based at any office or location more than thirty-five (35) miles
from your location immediately prior to such
event except for travel reasonably required in the performance of your responsibilities; or
d.
d. any failure by the Company to obtain the assumption and agreement to perform this Agreement by
a successor as contemplated by Paragraph 1.
“ Offer
price
per
share
” shall mean, in the case of a tender offer or exchange offer which results in a Change of
Control or going private transaction (an “ Offer
”), the greater of (i) the highest price per share of common stock paid
pursuant to the Offer, or (ii) the highest fair market value per share of common stock during the ninety-day period ending on
the date of a Change of Control or going private transaction. Any securities or property which are part or all of the
consideration paid for shares of common stock in the Offer shall be valued in determining the Offer Price per Share at the
higher of (A) the valuation placed on such securities or property by the Company, person or other entity making such offer or
(B) the valuation placed on such securities or property by the Committee.
“ Merger
price
per
share
” shall mean, in the case of a merger, consolidation, sale, exchange or other disposition of
assets that results in a Change of Control or going private transaction (a “ Merger
”), the greater of (i) the fixed or formula
price for the acquisition of shares of common stock occurring pursuant to the Merger, and (ii) the highest fair market value
per share of common stock during the ninety-day period ending on the date of such Change of Control or going private
transaction. Any securities or property which are part or all of the consideration paid for shares of common stock pursuant to
the Merger shall be valued in determining the merger price per share at the higher of (A) the valuation placed on such
securities or property by the Company, person or other entity which is a party with the Company to the Merger, or (B) the
valuation placed on such securities or property by the Committee.
“ Acquisition
price
per
share
” shall mean the greater of (i) the highest price per share stated on the Schedule 13D or
any amendment thereto filed by the holder of twenty percent (20%) or more of the Company’s voting power which gives rise
to the Change of Control or going private transaction, and (ii) the highest fair market value per share of common stock during
the ninety-day period ending on the date of such Change of Control or going private transaction.
Annex 2
The Madison Square Garden Company Performance Criteria
Annex 3
Amendment to Outstanding and Unvested Restricted Stock Units
Each of your award agreements for outstanding and unvested restricted stock units (an “ Outstanding Award ”) is revised as set forth
herein.
1. Vesting
. With respect to any currently outstanding restricted stock units granted to you under the Plan that are scheduled
to vest on any date between September 16 - 30, 2018, September 16 - 30, 2019, or September 16 - 30, 2020, each such
vesting date will be modified such that the outstanding restricted stock units will vest on September 15 of the given year.
2. Acceptance.
By electronically accepting this Agreement, you acknowledge and agree that the amendments to the
Outstanding Awards set forth in this Annex 3 meet the requirements of Section 13 ( Amendment
) of each of the
Outstanding Awards.
Exhibit 10.13
FORM OF PERFORMANCE RESTRICTED STOCK UNITS AGREEMENT
Dear [Participant Name]:
Pursuant to the 2015 Employee Stock Plan (the “ Plan ”), you have been selected by the Compensation Committee of the
Board of Directors (as more fully described in Section 12, the “ Committee ”) of The Madison Square Garden Company (the “
Company ”), effective as of [Grant Date] (the “Grant Date”) to receive a performance restricted stock unit award (the “ Award ”).
The Award is granted subject to the terms and conditions set forth below and in the Plan. Capitalized terms used but not defined in
this agreement (this “ Agreement ”) have the meanings given to them in the Plan. The Award is subject to the terms and conditions
set forth below.
1. Awards
.
In accordance with the terms of this Agreement, the target amount of your contingent Award is [#RSUs]
restricted stock units (the “ Target Award ”), which number of units may be increased or decreased to the extent the performance
criteria (the “ Objectives ”) set forth in Annex 2 attached hereto have been attained in respect of the period from July 1, [year]
through June 30, [year] (the “ Performance Period ”). Each unit shall represent an unfunded, unsecured promise by the Company to
deliver to you one share of the Company’s Class A Common Stock, par value $.01 per share (“ Share ”) on the Delivery Date. The
Award, calculated in accordance with Annex 2 attached hereto, will vest upon the later of (i) September 15, [year], and (ii) the date
on which the Committee (as defined in Section 12 below) determines the Company’s performance against the Objectives (the “
Vesting Date ”) provided , that you have remained in the continuous employ of the Company or one of its Subsidiaries from the
Effective Date through the Vesting Date. In accordance with Section 10(b) of the Plan, in the discretion of the Committee, in lieu of
all or any portion of the Shares otherwise deliverable in respect of your Award, the Company may deliver a cash amount equal to the
number of such Shares multiplied by the Fair Market Value of a Share on the date when Shares would otherwise have been issued, as
determined by the Committee.
2. Vesting
.
Subject to Sections 3 and 4, if, on or prior to the Vesting Date, your continuous employment by the Company or
one of its Subsidiaries ends for any reason, other than as a result of your death, then you will
automatically forfeit all of your rights
and interest in the Award regardless of whether the Objectives are attained.
3. Vesting
in
the
Event
of
Death
.
If, prior to July 1, [year] , your employment with the Company or any of its Subsidiaries is
terminated as a result of your death, then a prorated portion of the Target Award, determined based on the number of months of your
employment completed prior to such termination during the period commencing on July 1, [year] and ending on June 30, [year], will
vest as of the termination date. If, after June 30, [year] but
prior to the Vesting Date, your employment with the Company or any of
its Subsidiaries is terminated as a result of your death, then your estate will receive the Award, if any, to which you would have been
entitled on the Vesting Date had your employment not been so terminated.
4. Change
of
Control/Going
Private
Transaction
.
As set forth in Annex 1 attached hereto, your entitlement to the Award
may be affected in the event of a Change of Control of the Company or a going-private transaction (each as defined in Annex 1
attached hereto).
5. Transfer
Restrictions
.
You may not transfer, assign, pledge or otherwise encumber the units, other than to the extent
provided in the Plan.
6. Unfunded
Obligation
. The Plan will at all times be unfunded and, except as set forth in Annex 1
attached hereto, no provision will at any time be required to be made with respect to segregating any assets of the Company or any of
its Subsidiaries for payment of any benefits under the Plan, including, without limitation, those covered by this Agreement. Your
right or that of your estate to receive delivery or payment under this Agreement shall be an unsecured claim against the general
assets of the Company, including any rabbi trust established pursuant to Annex 1 . Neither you nor your estate shall have any rights
in or against any specific assets of the Company other than the assets held by the rabbi trust established pursuant to Annex 1 .
7. Right
to
Vote
and
Receive
Dividends
.
You shall not be deemed to be the holder of, or have any of the rights of a
stockholder with respect to any units unless and until the Company shall have issued and delivered Shares to you and your name
shall have been entered as a stockholder of record on the books of the Company. Pursuant to Section 10(c) of the Plan, all ordinary
(as determined by the Committee in its sole discretion) cash dividends that would have been paid upon any Shares underlying your
units had such Shares been issued will be retained by the Company for your account until your units vest and such dividends will be
paid to you (without interest) on the Delivery Date to the extent that your units vest.
8. Tax
Representations
and
Tax
Withholding
. You hereby acknowledge that you have reviewed with your own tax advisors
the federal, state and local tax consequences of receiving the units. You hereby represent to the Company that you are relying solely
on such advisors and not on any statements or representations of the Company, its Affiliates or any of their respective agents. If, in
connection with the units, the Company is required to withhold any amounts by reason of any federal, state or local tax, such
withholding shall be effected in accordance with Section 16 of the Plan.
9. Section
409A
.
It is the Company’s intent that payments under this Agreement shall comply with Section 409A of the
Internal Revenue Code (“ Section 409A ”) to the extent applicable, and that the Agreement be administered accordingly.
Notwithstanding anything to the contrary contained in this Agreement or any employment agreement you have entered into with the
Company, to the extent that any payment or benefit under this Agreement is determined by the Company to constitute “non-qualified
deferred compensation” subject to Section 409A and is payable to you by reason of termination of your employment, then (a) such
payment or benefit shall be made or provided to you only upon a “separation from service” as defined for purposes of Section 409A
under applicable regulations and (b) if you are a “specified employee” (within the meaning of Section 409A and as determined by
the Company), such payment or benefit shall not be made or provided before the date that is six months after the date of your
separation from service (or your earlier death). Each payment under this Agreement shall be treated as a separate payment under
Section 409A.
10. Delivery
.
Subject to Sections 8, 11 and 14 and Annex 1 and except as otherwise provided in this Agreement, the Shares
will be delivered in respect of vested units (if any) on the first to occur of the following events (i) to you on or promptly after the
Vesting Date (but in no case more than 15 days after such date) and (ii) in the event of your death to your estate after your death and
during the calendar year in which your death occurs (or such later date as may be permitted under Section 409A) (the “ Delivery
Date ”). Unless otherwise determined by the Committee, delivery of the Shares at the Delivery Date will be by book-entry credit to
an account in your name that the Company has established at a custody agent (the “ custodian ”). The Company’s transfer agent,
Wells Fargo Bank, N.A. shall act as the custodian of the Shares; however , the Company may in its sole discretion appoint another
custodian to replace Wells Fargo Bank, N.A. On the Delivery Date, if you have complied with your obligations under this
Agreement and provided that your tax obligations with respect to the vested units are appropriately satisfied, we will instruct the
custodian to electronically transfer your Shares to a brokerage or other account on your behalf (or make such other arrangements for
the delivery of the Shares to you as we reasonably determine).
11. Right
of
Offset
. You hereby agree that the Company shall have the right to offset against its obligation to deliver shares
of Class A Common Stock, cash or other property under this Agreement to the extent that it does not constitute “non-qualified
deferred compensation” pursuant to Section 409A, any outstanding amounts of whatever nature that you then owe to the Company or
any of its Subsidiaries.
12. The
Committee
. For purposes of this Agreement, the term “Committee” means the Compensation Committee of the
Board of Directors of the Company or any replacement committee established under, and as more fully defined in, the Plan.
13. Committee
Discretion
. The Committee has full discretion with respect to any actions to be taken or determinations to be
made in connection with this Agreement, and its determinations shall be final, binding and conclusive.
14. Amendment
.
The Committee reserves the right at any time to amend the terms and conditions set forth in this Agreement,
except that the Committee shall not make any amendment or revision in a manner unfavorable to you (other than if immaterial),
without your consent. No consent shall be required for amendments made pursuant to Section 12 of the Plan, except that, for
purposes of Section 19 of the Plan, Section 4 and Annex 1 of this Agreement are deemed to be “terms of an Award Agreement
expressly refer[ring] to an Adjustment Event.” Any amendment of this Agreement shall be in writing and signed by an authorized
member of the Committee or a person or persons designated by the Committee.
15. Units
Subject
to
the
Plan
.
The units covered by this Agreement are subject to the Plan.
16. Subsidiaries
.
For purposes of this Agreement, “Subsidiaries”
shall mean any entities that are controlled, directly or
indirectly, by the Company, or in which the Company owns, directly or indirectly, more than 50% of the equity interests.
17. Entire
Agreement
.
Except for any employment agreement between you and the Company or any of its Subsidiaries in
effect as of the date of the grant hereof (as such employment agreement may be modified, renewed or replaced), this Agreement and
the Plan constitute the entire understanding and agreement of you and the Company with respect to the units covered hereby and
supersede all prior understandings and agreements. Except as provided in Sections 9 and 16, in the event of a conflict among the
documents with respect to the terms and conditions of the units covered hereby, the documents will be accorded the following order
of authority: the terms and conditions of the Plan will have highest authority followed by the terms and conditions of your
employment agreement, if any, followed by the terms and conditions of this Agreement.
18. Successors
and
Assigns
.
The terms and conditions of this Agreement shall be binding upon, and shall inure to the benefit
of, the Company and its successors and assigns.
19. Governing
Law
.
This Agreement shall be deemed to be made under, and in all respects be interpreted, construed and
governed by and in accordance with, the laws of the State of New York without regard to conflict of law principles.
20. Jurisdiction
and
Venue
.
You irrevocably submit to the jurisdiction of the courts of the State of New York and the
Federal courts of the United States located in the Southern District of the State of New York in respect of the interpretation and
enforcement of the provisions of this Agreement, and hereby waive, and agree not to assert, as a defense that you are not subject
thereto or that the venue thereof may not be appropriate. You agree that the mailing of process or other papers in connection with
any action or proceeding in any manner permitted by law shall be valid and sufficient service.
21. Waiver
. No waiver by the Company at any time of any breach by you of, or compliance with, any term or condition of
this Agreement or the Plan to be performed by you shall be deemed a waiver of the same term or condition, or of any similar or any
dissimilar term or condition, whether at the same time or at any prior or subsequent time.
22. Severability
. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any
term or condition hereof shall not affect the validity or enforceability of the other terms and conditions set forth herein.
23. Exclusion
from
Compensation
Calculation
. By acceptance of this Agreement, you shall be deemed to be in agreement
that the units covered hereby shall be considered special incentive compensation and will be exempt from inclusion as “wages” or
“salary” in pension, retirement, life insurance and other employee benefits arrangements of the Company and its Affiliates, except as
determined otherwise by the Company. In addition, each of your beneficiaries shall be deemed to be in agreement that all such
shares be exempt from inclusion in “wages” or “salary” for purposes of calculating benefits of any life insurance coverage sponsored
by the Company or any of its Affiliates.
24. No
Right
to
Continued
Employment
. Nothing contained in this Agreement or the Plan shall be construed to confer on
you any right to continue in the employ of the Company or any Affiliate, or derogate from the right of the Company or any Affiliate,
as applicable, to retire, request the resignation of, or discharge you, at any time, with or without cause.
25. Headings
.
The headings in this Agreement are for purposes of convenience only and are not intended to define or limit
the construction of the terms and conditions of this Agreement.
26. Effective
Date
.
Upon execution by you, this Agreement shall be effective from and as of the Grant Date.
27. Signatures
.
Execution of this Agreement by the Company may be in the form of an electronic, manual or similar
signature (including, without limitation, an electronic acknowledgement of acceptance), and such signature shall be treated as an
original signature for all purposes.
THE MADISON SQUARE GARDEN COMPANY
By:
Name:
Title:
By your electronic acknowledgement of acceptance, you (i) acknowledge that a complete copy of the Plan and an
executed original of this Agreement have been made available to you and (ii) agree to all of the terms and conditions set forth
in the Plan and this Agreement.
By:
Name:
Title:
Annex 1
PERFORMANCE RESTRICTED STOCK UNITS AGREEMENT
1. In the event of a “going private transaction,” as defined below, your entitlement to the Award shall be as follows:
(A) The Committee shall, no later than the effective date of the transaction which results in a going private transaction, deem the
Objectives to be satisfied at the target level and convert your Target Award into an amount of cash equal to (i) the number of your
unvested units multiplied by (ii) the “offer price per share,” the “acquisition price per share” or the “merger price per share,” each as
defined below, whichever of such amounts is applicable.
(B) Provided that you remain continuously employed with the Company, one of its Subsidiaries or the Surviving Entity through
the date of the earliest event described in any of (i), (ii) or (iii) below, any award provided for in Paragraph 1(A) shall become
payable to you (or your estate) at or promptly after (but in no event more than 15 days after) the earlier of (i) the date on which your
Award would otherwise have vested had it continued in effect, (ii) the date of your death, or (iii) the date on which your employment
with the Company, one of its Subsidiaries or the Surviving Entity is terminated (a) by the Company, one of its Subsidiaries or the
Surviving Entity other than for Cause (as defined below) or (b) by you for “good reason,” (as defined below). Notwithstanding the
foregoing, if you become entitled to payment of an award by virtue of a termination in accordance with (iii)(a) or (iii)(b) of this
Paragraph 1(B) and are determined by the Company to be a “specified employee” within the meaning of Section 409A of the
Internal Revenue Code of 1986, as amended (“ Section 409A of the IRC ”), the award shall be paid to you on the earlier of: (i) July
1, [ ], (ii) the date that is six months from your date of employment termination and (iii) any other date on which such payment or
any portion thereof would be a permissible distribution under Section 409A of the IRC. In the event of such a determination, the
Company shall promptly following the date of your employment termination set aside such amount for your benefit in a “rabbi trust”
that satisfies the requirements of Revenue Procedure 92-64, and on a monthly basis shall deposit into such trust interest in arrears
(compounded quarterly at the rate provided below) until such time as such amount, together with all accrued interest thereon, is paid
to you in full pursuant to the previous sentence; provided , that no payment will be made to such rabbi trust if it would be contrary to
law or cause you to incur additional tax under Section 409A of the IRC. The initial interest rate shall be the average of the one-year
LIBOR fixed rate equivalent for the ten business days prior to the date of your employment termination.
2. In the event of a “Change of Control” of the Company, as defined below, provided you have remained continuously employed
with the Company or one of its Subsidiaries through the effective date of the transaction that results in the Change of Control, you
will be entitled to the payment of the Target Award whether or not the Objectives have been attained.
(A)
If the actual Change of Control:
(i)
is a permissible distribution event under Section 409A of the IRC or payment of the Award promptly upon such
event is otherwise permissible under Section 409A of the IRC (including, for the avoidance of doubt, by reason of
the inapplicability of Section 409A of the IRC to the Award), then the Target Award shall be paid to you by the
Company promptly following the Change of Control; or
(ii)
is not a permissible distribution event under Section 409A of the IRC and payment of the Award promptly upon
such event is not otherwise permissible under Section 409A of the
IRC, then:
(a)
(1) if the Company or the Surviving Entity has shares of common stock (or partnership units) traded on a
national stock exchange or on the over-the-counter market as reported on the New York Stock Exchange or any
other stock exchange, then the Committee shall, no later than the effective date of the Change of Control, either
(i) convert your Target Award into an amount of cash equal to (a) the number of your unvested units multiplied
by (b) the “offer price per share,” the “acquisition price per share” or the “merger price per share,” each as
defined below, whichever of such amounts is applicable or (ii) arrange to have the Surviving Entity grant to you
an award of restricted stock units (or partnership units) for shares of the surviving entity on the same terms and
with a value equivalent to your Target Award which will, in the good faith determination of the Committee,
provide you with an equivalent profit potential or
(2) if the Company or the Surviving Entity does not have shares of common stock (or partnership units) traded
on a national stock exchange or on the over-the-counter market as reported on the New York Stock Exchange or
any other stock exchange, then the Award will be treated in accordance with Paragraph 1(A) above;
(b)
any cash award or substitute restricted stock unit award of the Surviving Entity provided for in Paragraph 2(A)
(ii)(a) will be fully vested and will be paid to you (or your estate), at the earliest to occur of: (1) any subsequent
date on which you are no longer employed by the Company, one of its Subsidiaries or the Surviving Entity for
any reason other than termination of your employment by one of such entities for Cause (provided that if you
are determined by the Company to be a “specified employee” within the meaning of Section 409A of the IRC,
six months from such date), (2) any other date on which such payment or any portion thereof would be a
permissible distribution under Section 409A of the IRC, or (3) July 1, [ ].
(c)
the Company shall promptly following the Change of Control set aside cash (or shares in the event a substitute
restricted stock unit award is made) for your benefit in a “rabbi trust” that satisfies the requirements of Revenue
Procedure 92-64, and on a monthly basis shall deposit into such trust interest in arrears (compounded quarterly
at the rate provided below) until such time as such amount, together with all accrued interest thereon, is paid to
you in full pursuant to Paragraph 2(A)(ii)(b) above); provided , that no payment will be made to such rabbi trust
if it would be contrary to law or cause you to incur additional tax under Section 409A of the IRC. The initial
interest rate shall be the average of the one-year LIBOR fixed rate equivalent for the ten business days prior to
the date of the Change of Control and shall adjust annually based on the average of such rate for the ten business
days prior to each anniversary of the Change of Control.
3. As used herein,
“ Cause
” means your (i) commission of an act of fraud, embezzlement, misappropriation, willful misconduct, gross
negligence or breach of fiduciary duty against the Company or any of its Affiliates, or (ii) commission of any act or omission that
results in a conviction, plea of no contest, plea of nolo
contendere
, or imposition of unadjudicated probation for any crime
involving moral turpitude or any felony.
“ Change
of
Control
” means the acquisition, in a transaction or a series of related transactions, by
any person or group, other than Charles F. Dolan or members of the immediate family of Charles F. Dolan or trusts for the
benefit of Charles F. Dolan or his immediate family (or an entity or entities controlled by any of them) or any employee benefit
plan sponsored or maintained by the Company, of the power to direct the management of the Company or substantially all its
assets (as constituted immediately prior to such transaction or transactions).
“ Surviving
Entity
” means the entity that owns, directly or indirectly, after consummation of any transaction, substantially all
of the Company’s assets (as constituted immediately prior to such transaction). If any such entity is at least majority-owned,
directly or indirectly, by any entity (a “parent entity”) which has shares of common stock (or partnership units) traded on a
national stock exchange or the over-the-counter market, as reported on the New York Stock Exchange or any other stock
exchange, then such parent entity shall be deemed to be the Surviving Entity provided that it there shall be more than one such
parent entity, the parent entity closest to ownership of the Company’s assets shall be deemed to be the Surviving Entity.
“ Going
private
transaction
” means a transaction involving the purchase of Company securities described in Rule 13e-3 to
the Securities and Exchange Act of 1934.
“ Good
reason
” means
a. without your express written consent any reduction in your base salary or target bonus opportunity, or any material
impairment or material adverse change in your working conditions (as the same may from time to time have been improved
or, with your written consent, otherwise altered, in each case, after the Grant Date) at any time after or within ninety (90) days
prior to the Change of Control including, without limitation, any material reduction of your other compensation, executive
perquisites or other employee benefits (measured, where applicable, by level or participation or percentage of award under
any plans of the Company), or material impairment or material adverse change of your level of responsibility, authority,
autonomy or title, or to your scope of duties;
b. any failure by the Company to comply with any of the provisions of this Agreement, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of notice thereof given by you;
c. the Company’s requiring you to be based at any office or location more than thirty-five (35) miles from your location
immediately prior to such event except for travel reasonably required in the performance of your responsibilities; or
d. any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as
contemplated by Paragraph 1 or Paragraph 2(A)(ii)(a).
“ Offer
price
per
share
” shall mean, in the case of a tender offer or exchange offer which results in a Change of Control or
going private transaction (an “ Offer
”), the greater of (i) the highest price per share of common stock paid pursuant to the Offer,
or (ii) the highest fair market value per share of common stock during the ninety-day period ending on the date of a Change of
Control or going private transaction. Any securities or property which are part or all of the consideration paid for shares of
common stock in the Offer shall be valued in determining the Offer Price per Share at the higher of (A) the valuation placed on
such securities or property by the Company, person or other entity making such offer or (B) the valuation placed on such
securities or property by the Committee.
“ Merger
price
per
share
” shall mean, in the case of a merger, consolidation, sale, exchange or other disposition of assets that
results in a Change of Control or going private transaction (a “ Merger
”), the greater of (i) the fixed or formula price for the
acquisition of shares of common stock occurring pursuant to the Merger, and (ii) the highest fair market value per share of
common stock
during the ninety-day period ending on the date of such Change of Control or going private transaction. Any securities or
property which are part or all of the consideration paid for shares of common stock pursuant to the Merger shall be valued in
determining the merger price per share at the higher of (A) the valuation placed on such securities or property by the Company,
person or other entity which is a party with the Company to the Merger, or (B) the valuation placed on such securities or property
by the Committee.
“ Acquisition
price
per
share
” shall mean the greater of (i) the highest price per share stated on the Schedule 13D or any
amendment thereto filed by the holder of twenty percent (20%) or more of the Company’s voting power which gives rise to the
Change of Control or going private transaction, and (ii) the highest fair market value per share of common stock during the
ninety-day period ending on the date of such Change of Control or going private transaction.
Annex 2
The Madison Square Garden Company Objectives
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Exhibit 10.60
Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission. The omissions have been indicated by asterisks (“*****”), and the omitted text has been filed
separately with the Securities and Exchange Commission.
G ROUND L EASE
by and among
SANDS ARENA LANDLORD LLC ,
a Nevada limited liability company, as Lessor,
VENETIAN CASINO RESORT, LLC ,
a Nevada limited liability company,
MSG LAS VEGAS, LLC ,
a Delaware limited liability company, as Lessee,
and
MSG SPORTS & ENTERTAINMENT, LLC ,
a Delaware limited liability company
Dated as of July 16, 2018
Premises: See Exhibit A attached hereto.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
T ABLE O F C ONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
Definitions
Lease; Lease Term
Fixed Rent; Lessor’s Participation Payment
Uses
Improvements .
Environmental Matters; Premises Use
Maintenance, Repairs and Replacements; Services and Security; Management
Alterations and Additions
Intentionally Deleted
Compliance with Applicable Laws
Liens
No Claims Against Lessor
Permitted Contests
Lessor’s Access Rights
Mutual Indemnification
Utility Services
Quiet Enjoyment
Subordination
Insurance
Damage to or Destruction of Property
Taking
Mortgage of Leasehold Estate
Assignment by Lessee or MSG S&E and Subleases
Performance on Behalf of Lessee
Events of Default
Remedies
Acceptance of Surrender
Brokers
No Merger of Title
Estoppel Certificate
Intentionally Deleted
Representations, Warranties, and Covenants
Intentionally Deleted
Intentionally Deleted
Sale Notice; Restriction on Sale to Competitor
Notices
End of Lease Term
Limitation of Liability
Memorandum of Lease
Miscellaneous
Page
3
13
14
15
18
25
28
28
29
29
29
29
30
30
30
31
31
32
32
33
34
35
40
42
43
44
46
46
47
47
47
47
51
52
52
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54
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and
Exchange Commission. The omissions have been indicated by asterisks (“*****”), and the omitted text has been filed
separately with the Securities and Exchange Commission.
G ROUND L EASE
This GROUND LEASE (this “ Lease ”), dated as of July 16, 2018 (the “ Lease Commencement Date ”), is by and among
Sands Arena Landlord LLC , a Nevada limited liability company (together with its permitted successors and assigns, “ Lessor ”),
MSG Las Vegas, LLC , a Delaware limited liability company (together with its permitted successors and assigns, “ Lessee ”),
Venetian Casino Resort, LLC , a Nevada limited liability company (“ VCR ”), and MSG Sports & Entertainment, LLC , a
Delaware limited liability company (“ MSG S&E ”). VCR and MSG S&E join in this Lease for the purposes set forth in Section 2.3
. Lessor and Lessee are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”
R ECITALS :
A.
B.
C.
D.
E.
Lessor is the owner of that certain real property located in the County of Clark, State of Nevada, consisting of approximately
18.63 acres, as more particularly described in Exhibit A attached hereto (the “ Premises ”), which Premises for purposes of
this Lease excludes mineral rights and groundwater or other water rights.
Lessor desires to lease the Premises to Lessee, and Lessee desires to hire and lease the Premises from Lessor, subject to, upon
and in accordance with the terms, provisions, covenants and conditions of this Lease, for the purpose of developing and
constructing a new, approximately 602,267 square foot, first-class, multi-function event venue with capacity of at least
16,000 seats (the “ Venue ”), together with the Bridge, as defined herein (collectively, the “ Project ”), to be built on the
Premises in accordance with the governmental approvals listed on Exhibit F attached hereto (as may be amended or modified
from time to time in accordance with this Lease, collectively, the “ Project Entitlements ”).
Concurrently herewith Lessee is acquiring an interest in Lessor’s right, title and interest in and to such entitlements,
easements, air rights, development rights, and other privileges appurtenant to the Premises as provided herein.
Lessee and VCR, as predecessor-in-interest to Lessor under the Agreement to Lease, previously entered into that certain
Agreement dated as of May 20, 2016 (the “ Agreement to Lease ”). By its execution of this Lease, each of Lessor and
Lessee acknowledges and agrees that all of the conditions precedent to such Party’s obligation to execute this Lease as set
forth in the Agreement to Lease have been fulfilled or waived in writing, and that the Agreement to Lease is of no further
force or effect.
Concurrently with the execution of this Lease, (1) Lessee, VCR, and Sands Expo & Convention Center, Inc., a Nevada
corporation (“ Sands Expo ”), have entered into that certain License Agreement (Path of Travel) (the “ Path of Travel
License ”), (2) Lessee and
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Sands Expo have entered into that certain Parking License Agreement (the “ Parking License ”), and (3) Lessee, MSG S&E,
and VCR have entered into that certain Cross-Marketing Agreement (the “ Cross-Marketing Agreement ” and together with
this Lease, the Path of Travel License and the Parking License, the “ Arena Documents ”).
N OW , T HEREFORE , in reliance on the foregoing and in consideration of the mutual covenants, agreements and conditions
set forth herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do agree as follows:
1.
Definitions . As used in this Lease the following terms shall have the following respective meanings:
1.1.
“ Actual Weekend Event Average ” is defined in Section 4.3.1 .
1.2.
“ Actual Yearly Event Average ” is defined in Section 4.3.1 .
1.3.
“ Affiliate ” shall mean any Person directly or indirectly controlling, controlled by or under common control with
another Person. For so long as Lessee is an Affiliate of the Madison Square Garden Company, the term “Affiliate” as
applied to Lessee shall mean The Madison Square Garden Company or any entity directly or indirectly controlled by
The Madison Square Garden Company.
1.4.
“ Agreement to Lease ” is defined in Recital D .
1.5.
“ Applicable Laws ” shall mean any and all codes, laws, rules, regulations, statutes, orders, resolutions, ordinances,
administrative or other requirements, covenants, conditions and restrictions of any governmental or quasi-
governmental entity (including but not limited to all applicable anti-corruption laws, anti-money laundering laws, and
fair competition laws) applicable to Lessee (including without limitation the operation of Lessee’s business and the
performance of Lessee’s obligations hereunder), this Lease (to the extent applicable to Lessee’s interest in the Lease)
or the Property; provided that when the term “Applicable Laws” is used in Section 10.2 , such term shall mean any
and all codes, laws, rules, regulations, statutes, orders, resolutions, ordinances, administrative or other requirements,
covenants, conditions and restrictions of any governmental or quasi-governmental entity (including but not limited to
all applicable anti-corruption laws, anti-money laundering laws, and fair competition laws) regarding the operation of
Lessor’s business and the performance of Lessor’s obligations hereunder.
1.6.
“ Approved Transfer ” is defined in Section 22.3 .
1.7.
“ Asset Transferee ” is defined in Section 22.8 .
1.8.
“ Assignment ” shall mean any sale, assignment, pledge, mortgage, encumbrance or any other transfer by Lessee,
including transfers as security for obligations of this Lease or of Lessee’s rights and obligations under this Lease or
any subletting of all
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
or substantially all of the Property (except for any license or sublease entered into in connection with an event
booking). With respect to Lessee (and not MSG S&E), the term “Assignment” shall also include any direct transfer of
the equity interests in such Lessee (or the direct transfer of any other entity where all or substantially all of such
entity’s assets consist of a direct or indirect interest in Lessee).
1.9.
“ Bridge ” is defined in Section 5.7.1 .
1.10.
“ Bridge Construction Drawings ” is defined in Section 5.7.4 .
1.11.
“ Bridge DD Documents ” is defined in Section 5.7.3 .
1.12.
“ Bridge Schematic Drawings ” is defined in Section 5.7.2 .
1.13.
“ Building Sponsor ” shall mean the entity signing a Sponsorship Agreement and any brands being included in any
signage at the Property or marketing materials for the Property pursuant to a Sponsorship Agreement.
1.14.
“ Building Standard ” shall mean a first-class facility that is equal to or better than Madison Square Garden in New
York City, New York and the Forum in Inglewood, California (or any successor venues to the same); provided ,
however , that it is understood and agreed that the Project and other Improvements will not be exactly the same as any
such other facility, and may have, for example, different types, quality and/or numbers of amenities, concessions, VIP
areas, suites, media/technology and/or seats, recognizing that each such facility owned and operated by The Madison
Square Garden Company and its affiliates has its own unique history, context, business needs, and commitments.
1.15.
“ Business Day ” is defined in Section 39.9 .
1.16.
“ Capital Repairs ” means, collectively, any capital improvements, repairs, replacements, or restoration (but
expressly excluding any capital upgrades to the extent provided in Section 7 hereof) with respect to the
Improvements, including the furniture, fixtures, machinery and equipment thereon, the depreciable life of which,
according to GAAP, is in excess of one year.
1.17.
“ Casualty ” is defined in Section 19.1 .
1.18.
“ Casualty Proceeds ” is defined in Section 19.1 .
1.19.
“ Consent Agreement ” is defined in Section 21.2.12 .
1.20.
“ Construction Commencement Date ” is defined in Section 5.3 .
1.21.
“ CPI ” shall mean the Consumer Price Index (CPI) compiled by the United States Department of Labor, Bureau of
Labor Statistics for all urban consumers (1982-84 = 100).
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
1.22.
“ Cumulative Post-Tax Net Cash Flows ” shall mean *****.
1.23.
“ Cumulative Post-Tax Return ” shall mean *****.
1.24.
“ Deemed Approval Process ” is defined in Section 35 .
1.25.
“ Default Rate ” shall mean the lesser of (i) two percent (2.0%) in excess of the “prime rate” then published by Wells
Fargo Bank, N.A., or its successors, or (ii) the highest rate permitted by law.
1.26.
“ Development ” shall mean the construction of the entire Project set forth on the approved Plans.
1.27.
“ Development Completion ” shall mean substantial completion of the Development, as evidenced by the issuance of
a temporary or permanent certificate of occupancy.
1.28.
1.29.
“ Development Completion Date ” shall mean the date upon which Development Completion occurs as evidenced
by a notice from Lessee to Lessor promptly following Development Completion, which notice shall contain a copy of
all applicable certificates of occupancy evidencing that the Development Completion Date has occurred.
“ Environmental Law ” shall mean any applicable Federal, state, or local statute, law, rule, regulation, ordinance,
code, order or decree of any governmental authority, and any binding and enforceable judicial interpretation thereof,
relating to pollution, protection of the environment and natural resources, or protection of human health or safety in
respect of Hazardous Materials, and including principles of common law such as negligence, strict liability and
trespass.
1.30.
“ Event of Default ” is defined in Section 24.1 .
1.31.
“ Event ” shall mean an event held at the performance arena within the Improvements with at least four thousand
(4,000) attendees.
1.32.
“ Event Expenses ” is defined in Section 4.4 .
1.33.
“ Fee Mortgage ” is defined in Section 17 .
1.34.
“ Fee Mortgagee ” is defined in Section 17 .
1.35.
“ First Event Test Year ” is defined in Section 4.3.1 .
1.36.
“ Force Majeure ” shall mean, whenever any time period or deadline is prescribed in this Lease (other than the terms
of Sections 18 (Insurance) and 39.16 (Holding Over) hereof and except that in no event shall Force Majeure apply to
the payment of money, nor shall the inability to pay be a Force Majeure event), such period or
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
deadline shall be extended by the number of days that completion of an obligation is actually delayed due to acts of
nature or of the public enemy; acts of the government; acts of terrorism; fires; floods; tidal waves; epidemics;
quarantine restrictions; freight embargoes; earthquakes; unusually severe weather; strikes or other substantial
interruption of work because of labor disputes; inability to obtain materials or acceptable substitute materials on a
timely basis; failure or delay in delivery of utilities serving the Premises not caused by, or outside the reasonable
control of, the party claiming an extension; previously unknown environmental conditions discovered on or affecting
the Premises or any portion thereof, in each case including any delay caused or resulting from the investigation or
remediation of such conditions; existing unknown or newly discovered geotechnical conditions, including any delay
caused or resulting from the investigation or remediation of such conditions, litigation that enjoins construction or
other work on the Premises or any portion thereof, causes a lender to refuse to fund, disburse or accelerate payment
on a loan, or prevents or suspends construction work except to the extent caused by the party claiming an extension;
and any action or proceeding before any judicial, adjudicative, or legislative decision-making body, including any
administrative appeal, that prevent the action that is being delayed, brought by a third party that challenges any
Project Entitlement or other approval, action or consent required to implement the Project, provided the foregoing
events shall only be considered Force Majeure to the extent the same (a) do not arise from the acts or negligent
omissions of the Party claiming Force Majeure delay and (b) are not within the reasonable control of such Party.
1.37.
“ GAAP ” shall mean Generally Accepted Accounting Principles, consistently applied.
1.38.
1.39.
“ Gaming License ” shall mean any license, franchise or other authorization to own, lease, operate, or otherwise
conduct gaming activities, required pursuant to Nevada or federal law; provided , however , that the uncapitalized
term “gaming license” as used in Section 1.58 , Section 31.2.6 , and Exhibit G shall mean any license, franchise or
other authorization to own, lease, operate, or otherwise conduct gaming activities, required pursuant to local, state,
federal, or international law.
“ Hazardous Material ” shall mean any substance, material or waste (regardless of physical form or concentration)
that is (a) toxic, radioactive, hazardous, explosive, carcinogenic, ignitable, corrosive, reactive or words of similar
meaning or regulatory effect under Environmental Laws; or (b) restricted or regulated under any Environmental
Laws. Without limiting the foregoing, “Hazardous Materials” includes petroleum, petroleum products and by-
products including gasoline, diesel fuel or other petroleum hydrocarbons; asbestos and asbestos-containing materials,
in any form, whether friable or nonfriable; polychlorinated biphenyls; and radon gas.
6
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
1.40.
“ Impositions ” shall mean all *****.
1.41.
1.42.
“ Improvements ” shall mean all buildings and other additions, alterations, modifications and improvements now or
hereafter located on the Premises, and all renewals or replacements thereof, including without limitation the Venue
and the Bridge and all other aspects of the Project.
“ Income Tax Payments ” shall mean income tax payments calculated (i) using a rate equal to the sum of (A) five
percent (5%) plus
(B) the highest Nevada state income tax rate then applicable to corporations (if any), as may be
adjusted from time to time, plus
(C) the highest federal income tax rate then applicable to corporations, as may be
adjusted from time to time and (ii) multiplied
by
Net Taxable Income.
1.43.
“ Indemnitee ” is defined in Section 6.1 .
1.44.
“ Indemnitor ” is defined in Section 6.1 .
1.45.
“ Insurance to Replacement Cost Ratio ” shall mean the ratio of (a) the Casualty Proceeds divided
by
(b) the
replacement cost of the Project.
1.46.
“ Interconnection Point ” is defined in Section 5.7.1 .
1.47.
“ Investment ” shall mean all capital and expense costs incurred by Lessee during pre-construction, construction and
residual/post-opening construction incurred to complete the initial full scope of Project development and net of the TI
Allowance to the extent paid to Lessee.
1.48.
“ Lease ” shall mean this Ground Lease, as it may be amended, modified or supplemented from time to time in the
manner provided herein.
1.49.
“ Lease Commencement Date ” is defined in the preamble.
1.50.
“ Lease Term ” is defined in Section 2.2 .
1.51.
“ Leasehold Foreclosure ” shall mean judicial foreclosure of a Leasehold Mortgage, sale under a power of sale given
in a Leasehold Mortgage, and all other remedies provided by law or equity or specified in the Leasehold Mortgage
and, solely with respect to Leasehold Mortgage that is not a pledge of direct or indirect ownership interests in the
Lessee, enforceable in Nevada at the time of the foreclosure for divesting the obligor of title in the event of the
obligor’s default under the Leasehold Mortgage or the obligation it secures.
1.52.
“ Leasehold Mortgage ” means a mortgage, deed of trust, pledge, or other encumbrance, together with such
associated financing statements, fixture filings, security agreements and related documentation for the purpose of
creating and perfecting a contractual security interest in real property in favor of a Qualified
7
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Lender or a pledge of the direct or indirect owner(s) of Lessee, encumbering Lessee’s interest in this Lease or the
Property, or any portion thereof, or the direct and/or indirect ownership interests in Lessee, provided no Leasehold
Mortgage shall encumber the fee interest in the Premises.
1.53.
“Leasehold Mortgagee ” shall mean the mortgagee, beneficiary or other obligee of any indebtedness secured by a
Leasehold Mortgage.
1.54.
“ Lessee ” is defined in the preamble.
1.55.
“ Lessee Parties ” is defined in Section 6.6 .
1.56.
“ Lessee’s Condemnation Value ” is defined in Section 20.4.2 .
1.57.
“ Lessor ” is defined in the preamble.
1.58.
“ Lessor Competitor ” shall mean, at any time that such determination is made pursuant to Section 1.98 or Section
22.4 , (x) any Person that owns or operates a casino located in Singapore, Macao, the States of Nevada, New Jersey,
Massachusetts or Pennsylvania, or any other jurisdiction in which Lessor or any LVS Affiliate has obtained or applied
for a gaming license (or is a controlled Affiliate of such a Person); provided that a passive investment constituting less
than ten percent (10%) of the common stock of any such casino shall not constitute ownership thereof for the
purposes of this definition, or (y) any Person that owns or operates a convention facility, trade show facility,
conference center facility, or exhibition facility located in Singapore, Macao, the States of Nevada, New Jersey,
Massachusetts or Pennsylvania, or any other jurisdiction in which Lessor or any of its Affiliates owns, operates or is
developing a convention facility, trade show facility, conference center facility, or exhibition facility (or an Affiliate
of such a Person); provided that a passive investment constituting less than ten percent (10%) of the common stock of
any such convention facility, trade show facility, conference center facility, or exhibition facility shall not constitute
ownership for the purpose of this definition, or (z) any union pension fund. An “ LVS Affiliate ” shall mean Las
Vegas Sands Corp. or any entity directly or indirectly controlled by Las Vegas Sands Corp.
1.59.
“ Lessor Delay ” shall mean the failure by Lessor or any Lessor Affiliate to perform any of its obligations pursuant to
this Lease or any other Arena Document to the extent such failure causes an actual delay in the date of completion by
Lessee of its obligations hereunder beyond the date such obligations would be otherwise complete (taking into
account Force Majeure and Lessee-caused delays). With respect to any Lessor Delay for which a time period is
provided in this Lease, no Lessor Delay shall occur unless and until Lessor has received three (3) Business Days
written notice of such Lessor Delay. With respect to any Lessor Delay for which a time period is not provided in this
Lease, such delay shall not constitute Lessor Delay unless and until (i) Lessor has failed to respond to Lessee’s notice
or request within ten (10) days or if a response shall reasonably require longer than ten (10) days,
8
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Lessor has failed to respond within such reasonable period of time and (ii) Lessee has given Lessor notice of such
Lessor Delay. If a Lessor Delay occurs less than three (3) Business Days prior to the date on which Lessee has an
obligation hereunder, then Lessee shall receive an automatic time extension for such obligation for the number of
Business Days required to deliver the 3 Business Day notice described above and to claim such Lessor Delay.
1.60.
“ Lessor Event ” is defined in Section 4.4 .
1.61.
“ Lessor Parties ” is defined in Section 6.6 .
1.62.
“ Lessor’s Condemnation Value ” is defined in Section 20.4.2 .
1.63.
“ Lessor’s Participation Payment ” is defined in Section 3.2 .
1.64.
“ LET ” is defined in Section 3.4 .
1.65.
“ Material Modification ” shall mean any modification to the Plans (or, as such term is used in Section 8 and Section
19.1 , with respect to the subject Improvements) (i) as they pertain to the general architectural character of the exterior
building design as it relates to (a) the exterior color palette for, (b) types of exterior construction materials to be used
in, (c) primary entrances into the Venue at, (d) location of primary exterior signage at, or (e) the general architectural
style or scale of the Project, or (ii) that would result in the Venue being less than 350,000 square feet in floor area or
having less than a 16,000 seat capacity.
1.66.
“ Memorandum of Lease ” is defined in Section 38 .
1.67.
“ Minimum Event Levels ” is defined in Section 4.3.1 .
1.68.
“ Minimum Weekend Event Average ” is defined in Section 4.3.1 .
1.69.
“ Minimum Yearly Event Average ” is defined in Section 4.3.1 .
1.70.
“ Most Recent Performance Year ” is defined in Section 4.3.2 .
1.71.
“ MSG Competitor ” shall mean, at any time that such determination is made pursuant to Section 34 , any entity
(other than an Affiliate of The Madison Square Garden Company) that meets one of the following criteria: (1) such
entity directly or indirectly owns, operates, or manages, or
owns a ten percent (10%) or more interest in an entity
which directly or indirectly owns, operates, or manages, either (a) (i) two or more live entertainment venues in North
America with at least 3,000 seats each or (ii) one or more professional sports franchises in North America, or (b)
promotes, produces, or schedules musical concerts, performances or entertainment acts, or other family or theatrical
productions in New York, Los Angeles, or multiple cities in North America, or (2) is an entity that is a competitor of
The Madison Square
9
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Garden Company, based upon evidence of same provided by Lessee to Lessor in accordance with Section 34 below.
1.72.
“ MSG Confidentiality Competitor ” is defined in Section 31.2.11 .
1.73.
“ Nevada Agency ” is defined in Section 3.4 .
1.74.
“ Nevada Gaming Laws ” shall mean any and all codes, laws, rules, regulations, statutes, orders, resolutions,
ordinances, requirements, covenants, conditions and restrictions of any governmental or quasi-governmental entity of
the State of Nevada, Clark County, City of Las Vegas or the NGCB applicable to casinos, gaming, or casino or
gaming-related activities.
1.75.
“ Net Taxable Income ” shall mean the amount of taxable income calculated as if the Project were a stand-alone
entity (but including any reasonable and customary cost allocations). Taxable income will be determined using tax
accounting methods utilized by Lessee in computing their U.S. corporate taxable income.
1.76.
“ NGCB ” shall mean the Nevada Gaming Control Board.
1.77.
“ NRS ” shall mean the Nevada Revised Statutes.
1.78.
“ Opening Date ” shall mean the date of the first ticketed event held open to the general public at the Venue.
1.79.
“ Operating Year ” shall mean the fiscal year ending on June 30.
1.80.
“ Outside Unforeseeable Conditions Date ” is defined in Section 25.4 .
1.81.
“ Parking License ” is defined in Section 2.4 .
1.82.
“ Partial Taking ” is defined in Section 20.3 .
1.83.
“ Path of Travel License ” is defined in Section 2.3 .
1.84.
“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, as amended from time to time.
1.85.
“ Performance Year ” is defined in Section 4.3.1 .
1.86.
“ Permitted Exceptions ” shall mean those items listed on Exhibit B attached hereto and incorporated herein.
1.87.
“ Permitted Transfer ” is defined in Section 22.1 .
1.88.
“ Permitted Uses ” is defined in Section 4.1 .
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
1.89.
“ Person ” shall mean an individual, a corporation, an association, a partnership, a limited liability company, a joint
venture, an organization, a trust, or any other business entity, or a governmental or political unit or agency.
1.90.
“ Plans ” is defined in Section 5.2 .
1.91.
“ Pre-Approved Sponsors ” is defined in Section 31.2.6(d) .
1.92.
“ Pre-Approved Sponsor Schedule ” is defined in Section 31.2.6(d) .
1.93.
“ Pre-Existing Hazardous Materials ” shall is defined in Section 25.5 .
1.94.
“ Premises ” is defined in Recital A .
1.95.
“ Project ” is defined in Recital B .
1.96.
“ Project Development Costs ” is defined in Section 5.6.5 .
1.97.
“ Project Entitlements ” is defined in Recital B .
1.98.
“ Property ” shall mean the Premises and all Improvements thereon from time to time.
1.99.
“ Qualified Lender ” shall mean (a) a nationally chartered bank, national association, federal association bank,
savings and loan association, investment bank, state chartered bank, lending institution, pension fund, insurance
company or other institutional lender which is duly established and in the business of financing the size and type of
development contemplated hereunder, and shall be an institutional lender that has a credit rating of at least an “A-” or
that has a minimum of Five Billion Dollars ($5,000,000,000.00) of assets on its most recent balance statement or (b)
any governmental agency or joint powers authority or indentured trustee acting for or on behalf of such entity or (c)
any other entity that Lessor approves in writing in its sole and absolute discretion; provided a Qualified Lender shall
not include a Lessor Competitor or any Affiliate of Lessee or any union pension fund.
1.100. “ Qualified Transferee ” is defined in Section 22.3 .
1.101. “ Reduction Event ” is defined in Section 4.3.4 .
1.102. “ Reporting Period ” is defined in Section 4.3.1 .
1.103. “ Restricted Venue ” is defined in Section 31.2.9 .
1.104. “ Return Threshold ” is defined in Section 3.2 .
1.105. “ Sale Notice ” is defined in Section 34 .
1.106. “ Shortfall Payment ” is defined in Section 4.3.3 .
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
1.107. “ Sponsorship Agreement ” shall mean an agreement with Lessee or one of its Affiliates whereby an entity pays or
provides other valuable consideration for the right to include one or more of its brands in signage at the Property or in
other marketing materials for the Property.
1.108. “ Sponsorship Limitations ” is defined in Section 31.2.6(a) .
1.109. “ Substantial Renovation ” is defined in Section 25.3 .
1.110. “ Taking ” shall mean any transfer during the Lease Term hereof of all or any part of the Property, or any leasehold
or other interest therein or right accruing thereto, as the result of the exercise of the right of condemnation or eminent
domain by a governmental entity.
1.111. “ Taking Award ” means all sums, amounts or other compensation for the Property payable to Lessor or Lessee, as
applicable, as a result of, or in connection with, any Taking.
1.112. “ Tangible Net Worth ” shall mean the total assets of the Person less the total liabilities and all intangibles of the
Person, including goodwill, write-ups, and intellectual property, all as would be determined at such time on a
consolidated basis in accordance with GAAP, provided that such total liabilities shall include all guarantees for
money borrowed.
1.113. “ Target Shortfalls ” is defined in Section 4.3.3 .
1.114. “ TI Allowance ” is defined in Section 5.6 .
1.115. “ TI Allowance Refund ” is defined in Section 19.1 .
1.116. “ TI Holdback ” is defined in Section 5.6.3 .
1.117. “ Total Taking ” is defined in Section 20.2 .
1.118. “ Uncurable Default ” is defined in Section 21.2.4 .
1.119. “ Unforeseen Conditions ” is defined in Section 25.4 .
1.120. “ Unforeseen Condition Termination ” is defined in Section 25.4 .
1.121. “ Unpermitted Lien ” shall mean any mechanic’s, materialman’s, material supplier’s, or vendor’s statutory lien or
similar lien arising out of work, labor services, equipment or materials supplied to Lessee or on behalf of Lessee in
connection with the initial construction or subsequent alterations to the Property by Lessee, which lien is recorded
against Lessor’s interest in the Premises, as owner, or is filed against the leasehold estate and subsequently attaches to
the Lessor’s interest in the Premises by operation of law.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
1.122. “ Wynn ” is defined in Section 5.7.7 .
1.123. “ Wynn Bridge Agreements ” is defined in Section 5.7.7 .
2.
Lease; Lease Term .
2.1.
Lease . For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, including
without limitation Lessee’s construction and operation of the Property in accordance with this Lease, Lessor hereby
leases to Lessee, and Lessee hereby leases and hires from Lessor, the exclusive right to possess and use, as tenant, the
Premises for the Lease Term and upon the terms and conditions and subject to the requirements set forth herein.
2.1.1. Lessee is sophisticated in the acquisition and leasing of real property and is familiar with the Premises. Lessee
acknowledges and agrees that (i) neither Lessor nor any of its agents, brokers or employees has made, or
makes, any representations or warranties of any kind whatsoever, whether oral or written, express or implied,
with respect to the Premises except as otherwise expressly provided in the Agreement to Lease or provided
herein, and (ii) the Premises are being leased to Lessee in its present “AS IS, WHERE IS” condition, with all
faults, Lessee expressly agreeing that the foregoing relates to all aspects of the condition of the Premises,
including without limitation the presence of Hazardous Materials in the soil, groundwater, Improvements or
fixtures which may give rise to any liability or responsibility with respect thereto on the part of Lessor or
Lessor Parties under any Environmental Law.
2.1.2.
In particular, but without limiting the generality of Section 2.1.1 above, neither Lessor nor any of its agents,
brokers, attorneys or employees has made, and does not make, any representations or warranties, whether oral
or written, express or implied, with respect to the economic value of the Premises, adequacy of water, sewage
or other utilities serving the Premises, the fitness or suitability of the Premises for Lessee’s intended uses or
the present use of the Premises, or the physical condition, occupation or management of the Premises, the
development potential of the Premises, its compliance with applicable statutes, laws, codes, ordinances,
regulations or requirements relating to leasing, zoning, subdivision, planning, building, fire, safety, health or
environmental matters (including, without limitation, the presence or absence of Hazardous Materials),
compliance with covenants, conditions and restrictions (whether or not of record), other local, municipal,
regional, state or federal requirements, or other statutes, laws, codes, ordinances, rules, regulations,
resolutions, orders or requirements, except as otherwise expressly provided in the Agreement to Lease or
provided herein.
2.2.
Lease Term . The term of this Lease (the “ Lease Term ”) shall commence upon the Lease Commencement Date and
continue thereafter for a period of fifty (50) years
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
following the Development Completion Date, unless such Lease Term shall sooner terminate as hereinafter provided.
2.3.
Joint and Several Liability .
2.3.1. VCR shall be jointly and severally liable with Lessor for all of Lessor’s obligations pursuant to this Lease;
provided , however , that from and after the date that is the later to occur of (a) the Development Completion
Date and (b) the date that the TI Allowance (including without limitation the TI Holdback) has been fully
funded, VCR shall be released from liability hereunder and Lessee shall provide VCR with written evidence
of such release. To the extent that Lessor has any obligations set forth in this Lease which expressly survive
the expiration or earlier termination of this Lease and for which VCR was jointly and severally liable at the
time of such expiration or termination, the joint and several liability of VCR hereunder shall also survive the
expiration or earlier termination of this Lease.
2.3.2. Subject to the provisions of Section 22 , MSG S&E shall be jointly and severally liable with Lessee for all of
Lessee’s obligations pursuant to this Lease. To the extent that Lessee has any obligations set forth in this
Lease which expressly survive the expiration or earlier termination of this Lease and for which MSG S&E was
jointly and severally liable at the time of such expiration or termination, the joint and several liability of MSG
S&E hereunder shall also survive the expiration or earlier termination of this Lease.
3.
Fixed Rent; Lessor’s Participation Payment .
3.1.
3.2.
Fixed Rent . No ground rent or similar fixed payment shall be due and payable by Lessee to Lessor or any of its
Affiliates.
Lessor’s Participation Payment . Notwithstanding the provision of Section 3.1 , from and after the time that Lessee
achieves a Cumulative Post-Tax Return on its Investment in the Property in excess of ***** (the “ Return Threshold
”), Lessor and Lessee shall share in any Cumulative Post-Tax Net Cash Flows in excess of the Return Threshold as
follows: seventy-five percent (75%) to Lessee, and twenty-five percent (25%) to Lessor (“ Lessor’s Participation
Payment ”). From and after the date that Cumulative Post-Tax Net Cash Flows equal the Investment, within one
hundred eighty (180) days of the end of each Operating Year, Lessee shall deliver to Lessor an annual statement
showing Lessee’s calculation of its Cumulative Post-Tax Return on its Investment in the Property and the Cumulative
Post-Tax Net Cash Flows for the Property. No more frequently than one time per Operating Year, Lessor shall have
the right, exercisable upon written notice to Lessee and following at least thirty (30) days’ advance notice to Lessee,
to inspect, copy, and audit Lessee’s accounting records for the time period covered by such annual statement, at
Lessor’s sole cost and expense; provided , however , that in the event Lessor shall employ or retain a third party
accounting firm to inspect Lessee’s accounting records (a “ Third
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Party Auditor ”), then as a condition precedent to any such inspection, Lessor shall deliver to Lessee a copy of
Lessor’s written agreement with such Third Party Auditor, which agreement shall include customary confidentiality
and non-disclosure provisions Lessee shall furnish Lessor with such reasonable supporting documentation relating to
the subject of the annual statement as Lessor may reasonably request. If Lessor reasonably identifies any issues
related to the calculation of Lessor’s Participation Payment, then Lessor shall give prompt written notice of same to
Lessee, and Lessor and Lessee shall meet and confer in good faith within thirty (30) days of such notice to resolve
such issues.
3.3.
Intentionally Deleted .
3.4.
3.5.
Net Lease . In addition to Lessor’s Participation Payment, except as otherwise expressly provided in this Lease,
Lessee shall be solely responsible for all costs and expenses attributable to the development, construction, operation,
security, and maintenance of the Property and any other future Improvements installed on the Premises by Lessee or
others acting on behalf of, through, or under Lessee in accordance with this Lease, including the operation and
maintenance of the Venue and the Bridge. Without limiting the generality of the foregoing:
3.4.1. *****
3.4.2. *****
Live Entertainment Tax . During the Term of this Lease, Lessee will collect any and all live entertainment taxes (“
LET ”) associated with the Property and the operations thereon as required under NRS 368A and regulations
promulgated thereunder. Lessee will remit all applicable taxes to the appropriate Nevada State agency (“ Nevada
Agency ”) on or prior to the due date. Upon Lessor’s request, Lessee will provide Lessor with reasonable evidence of
such payment within a reasonable time after such payment is made. Lessee shall keep such records and other
documentation as may be required by the Nevada Agency or the Lessee in connection with reporting requirements for
LET. Such records shall be made available for inspection upon the written request of Lessor or the Nevada Agency.
The obligations of Lessee set forth in this section shall survive the expiration or earlier termination of this Lease.
Lessee shall be responsible for any and all LET, late fees, penalties or interest determined to be payable resulting
from untimely payment to the Nevada Agency, misstated taxable revenues or deficient records.
4.
Uses .
4.1.
Permitted Uses .
4.1.1 Permitted Uses . *****
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
4.1.2 Prohibition Against Illegal Uses . Lessee shall not engage in any illegal use in, on or about the Property or any
portion thereof or knowingly permit others to engage in any illegal activity. Lessor acknowledges that the
Permitted Uses associated with an entertainment venue of the size and type of the Project will inherently have
the potential to create impacts on the surrounding area (including impacts related to noise and traffic).
4.1.3 Ongoing Consultations . Notwithstanding the provision of Section 4.1.3 , in the event that Lessor either
receives multiple verified complaints from unaffiliated adjacent landowners or itself reasonably identifies
issues related to Property operations, then Lessor shall give written notice of same to Lessee, and upon
Lessor’s request, Lessee shall meet and confer in good faith with Lessor within thirty (30) days of such notice
to identify potential event management strategies and other best practices to address such issues.
4.1.4 Nightclubs . In connection with any nightclub or similar use that will occupy in excess of 18,000 square feet at
the Property, Lessee shall deliver a written notice to Lessor thirty (30) days prior to the earlier to occur of (a)
Lessee entering into any space lease, license, management agreement, or similar agreement with a
sublessee/operator for such nightclub/use, or (b) Lessee’s submittal of any application for any building permit
required for same.
4.2.
Use of Hazardous Materials by Lessee . Lessee shall not, and Lessee shall not permit its tenants, agents, contractors,
employees, or invitees to, generate, treat, store, dispose of, or otherwise deposit Hazardous Materials in, on, under or
about or allow Hazardous Materials to emanate from the Property or any portion thereof, including, without
limitation, into the surface waters and subsurface waters thereof in violation of Applicable Laws. Hazardous Materials
may be transported to and from the Premises, and may be stored, generated, or used and disposed of at the Premises,
by Lessee and its agents and employees, so long as such transport, storage, generation, or use and disposal is (i)
ancillary to the ordinary course of business, (ii) in quantities customarily used in the ordinary course of business, and
(iii) conducted in full compliance with all Applicable Laws.
4.3. Minimum Event Levels .
4.3.1. Definitions .
(i) The annual average number of Events actually held at the Venue calculated using the actual number of
Events which took place in the Reporting Period shall be referred to herein as the “ Actual Yearly Event
Average ”).
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
(ii) The annual average number of Events actually held at the Venue calculated using the actual number of
Events which took place in the Reporting Period which take place on a Friday or Saturday and which have an
attendance of at least ***** people shall be referred to herein as the “ Actual Weekend Event Average .”
(iii) The term “ Minimum Yearly Event Average ” shall mean ***** Events.
(iv) The term “ Minimum Weekend Event Average ” shall mean ***** Events.
(v) The term “ Minimum Event Levels ” shall mean, collectively, the Minimum Yearly Event Average and
the Minimum Weekend Event Average.
(vi) The term “ First Event Test Year ” shall mean the third (3rd) full Performance Year after the Opening
Date.
(vii) The term “ Performance Year ” shall mean (x) with respect to the year in which the Venue Opening
Date occurs, the twelve (12) month period commencing on the Opening Date and concluding on the
anniversary thereof, and (y) thereafter, each twelve (12) month period commencing on the anniversary date of
the Opening Date.
(viii) The term “ Reporting Period ” shall mean the Most Recent Performance Year and each of the two
Performance Years immediately preceding the Most Recent Performance Year, if any.
(ix) By way of illustration and without limiting the generality of the foregoing, the calculation of the Actual
Yearly Event Average with respect to the First Event Test Year shall be an average of the number of Events
held during the first, second, and third full Performance Years, and the calculation of the Actual Yearly Event
Average with respect to the next Performance Year after the First Event Test Year shall be an average of the
number of Events held during the second, third, and fourth full Performance Years.
4.3.2. Calculation of Minimum Event Levels . On or before the date that is sixty (60) days after the end of each
Performance Year beginning in the First Event Test Year (the “ Most Recent Performance Year ”), Lessee
shall provide to Lessor reasonably sufficient information for Lessor to determine achievement of the
Minimum Event Levels, including a report listing: (x) the number and dates of Events held in the three
Performance Years included in the Reporting Period, (y) the number and dates of Events held on a Friday or
Saturday with an attendance of at least ***** people in the three Performance Years included in the Reporting
Period, and (z) such other information as reasonably may be requested by Lessor to calculate the
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Shortfall Payment, in each case, based on records for such Events maintained by Lessee in the normal course
of operations.
4.3.3. Shortfall Payment . If, for a given Performance Year, beginning in the First Event Test Year, Lessee fails to
meet the Minimum Event Levels, then Lessee, as Lessor’s sole and exclusive remedy for such failure, shall
pay to Lessor within thirty (30) days of the end of such Performance Year an amount equal to the product of
(x) ***** times (y) the sum of all Target Shortfalls during such Performance Year (the “ Shortfall Payment
”).
As used in this Lease, “ Target Shortfalls ” means the sum of the following: *****.
Notwithstanding anything to the contrary contained in this Agreement, in no event shall any failure to meet the
Minimum Event Levels be considered an Event of Default hereunder, it being understood that Lessor’s receipt
of the Shortfall Payment as calculated in this Section 4.3.3 shall be Lessor’s sole and exclusive remedy
hereunder.
Notwithstanding anything to the contrary contained in this Lease, Lessee shall have no further obligation to
make Shortfall Payments hereunder if Lessor or any Affiliate of Lessor commences to directly or indirectly
develop, own (in whole or in part), operate, manage, sponsor, or market any Restricted Venue.
4.3.4. Obligation to Meet Minimum Event Covenants Reduced During Certain Times . During any Performance
Year in which a Reduction Event occurs, the Minimum Event Levels will be reduced to reflect the impact of
such Reduction Event. Lessor and Lessee shall meet and confer in good faith to mutually agree upon the
appropriate reduction in the Minimum Event Levels.
As used in this Lease, “ Reduction Event ” means, if at any time, (a) the Venue is closed and/or performances
do not take place as a result of (x) a Force Majeure event, or (y) Substantial Renovation (it being understood
that Lessee shall use good faith efforts to schedule such Substantial Renovation so as to not interfere with
scheduled Events or the scheduling of Events), or (b) any uncured, material breach by Lessor or its Affiliates
of the Cross-Marketing Agreement is continuing thirty (30) days following notice thereof by Lessee to Lessor.
5.
Improvements .
5.1.
Delivery of Site; Lessee’s Intention to Construct . On the Lease Commencement Date, Lessor shall deliver the
Premises to Lessee free and clear of all trailers, equipment, or other personal property, and with all existing
improvements removed other than paved surface parking, light poles, or perimeter fencing. Lessee shall
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
develop and construct the Project on the Premises in accordance with the Building Standard, at its sole cost and
expense, inclusive of any and all cost overruns, but subject to the TI Allowance. Lessee shall be solely responsible, at
its sole cost and expense, for compliance with all Applicable Laws, including obtaining all necessary zoning changes,
conditional use permits, variances, permits, approvals and all other necessary land use approvals, in connection with
the construction of any Improvements on the Premises (it being acknowledged by the parties that Lessee has already
obtained the Project Entitlements as of the date hereof, and it being further agreed that, subject to Lessor’s limited
approval rights as set forth in the last sentence of Section 8 , Lessor shall cooperate in good faith with Lessee in the
processing of any further applications for and pursuit of any of the land use approvals described herein at no out of
pocket cost or expense to Lessor).
5.2.
Plans and Specifications . Lessor acknowledges that in connection with Lessee obtaining the Project Entitlements,
Lessor has previously approved the general architectural character of the exterior building design as set forth on the
concept drawings for the Project listed on Exhibit J (collectively, the “ Plans ”) in accordance with the terms and
conditions of the Agreement to Lease. Lessee shall not engage in any Material Modification of the Plans without the
prior written approval of Lessor, such approval not to be unreasonably withheld, conditioned, or delayed. Following
completion of the Development of the Premises pursuant to the approved Plans, this Section 5.2 shall no longer apply,
and any alterations of and additions to the Project shall be subject to the terms of Section 8 .
5.3. Manner of Construction . Lessee shall be solely responsible for the design and construction of the Project in material
compliance with Applicable Laws and any Permitted Exceptions. Lessee shall also comply with the provisions set
forth in Exhibit E attached hereto and incorporated herein by reference. Lessee shall record all notices of completion
as may be required under Applicable Laws or good construction practices. Lessee shall commence construction of
work on the foundations for the Venue (as opposed to pre-construction activities) no later than eighteen (18) months
after the Lease Commencement Date, subject to extension on a day for day basis for each day of delay due to Force
Majeure or Lessor Delay (the “ Construction Commencement Date ”) (provided, however, that any Force Majeure
delays shall not extend the Construction Commencement Date by more than one hundred eighty (180) days after the
date that is eighteen (18) months after the Lease Commencement Date), and shall diligently pursue construction of the
Project thereafter. Lessee shall have achieved Development Completion and the Development Completion Date shall
have occurred no later than three (3) years after the earlier to occur of (1) the actual date of commencement of work
on the foundations for the Venue (as opposed to pre-construction activities) and (2) the Construction Commencement
Date, subject to extension on a day for day basis for each day of delay due to Force Majeure or Lessor Delay (the “
Outside Development Completion Date ”) (provided, however, that Force Majeure extensions shall not be available
during the period between (x) the date if any that an arbitrator determines
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5.4.
5.5.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
pursuant to a binding ruling (in accordance with Section 39.15) that Lessee was not diligently pursuing construction
of the Project after the Construction Commencement Date in accordance with this Section 5.3 , and (y) the date that
Lessee subsequently cures such default and resumes diligent pursuit of the construction). Throughout the construction
process, Lessee will consult and coordinate with Lessor (with update meetings to occur no less frequently than
quarterly).
Ownership of Improvements During Lease Term . Until the expiration of the Lease Term or sooner termination of this
Lease, and except as specifically provided herein, Lessee shall own all Improvements. At the request of Lessee,
Lessor shall execute a quitclaim deed or other instrument conveying ownership of the Improvements to Lessee.
Lessor shall, throughout the Lease Term and after termination or expiration thereof, own and have fee title to the
Premises. At the request of Lessor upon the expiration or sooner termination of this Lease, Lessee shall execute a
quitclaim deed or other instrument conveying ownership of the Improvements to Lessor, and Lessor shall pay any
Impositions payable in connection therewith.
Reversion of Improvements . Upon the expiration of the Lease Term or sooner termination of this Lease, whether by
cancellation, forfeiture or otherwise, Lessee shall surrender and deliver to Lessor the Property (together with plans
and specifications for any Improvements that still exist, copies of then-applicable governmental permits, and any and
all other construction or manufacturer’s warranties, documents or agreements that are still effective and applicable to
all or any portion of the Property, to the extent in Lessee’s possession or control), in its then as-is, where-is condition
( provided that the Property shall be in a clean, safe, and secure condition in compliance with the terms and conditions
of this Lease), without any representation or warranty, express or implied, and free and clear of all lettings and
occupancies, other than the Permitted Exceptions, except as expressly provided below; provided that, Lessee shall
have the right, but not the obligation, to remove such furniture, equipment, and personal property as are not firmly
affixed to such Improvements, provided that such personal property can be removed without any damage to the
Property or Lessee repairs such damages to the Property caused by such removal, at Lessee’s expense. Upon the
expiration of this Lease, Lessee shall terminate any and all subleases, licenses or other agreements entered into by
Lessee during the Lease Term and affecting the Property (except for those that Lessor requests in writing no later than
sixty (60) days prior to the expiration of this Lease that Lessee not terminate), in each case in accordance with this
Lease, and Lessee shall deliver to Lessor, not less than six (6) months prior to the scheduled expiration date of the
Lease Term, copies of any agreements affecting the Property then in effect for Lessor’s review to determine which, if
any, agreements Lessor desires to retain. Upon the expiration or earlier termination of this Lease, then to the extent
necessary in order for Lessor to acquire record title to, and use of, the Property and any other assets, contracts, rights,
approvals, permits, agreements, licenses, entitlements and any other rights or interests used exclusively in connection
with the Property, Lessee shall, upon Lessor’s request, assign, convey, deliver or transfer, as applicable, all
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
such property or rights in and to such property and interests, to the extent assignable, in their as-is, where-is condition,
without representation or warranty of any kind, express or implied, free of all lettings and occupancies (except for
those that Lessor requests in writing no later than sixty (60) days prior to the expiration of this Lease that Lessee not
terminate), for a sale price equal to One Dollar ($1.00). Such instrument of conveyance, delivery or transfer will be in
the form of a quitclaim deed (or substantively equivalent instrument of transfer, such as a bill of sale, in respect of any
personal property). For the sake of clarity, Lessee shall not be obligated to turn over any information technology or
systems, intellectual property, confidential or proprietary information or personal property (including, without
limitation, proprietary equipment) used in connection with the Property; provided , that to the extent any of the
foregoing are necessary to manage or operate the Property or any portion thereof, Lessee shall reasonably cooperate
with Lessor to ensure that the transfer back to Lessor may occur without interruption in such management or
operation.
5.6.
Tenant Improvement Allowance . Lessor will fund a tenant improvement allowance in the amount of Seventy-Five
Million and No/100 Dollars ($75,000,000.00) (the “ TI Allowance ”), to be used to offset Lessee’s Project
Development Costs (as defined below). Lessee’s requisitions of TI Allowance shall include third-party invoices and
such other documents and back-up information as Lessor may reasonably request. The TI Allowance shall be
available to Lessee as follows:
5.6.1. *****
5.6.2. *****
5.6.3. Within fifteen (15) Business Days of the date that Lessee evidences to Lessor in writing that Development
Completion and the Opening Date have occurred, Lessor shall remit to Lessee the TI Holdback by wire
transfer to an account designated in writing by Lessee ( provided , however , that if any Unpermitted Liens
have attached to Lessor’s fee interest in the Premises, then Lessee must cause the removal of same as a
condition to Lessor’s release of the TI Holdback).
5.6.4. The right to requisition the TI Allowance shall expire the date that is one (1) year following the Opening Date.
5.6.5. As used herein, the term “ Project Development Costs ” shall mean all hard and soft costs of design,
governmental approval, and construction of the Project or any portion thereof, including required onsite and
offsite improvements. In order to validate the expenditures of Project Development Costs described in the
preceding sections, Lessee shall provide to Lessor, concurrently with the delivery of any request for
disbursement of all or a portion of the TI Allowance, reasonable documentary evidence of such Project
Development Costs.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
5.7.
Pedestrian Bridge .
5.7.1. The Plans include a pedestrian bridge (the “ Bridge ”), to be constructed by Lessee to connect the Project to
the Venetian/Palazzo hotel complex at a point of interconnection (the “ Interconnection Point ”).
5.7.2. Lessor and Lessee shall cooperate in good faith in the implementation of the Bridge at the Interconnection
Point, consistent with the Concept Drawings that were approved as part of the Agreement to Lease. In that
regard, Lessee shall prepare and submit to Lessor, at Lessee’s expense, schematic drawings with respect to the
design specifications of the Bridge, including the Interconnection Point (the “ Bridge Schematic Drawings
”). Within thirty (30) days of receiving the Bridge Schematic Drawings, Lessor shall determine whether to
approve (a) the Interconnection Point and (b) any other points where the Bridge physically connects to the
Sands Expo Center improvements or land (collectively, “ Other Physical Connection Points ”), such
approval not to be unreasonably withheld, conditioned, or delayed. Any disapproval shall be in writing and
shall specify the specific reasons for the denial and the changes to the Bridge Schematic Drawings that would
render them acceptable, at which time Lessor and Lessee shall promptly meet and confer in good faith to
resolve such issues. If Lessor fails to respond to the above request for approval within thirty (30) days of
receipt of the Bridge Schematic Drawings, then Lessee may send Lessor a second notice requesting Lessor’s
approval of the Bridge Schematic Drawings, which notice shall be in accordance with the Deemed Approval
Process set forth in Section 34 hereof. If Lessor fails to respond to such second notice within fifteen (15) days,
Lessor shall be deemed to have approved such Bridge Schematic Drawings. Notwithstanding the foregoing, if
Lessor, in connection with its review of the Bridge Schematic Drawings, desires to make any changes from
what was previously approved by Lessor in the Concept Drawings that were approved as part of the
Agreement to Lease, then any direct incremental cost increases (including the costs of revising the Bridge
Schematic Drawings) associated with such relocation shall be borne by Lessor.
5.7.3. Subsequent to the approval of the Bridge Schematic Drawings in accordance with Section 5.7.2 above, Lessee
shall prepare and submit to Lessor, at Lessee’s expense, design development drawings consistent with the
Bridge Schematic Drawings (the “ Bridge DD Documents ”). Within thirty (30) days of receiving the Bridge
DD Documents, Lessor shall determine whether to approve (a) the Interconnection Point and (b) any Other
Physical Connection Points, in each case only to the extent that the Bridge DD Documents disclose new
information not previously shown on the Bridge Schematic Drawings, such approval not to be unreasonably
withheld, conditioned, or delayed. Any disapproval shall be in writing and shall specify the specific reasons
for the
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
denial and the changes to the Bridge DD Documents that would render them acceptable, at which time Lessor
and Lessee shall promptly meet and confer in good faith to resolve such issues. If Lessor fails to respond to
the above request for approval within thirty (30) days of receipt of the Bridge DD Documents, then Lessee
may send Lessor a second notice requesting Lessor’s approval of the Bridge DD Documents, which notice
shall be in accordance with the Deemed Approval Process set forth in Section 34 hereof. If Lessor fails to
respond to such second notice within fifteen (15) days, Lessor shall be deemed to have approved such Bridge
DD Documents. Notwithstanding the foregoing, if Lessor, in connection with its review of the Bridge DD
Documents, desires to make any changes from what was previously approved by Lessor in the approved
Bridge Schematic Drawings, then any direct incremental cost increases (including the costs of revising the
Bridge DD Documents) associated with such relocation shall be borne by Lessor.
5.7.4. Subsequent to the approval of the Bridge DD Documents in accordance with Section 5.7.3 above, Lessee shall
prepare and submit to Lessor, at Lessee’s expense, construction drawings with respect to the Bridge, including
the Interconnection Point (the “ Bridge Construction Drawings ”). Within thirty (30) days of receiving the
Bridge Construction Drawings, Lessor shall determine whether to approve (a) the Interconnection Point and
(b) any Other Physical Connection Points, in each case only to the extent that the Bridge Construction
Drawings disclose new information not previously shown on the Bridge DD Documents, such approval not to
be unreasonably withheld, conditioned, or delayed. Any disapproval shall be in writing and shall specify the
specific reasons for the denial and the changes to the Bridge Construction Drawings that would render them
acceptable, at which time Lessor and Lessee shall promptly meet and confer in good faith to resolve such
issues. If Lessor fails to respond to the above request for approval within thirty (30) days of receipt of the
Bridge Construction Drawings, then Lessee may send Lessor a second notice requesting Lessor’s approval of
the Bridge Construction Drawings, which notice shall be in accordance with the Deemed Approval Process set
forth in Section 34 hereof. If Lessor fails to respond to such second notice within fifteen (15) days, Lessor
shall be deemed to have approved such Bridge Construction Drawings. Notwithstanding the foregoing, if
Lessor, in connection with its review of the Bridge Construction Drawings, desires to make any changes from
what was previously approved by Lessor in the approved Bridge DD Documents, then any direct incremental
cost increases (including the costs of revising the Bridge Construction Drawings) associated with such
relocation shall be borne by Lessor.
5.7.5. Throughout the Bridge construction process, Lessee will consult and coordinate with Lessor (with update
meetings to occur no less frequently than quarterly). Without limiting the generality of the foregoing, in the
course of construction of the Project in accordance with the terms and conditions
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
of this Lease, Lessor and Lessee shall cooperate in good faith on issues related to construction staging, crane
overhang, and construction parking.
5.7.6. Lessee shall use commercially reasonable efforts to cause Lessor to be named as a third-party beneficiary of
any contractor or manufacturer warranties in favor of Lessee in respect of the construction of the
Interconnection Point and any other portion of the Bridge located on the Sands Expo Center property.
5.7.7.
In the course of construction of the Bridge, Lessee shall comply with the terms and conditions of all
agreements with Wynn Sunrise LLC, a Nevada limited liability company (“ Wynn ”), pertaining to the Bridge
and recorded against title to the Premises (collectively, and as may be amended from time to time by Wynn
and Lessee, the “ Wynn Bridge Agreements ”). Lessor shall reasonably cooperate with Lessee, at no out of
pocket cost or expense to Lessor, in connection with any amendments or assignments of or supplements to the
Wynn Bridge Agreements necessary for the construction and operation of the Project, provided that any such
amendments do not result in a material adverse impact on the Venetian/Palazzo Resort or the Sands Expo
Center.
5.8.
Cooperation . Lessor, as the fee owner of the Premises, shall provide the appropriate authorizations and signatures on
applications and other documents so as to permit Lessee to develop, construct, install, maintain, operate, or repair the
Project, at no out-of-pocket expense to Lessor. Lessor shall not (i) take and/or express positions adverse to and/or
otherwise interfere with the development, construction, installation, maintenance, operation, and/or repair of the
Improvements during the Lease Term except as expressly permitted under this Lease, or (ii) without the prior
approval of Lessee, not to be unreasonably withheld, conditioned, or delayed, initiate contact or participate in any
meetings with any governmental authority having jurisdiction over the Premises or any portion thereof to discuss
matters relating to the development of the Premises or the Project; provided , however , that the restriction in this
clause (ii) shall not apply during the last year of the Term of the Lease to the extent that Lessor intends to process any
redevelopment approvals for the Premises related to the period from and after the expiration of the Lease. The Parties
shall reasonably cooperate and coordinate with one another regarding construction activities taking place at the
Premises and related to construction efforts with respect to the Bridge (including the Interconnection Point), including
without limitation the granting of any temporary construction licenses that may be reasonably required in order for
Lessee to access Lessor’s property for such purposes, and Lessor shall, at no out of pocket cost or expense to Lessor,
reasonably cooperate with Lessee’s efforts to interconnect all utilities to the Premises (including the Interconnection
Point and Bridge) and reasonably consent to any such interconnections, as required.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
6.
Environmental Matters; Premises Use .
6.1.
6.2.
6.3.
Indemnity for Hazardous Materials . Lessor hereby agrees to defend, protect, and indemnify the Lessee Parties, and to
hold the Lessee Parties harmless from and against, any and all claims, demands, causes of action, judgments, losses,
liabilities, costs or expenses (including, without limitation, reasonable attorneys’ fees and expenses) arising from the
presence of any Hazardous Material located in, at, on or under the Premises if and to the extent the presence of such
Hazardous Material is in violation of any Environmental Law (a) prior to the Lease Commencement Date or (b) as a
result of the actions of Lessor or Lessor’s employees or agents, provided , however , that Lessor’s indemnification
obligations hereunder shall not apply to the extent the presence or exacerbation of such Hazardous Materials is as a
result of the actions of Lessee or Lessee’s employees, agents or invitees (it being understood that mere discovery of
Hazardous Materials by Lessee shall not be considered exacerbation). Lessee hereby agrees to defend, protect, and
indemnify the Lessor Parties, and to hold the Lessor Parties harmless from and against, any and all claims, demands,
causes of action, judgments, losses, liabilities, costs or expenses (including, without limitation, reasonable attorneys’
fees and expenses) arising from the presence of any Hazardous Material located in, at, on or under the Premises (a) as
a result of the actions of Lessee or Lessee’s employees, agents, contractors, invitees, tenants or subtenants in violation
of any Environmental Law or (b) as prohibited by Section 4.2 , provided , however , that Lessee’s indemnification
obligations hereunder shall not apply to the extent the presence of such Hazardous Materials is as a result of the
actions of Lessor or Lessor’s employees or agents. For purposes of this Section 6.1 , the indemnifying party shall be
referred to as the “Indemnitor” and the indemnified parties shall be referred to collectively as the “Indemnitee.”
Notwithstanding any provision of this Lease to the contrary, Lessee shall have no obligation to indemnify Lessor or
the Lessor Parties in respect of any contamination of ground water if such contamination was the result of the
migration of Hazardous Materials to the Premises from real property other than the Premises, and was not caused by
Lessee or Lessee’s employees, agents, contractors, invitees, tenants or subtenants. Lessee shall provide Lessor with
prompt written notice of any contamination issue described in the previous sentence upon Lessee obtaining actual
knowledge of same.
Scope of Indemnification . In connection with any claim for indemnification under Section 6.1 above, Indemnitor
shall indemnify and defend Indemnitee with counsel reasonably satisfactory to Indemnitee, to the extent provided in
Section 6.1 . This indemnification shall include without limitation (i) personal injury claims, (ii) the payment of liens,
fines or penalties, (iii) damages for the loss of or restriction on the use of the Premises, whether temporary or
permanent, (iv) sums reasonably paid in settlement of claims, (v) reasonable attorneys’ fees and experts’ fees, (vi) the
reasonable cost of investigation of site environmental conditions required by law,
25
6.4.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
(vii) the reasonable cost of remediation to achieve non-residential environmental cleanup standards required by any
governmental authority pursuant to an Environmental Law and related repair and restoration. Subject to Section 6.4 ,
any costs or expenses incurred by Indemnitee for which Indemnitor is responsible under this Section 6.3 or for which
Indemnitor has indemnified Indemnitee shall be paid to Indemnitee in accordance with Section 6.5 , or otherwise on
demand.
Claims for Indemnification . If an Indemnitee believes that it is entitled to indemnification pursuant to this Section 6 ,
such Indemnitee shall give prompt written notice thereof to Indemnitor. Any such notice shall set forth in reasonable
detail and to the extent then known the basis for such claim for indemnification. Each such claim for indemnification
shall expressly state that Indemnitor shall have only the ninety (90) day period referred to in the next sentence to
dispute or deny such claim. Indemnitor shall have ninety (90) days following its receipt of such notice either (a) to
acquiesce in such claim and Indemnitor’s responsibility to indemnify Indemnitee in respect thereof in accordance
with the terms of this Section 6 by giving Indemnitee written notice of such acquiescence, or (b) to object to the claim
by giving Indemnitee written notice of the objection. If Indemnitor does not acquiesce in such claim for
indemnification within such ninety (90) day period, such claim shall be deemed to have been objected to by
Indemnitor. If Indemnitor objects, or is deemed to have objected, to such claim for indemnification within such ninety
(90) day period but it is subsequently determined by a court of competent jurisdiction that Indemnitee is entitled to
indemnification from Indemnitor, interest shall be deemed to have accrued on the unpaid amount of such
indemnification from the date on which Indemnitee tendered payment in satisfaction of the liability or liabilities
giving rise to such claim for indemnification until full payment of the amount of such indemnification at a rate equal
to the lesser of (i) ten percent (10%) per annum and (ii) the maximum amount permitted by law, and Indemnitee shall
be entitled to payment of such interest from Indemnitor.
6.5.
Defense of Claims .
6.5.1.
In connection with any claim which may give rise to indemnity under this Section 6 resulting from or arising
out of any claim or proceeding against an Indemnitee by a Person that is not a party to this Lease, Indemnitor
may (unless such Indemnitee elects not to seek indemnity hereunder for such claim), upon written notice sent
at any time to the relevant Indemnitee, assume the defense of any such claim or proceeding if Indemnitor
acknowledges to Indemnitee Indemnitee’s right to indemnity pursuant hereto in respect of the entirety of such
claim (as such claim may have been modified through written agreement of the parties) and provides
assurances, reasonably satisfactory to Indemnitee, that Indemnitor will be financially able to satisfy the
amount of such claim in full if such claim or proceeding is decided adversely.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
6.5.2.
If Indemnitor assumes the defense of any such claim or proceeding, Indemnitor shall select counsel reasonably
acceptable to Indemnitee to conduct the defense of such claim or proceeding, shall take all steps reasonably
necessary in the defense or settlement thereof, shall at all times diligently and promptly pursue the resolution
thereof, and shall bear all costs and expenses in connection with defending against such claim or proceeding.
If Indemnitor shall have assumed the defense of any claim or proceeding in accordance with this Section 6.5 ,
Indemnitor may consent to a settlement of, or the entry of any judgment arising from, any such claim or
proceeding only with the prior written consent of Indemnitee, not to be unreasonably withheld, conditioned or
delayed; provided , that Indemnitor shall pay or cause to be paid all amounts arising out of such settlement or
judgment either concurrently with the effectiveness thereof or shall obtain and deliver to Indemnitee prior to
the execution of such settlement a general release executed by the Person not a party hereto, which general
release shall release Indemnitee from any liability in such matter; provided
, further
, that Indemnitor shall not
be authorized to encumber any of the assets of Indemnitee or to agree to any restriction that would apply to
Indemnitee or to its conduct of business; provided , further , that a condition to any such settlement shall be a
complete release of Indemnitee and its Affiliates, trustees, officers, employees, consultants and agents with
respect to such claim. Indemnitee shall be entitled to participate in (but not control) the defense of any such
action, with its own counsel and at its own expense. Each Indemnitee shall, and shall cause each of their
Affiliates, officers, employees, consultants and agents to, cooperate fully with Indemnitor in the defense of
any claim or proceeding being defended by Indemnitor pursuant to this Section 6.5 .
6.5.3.
If Indemnitor does not assume the defense of any claim or proceeding resulting therefrom in accordance with
the terms of this Section 6.5 , Indemnitee may defend against such claim or proceeding in such manner as it
may deem appropriate, including settling such claim or proceeding after giving notice of the same to
Indemnitor, on such terms as Indemnitee may deem appropriate. If Indemnitor seeks to question the manner in
which Indemnitee defended such claim or proceeding or the amount of or nature of any such settlement,
Indemnitor shall have the burden to prove by a preponderance of the evidence that Indemnitee did not defend
such claim or proceeding in a reasonably prudent manner.
6.6.
Definition of “Lessor Parties” and “Lessee Parties” . The term “ Lessor Parties ” shall mean and include each and all
of Lessor and Lessor’s trustees, members, managers, shareholders, directors, officers, employees, agents, contractors,
assigns and any successors to Lessor’s interest in the Premises, and (b) “ Lessee Parties ” shall mean and include
each and all of Lessee and Lessee’s trustees, members, managers,
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
shareholders, directors, officers, employees, agents, contractors, assigns and any successors to Lessee’s interest in the
Property.
6.7.
Notice of Violations/Releases . Each party hereto shall immediately advise the other party in writing of, and if
applicable provide the other party with a copy of: (a) any notices of violation or potential or alleged violation of any
Environmental Laws that are received by such party with respect to the Property from any governmental authorities;
(b) any and all inquiries, investigations, enforcement, cleanup, removal, or other governmental or regulatory actions
instituted or threatened relating to Hazardous Materials on the Property; (c) all claims made or threatened by any third
party against such party or the Property relating to any Hazardous Materials at or emanating from the Property; and
(d) any release of Hazardous Materials on or about the Property that such party knows of or reasonably believes may
have occurred.
7.
Maintenance, Repairs and Replacements; Services and Security; Management .
7.1 Maintenance and Repairs; Services and Security . Lessee shall be solely responsible, at its sole cost and expense, for
maintaining and repairing the Improvements and each portion thereof, including any needed Capital Repairs, throughout the
Lease Term in order to maintain the Property in accordance with the Building Standard and in a clean, safe, and orderly
manner; provided , however , that Lessee shall not be obligated to make any capital upgrades to the Property except as may
be reasonably necessary at any time to keep the building operational and the buildings systems in good working order. Lessee
acknowledges and agrees that Lessor shall have no responsibility whatsoever for the maintenance, repair or upkeep of the
Property or for any utilities or services provided or to be provided to the Property. Lessee shall be solely responsible, at its
sole cost and expense, for providing security for the Property, all in accordance with the Building Standard. Lessee shall not
permit any waste in, on, under or about the Property.
7.2 Operations and Management; Permits . Notwithstanding anything to the contrary in this Lease, during the Term after
the Development Completion Date, Lessee or an Affiliate of The Madison Square Garden Company shall operate and
manage the Property in a manner consistent with the Building Standard; provided , however , that nothing herein shall restrict
Lessee’s ability to contract with one or more facilities management companies. During the Term after the Development
Completion Date, Lessee shall obtain and maintain all necessary licenses and permits required in connection with the
operation of the Property for the Permitted Uses. Lessee shall promptly provide Lessor with copies of any formal written
notices it receives from any governmental authority with jurisdiction over the Property regarding an alleged material
violation of Applicable Laws. Lessee shall obtain and maintain all necessary licenses, approvals and permits required in
connection with the operation of the Premises and Improvements.
8.
Alterations and Additions . Subject to the terms, provisions, covenants and conditions of this Lease, Lessee at its sole cost
and expense may make Improvements on the Premises. In connection therewith, Lessee shall comply with the provisions set
forth in Exhibit E attached hereto and incorporated herein by reference. Subject to the terms of Section 21
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
hereof, Lessee may obtain financing for such Improvements, and any such financing may be secured by Lessee’s interest in
the Property. During the Lease Term, all such Improvements shall be and remain the property of Lessee in accordance with
Section 5.4 . Lessor shall not have any design approval rights over Improvements except to the extent they relate to (a) the
location and design of the Bridge, (b) the location and design of the Interconnection Point and any Other Physical Connection
Points, or (c) a Material Modification, in each case with such approval not to be unreasonably withheld, conditioned, or
delayed.
9.
Intentionally Deleted .
10.
Compliance with Applicable Laws .
10.1
Lessee Compliance . Subject to events of Force Majeure, events of Lessor Delay, and Section 12 relating to
permitted contests and cure rights, Lessee at its sole cost and expense will promptly and diligently comply with all
Applicable Laws.
10.2
Lessor Compliance . Subject to events of Force Majeure and Section 12 relating to permitted contests and cure
rights, Lessor at its sole cost and expense will promptly and diligently comply with all Applicable Laws.
11.
Liens .
11.1 Generally . Lessee will not directly or indirectly create, or permit the creation of, any mortgage, lien, security interest,
encumbrance or charge on, pledge of or conditional sale or other title retention agreement with respect to the Premises
or any part thereof, other than (a) this Lease and ancillary rights in favor of third parties as permitted herein; (b) a
Leasehold Mortgage which is permitted under the terms of Section 21 ; (c) liens for Impositions not yet payable, or
payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested as permitted by
Section 12 ; (d) Permitted Exceptions; and (e) Unpermitted Liens, incurred in the ordinary course of business for
sums which under the terms of the related contracts are not at the time due if adequate provision for the payment
thereof shall have been made by Lessee. Lessee will provide Lessor with prompt written notice of any lien or notice
of lien placed against the Premises, and Lessee will promptly thereafter remove and discharge any mortgage, lien,
security interest, encumbrance or charge created by Lessee (or by any third party as a result of Lessee’s conduct) in
violation of the preceding sentence. In the event that Lessee’s leasehold interest under the Lease is encumbered by a
Leasehold Mortgage pursuant to the provisions of Section 21 , Lessee shall (i) use commercially reasonable efforts to
cause any Leasehold Mortgagee to provide to Lessor copies of any notices from such Leasehold Mortgagee alleging
any non-compliance, breach or default by Lessee in respect of such Leasehold Mortgage ( provided that Lessee shall
be deemed to satisfy the requirements of this clause (i) if Lessee delivers to such Leasehold Mortgagee a written
request to provide such notices to Lessor; and (ii) within ten (10) days after receipt of any such notice from Leasehold
Mortgagee, provide to
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Lessor a copy of any such notice from such Leasehold Mortgagee alleging any non-compliance, breach or default
under any of the loan documents regarding such Leasehold Mortgage ( provided that so long as Lessor receives such
notice pursuant to either clause (i) or (ii) above, Lessee shall be deemed to satisfy the requirements of this clause).
Notwithstanding anything to the contrary contained in this Section 11 , Lessee may enter into fixture financing
arrangements for fixtures and equipment located on the Property, and Lessor agrees that Lessor’s claims to such
fixtures and equipment, if any, shall be subordinate to any such fixture financing arrangements so long as such
arrangements do not encumber Lessor’s interest in the Premises. If Lessee fails to remove, discharge or bond over any
lien not otherwise described in (a) through (e) above including without limitation any Unpermitted Lien within thirty
(30) days of its being placed against the Property, Lessor may do so, and Lessee shall reimburse Lessor for all costs
incurred by Lessor in connection with removing such lien.
11.2. Reserved .
11.3 Reserved .
12.
13.
Permitted Contests . Lessee may, at its sole cost and expense, contest, after prior written notice to Lessor and by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part,
of any Imposition or any Applicable Laws or the application of any Permitted Exception or the validity of any lien referred to
in Section 11 to the extent the same relate to the Lease Term; provided , however , that: (a) Lessee shall first make all
contested payments, under protest if it desires, unless such proceedings shall operate to suspend the collection thereof from
Lessor, or post a bond or other security for the payment thereof reasonably satisfactory to Lessor, (b) neither the Premises nor
any part thereof or interest therein nor any Lessor’s Participation Payment or other sums payable to Lessor hereunder would
be in any danger of being sold, forfeited, lost or interfered with; (c) Lessor would not reasonably be expected to be in any
material danger of additional civil or criminal liability in connection therewith; and (d) in the case of an Applicable Law, the
Premises would not be subject to the imposition of any lien as a result of such failure to comply therewith.
Lessor’s Access Rights . Lessor and its agents, employees and representatives shall have the right to enter the Property at all
reasonable times (except while an event is being held at the Premises) upon reasonable prior written notice for the purposes
of (1) inspecting the Property for the purposes of determining Lessee’s compliance with the terms hereof, and (2) during the
last twenty four (24) months of the Lease Term, exhibiting the Property to other Persons, provided , however , that any such
entry under clause (1) or (2) above shall be conducted in such a manner as to minimize interference with the business being
conducted in and on the Property. A representative of Lessee shall have the right to be present upon any such entry by
Lessee, provided Lessee makes such representative reasonably available for such entry.
14. Mutual Indemnification .
30
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
14.1. Lessee will defend, protect, indemnify, and hold Lessor harmless from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs, and expenses (including, without limitation, reasonable attorneys’ fees and
expenses) imposed upon or incurred by or asserted against Lessor, the Lessor Parties, or the Property or any portion
thereof, by reason of the occurrence or existence of any of the following: (a) any accident, injury to, or death of
persons (including workmen), or loss of or damage to property occurring in, on, under, or about the Property during
the Lease Term, except to the extent caused by the gross negligence or willful misconduct of Lessor or Lessor’s
agents, employees, invitees, or contractors; (b) any failure on the part of Lessee to perform or comply with any of the
terms of this Lease; or (c) any non-compliance by Lessee with Applicable Laws, whether or not Lessee’s non-
compliance with Applicable Laws would constitute an Event of Default under Section 24 below. In case any action,
suit or proceeding is brought against Lessor by reason of any such occurrence, Lessor will notify Lessee of such
action, suit, or proceeding, and upon Lessor’s request Lessee will, at Lessee’s sole cost and expense, resist and defend
such action, suit, or proceeding. Notwithstanding the foregoing, Lessee shall neither have any liability nor any
obligation to indemnify Lessor solely for the discovery of Hazardous Material on the Premises unless and to the
extent provided under the terms of Section 6 hereof.
14.2. Lessor will defend, protect, indemnify, and hold Lessee harmless from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs, and expenses (including, without limitation, reasonable attorneys’ fees and
expenses) imposed upon or incurred by or asserted against Lessee, the Lessee Parties, or the Property or any portion
thereof, by reason of the occurrence or existence of any of the following: (a) any accident, injury to, or death of
persons (including workmen), or loss of or damage to property occurring in, on, under, or about the Property prior to
the Lease Term, except to the extent caused by the gross negligence or willful misconduct of Lessee or Lessee’s
agents, employees, invitees, or contractors; or (b) any failure on the part of Lessor to perform or comply with any of
the terms of this Lease. In case any action, suit or proceeding is brought against Lessee by reason of any such
occurrence, Lessee will notify Lessor of such action, suit, or proceeding, and upon Lessee’s request Lessor will, at
Lessor’s sole cost and expense, resist and defend such action, suit, or proceeding.
15.
16.
Utility Services . Lessee shall be solely responsible (at its sole cost and expense) to procure and interconnect all utilities to
the Premises (including the Interconnection Point and Bridge). Lessor shall, at no out of pocket cost or expense to Lessor,
reasonably cooperate with Lessee’s efforts to interconnect all utilities to the Premises (including the Interconnection Point
and Bridge) and reasonably consent to any such interconnections, as required. *****.
Quiet Enjoyment . Subject to Lessor’s termination rights in Section 25 below, and subject to the Permitted Exceptions,
Lessee shall not be hindered or molested by Lessor or anyone claiming through Lessor in its peaceful and quiet possession
and enjoyment of the Premises.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
17.
Subordination . This Lease is and shall be subject and subordinate to any mortgage(s), deed(s) of trust or deeds to secure
debt now or subsequently arising upon the fee interest in the Premises, and to all renewals, modifications, refinancings, and
extensions thereof (collectively referred to as a “ Fee Mortgage ”). The party having the benefit of a Fee Mortgage (a “ Fee
Mortgagee ”) and Lessee shall execute a subordination, non-disturbance, and attornment agreement in form and substance
reasonably acceptable to Fee Mortgagee and Lessee. As an alternative, any Fee Mortgagee shall have the right at any time to
subordinate its Fee Mortgage to this Lease.
18. Insurance .
18.1. Generally . Lessee, at its sole cost and expense, shall procure and keep in full force until all of its obligations under
this Lease have been discharged (or any additional periods described on Exhibit I ), insurance as set forth on Exhibit I
attached hereto. Lessor, at its sole cost and expense, shall maintain Commercial General Liability Insurance for
claims arising from its ownership of the Premises with limits in an amount not less than *****. Insurance required to
be maintained by Lessor or Lessee pursuant to this Section 18.1 may be provided under blanket policies covering
other locations operated by Lessor or Lessee or any Affiliate of Lessor or Lessee.
18.2. Delivery of Evidence of Insurance . Upon commencement of the Lease Term, Lessee will deliver to Lessor
certificates of insurance showing the required coverage is in force (provided that Lessee may redact portions of any
umbrella policies that are solely applicable to other projects), and thereafter Lessee shall use commercially reasonable
efforts to deliver to Lessor certificates of insurance showing the required coverage is still in force not less than ten
(10) days prior to the expiration of any policy required pursuant to this Section 18 , but in any event, Lessee shall
deliver to Lessor such certificates prior to the expiration of any policy required pursuant to this Section 18 .
18.3. Waiver of Subrogation . Neither Lessor nor Lessee shall be liable to the other or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage to any building, structure or other tangible
property, or any resulting loss of income and benefits (even though such loss or damage might have been occasioned
by the negligence of such party, its agents or employees) if such loss or damage is covered by insurance benefiting the
party suffering such loss or damage or is required to be covered by insurance pursuant to this Lease. Lessor and
Lessee agree that deductibles under Lessor’s insurance policies and other amounts that are self-insured by Lessor or
Lessee shall be deemed covered by insurance and all claims for recovery thereof are hereby waived. Lessor and
Lessee shall require their respective insurance companies to include a standard waiver of subrogation provision in
their respective policies.
18.4. No Entry Until Insurance In Place . Lessee shall not be permitted to take possession of any portion of the Premises
until all applicable insurance required under this Lease is in place.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
19. Damage to or Destruction of Property .
19.1. Lessee to Give Notice . In case of any damage to or destruction of the Premises or any Improvements, or any material
part thereof, that will materially and adversely affect the operation of the Premises (a “ Casualty ”), Lessee will
promptly give telephonic and written notice thereof to Lessor generally describing the nature and extent of such
Casualty. Lessor shall have no interest in any property insurance proceeds paid to Lessee or Leasehold Mortgagee due
to a Casualty or any other damage to the Premises or any Improvements (the “ Casualty Proceeds ”), except as
expressly provided in this Section 19.1 . Following any Casualty, Lessee shall either (i) diligently rebuild and replace
such damaged Improvements at the Premises in accordance with the Building Standard ( provided that Lessor’s
approval, not to be unreasonably withheld, conditioned or delayed, shall be required with respect to (a) the location
and design of the Interconnection Point or any Other Physical Connection Points, (b) the location and design of the
Bridge, and (c) any Material Modification from the Improvements in existence immediately prior to such Casualty),
or (ii) elect not to rebuild or replace such damaged Improvements, in which event Lessee shall cause the distribution
of the Casualty Proceeds in the following order and priority, in each case, subject to Leasehold Mortgagee making
such Casualty Proceeds available therefor and any other rights of Leasehold Mortgagee: (1) first , to Leasehold
Mortgagee, in accordance with Section 21.2.10 ; (2) second , to Lessee, to fund the activities described in Section
19.3 ; (3) third , to Lessor, to refund an amount equal to (A) that portion of the TI Allowance actually paid to Lessee,
multiplied
by
(B) the Insurance to Replacement Cost Ratio (the “ TI Allowance Refund ”); and (4) fourth , to Lessee,
as to any balance remaining. Lessee shall be liable to Lessor under clause (ii) above for the TI Allowance Refund
regardless of whether Leasehold Mortgagee makes such Casualty Proceeds available therefor or any Casualty
Proceeds are remaining after the payment of the amounts in subclauses (1) and (2) above, which obligation shall
survive the termination of this Lease. Lessee shall make its election in writing (the “ Casualty Election Notice ”) as
to whether or not to rebuild the damaged Improvements no later than one hundred eighty (180) days after any
Casualty event. In the event that Lessee elects not to rebuild, repair or replace the damaged Improvements pursuant to
clause (ii) above, and as a consequence of such election not to rebuild the Project would remain completely
inoperable (e.g., a total Casualty has occurred), then Lessee’s Casualty Election Notice shall also serve to terminate
this Lease. Notwithstanding any election by Lessee not to rebuild or replace damaged Improvements pursuant to
clause (ii) above, (A) all of Lessee’s obligations set forth in this Lease shall remain in full force and effect, including
without limitation Lessee’s obligation to maintain, repair, operate, and manage the Property in accordance with the
Building Standard pursuant to Section 7 herein and to construct any alterations or additions to the Improvements in
accordance with Section 8 herein and (B) Lessee shall ensure that the Improvements continue to include an
approximately 350,000 square foot, first-class, multi-function event venue with capacity of at least 16,000 seats.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
19.2. No Effect on Lease . Except as specifically provided in Section 19.1 , this Lease shall not terminate or be forfeited or
be affected in any manner by reason of damage to or total, substantial or partial destruction of the Premises or the
Improvements or any part or parts thereof or by reason of the untenantability of the same or any part thereof, for or
due to any reason or cause whatsoever, and Lessee, notwithstanding any law or statute present or future, waives any
and all rights to quit or surrender the Premises or any part thereof, Lessee acknowledging and agreeing that the
provisions of this Section 19 shall govern the rights and remedies of the parties in the event of a Casualty. Lessee
expressly agrees that its obligations hereunder, including the payment of the Lessor’s Participation Payment and any
other sums due hereunder, shall continue as though said Premises and/or Improvements had not been damaged or
destroyed and without abatement, suspension, diminution or reduction of any kind, but with an appropriate reduction
to be made to the Minimum Event Levels as mutually agreed upon in good faith by Lessor and Lessee.
19.3.
If Lessee terminates this Lease pursuant to Section 19.1 , then Lessor may, by written notice delivered to Lessee,
require Lessee, at Lessee’s sole expense, to tear down and remove, prior to the termination of this Lease, all or a
portion of the Improvements (at Lessor’s sole option and direction), including the debris resulting therefrom, and to
otherwise clean and restore the area affected by such casualty to a level and clean and reasonably safe and secure
condition, which obligation shall survive the termination of this Lease.
20.
Taking .
20.1. Party to Give Notice . In case of a Taking of all or any part of the Premises, or the commencement of any proceedings
or negotiations which might result in such Taking, the party against whom such proceedings are commenced will
promptly give oral and written notice thereof to the other party generally describing the nature and extent of such
Taking or the nature of such proceedings and negotiations and the nature and extent of the Taking which might result
therefrom, as the case may be. Subject to Section 20.4 , Lessor and Lessee each shall file and prosecute their
respective separate claims for an award. Subject to Section 20.2 , Lessee waives any and all rights it may have under
any statute allowing Lessee to terminate this Lease in the event of a Taking, Lessee acknowledging and agreeing that
the provisions of this Section 20 shall govern the rights and remedies of the parties in the event of a Taking.
20.2. Total Taking . In case of a Taking of the fee of the entire Premises, other than a temporary taking, this Lease shall
automatically terminate as of the date of such Taking. In case of a Taking of such a substantial part of the Premises or
Improvements as shall result in the portion of the Premises and Improvements remaining after such Taking being
unsuitable, as reasonably determined by Lessee and Lessor, for Lessee’s use of the Premises, other than a temporary
taking, then Lessee may terminate this Lease by written notice to Lessor given within six (6) months after such
Taking, with
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
such termination to be effective as of a date, within twelve (12) months after such Taking, specified in such notice.
Any Taking of the Premises of the character referred to in this Section 20.2 which results in the termination of this
Lease is referred to as a “ Total Taking .”
20.3. Partial Taking . In case of a Taking of the Premises other than a Total Taking (a “ Partial Taking ”), this Lease shall
remain in full force and effect as to the portion of the Premises remaining immediately after such Partial Taking,
without any abatement or reduction of Lessor’s Participation Payment or any other sum payable hereunder, but with a
proportionate reduction to be made to the Minimum Event Requirements as mutually agreed upon in good faith by
Lessor and Lessee. In the event of a Partial Taking, Lessee shall have no obligation to restore, or cause to be restored,
the remaining parts of the Improvements.
20.4. Application of Awards and Other Payments . In the event of a Taking, the award (or settlement in lieu thereof) in
connection with such Taking shall be payable in the following manner and order of priority:
20.41. first , to pay any and all reasonable out-of-pocket costs and expenses of Lessor, Lessee, any Leasehold
Mortgagee, and any Fee Mortgagee incurred in collecting the award; and
20.42. second , (a) to Lessee, ***** of the Taking Award, and (b) to Lessor, ***** of the Taking Award; provided ,
however , that if such Taking occurs during the last five (5) years of the Term, Lessor and Lessee shall each
receive ***** of the Taking Award.
Any amount received by Lessee pursuant to Section 20.4.2 may be allocated by Lessee between Lessee and any Leasehold
Mortgagee(s) in accordance with any agreement made between Lessee and such Leasehold Mortgagee(s), provided that
Lessor shall have no obligation to ensure the allocation of such proceeds between Lessee and any such Leasehold
Mortgagee(s).
For purposes of this Section 20.4 , the Premises or a part thereof, as the case may be, shall be deemed to have been taken or
condemned on the date on which actual possession of the Premises or a part thereof, as the case may be, is acquired by any
lawful governmental entity or authority or the date on which title vests therein, whichever is earlier.
21. Mortgage of Leasehold Estate .
21.1. Execution of Leasehold Mortgages . Lessee shall have the right, from time to time, without obtaining Lessor’s
consent, to execute and deliver one or more Leasehold Mortgages encumbering Lessee’s interest in this Lease to one
or more Qualified Lenders, the Premises and the Improvements in order to secure any indebtedness or other
obligation of Lessee relating to this Lease or Lessee’s interest in the Premises (including, without limitation, interim,
permanent, construction or capital
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
improvements financing) and any direct or indirect owner of Lessee shall have the right, from time to time, without
obtaining Lessor’s consent, to execute and deliver one or more pledges of direct and/or indirect ownership interests in
Lessee to one or more Qualified Lenders in order to secure any indebtedness or other obligation of Lessee’s direct
and/or indirect owners (including, without limitation, interim, permanent, construction or capital improvements
financing). Any Leasehold Mortgage shall be subordinate to Lessor’s interest in the Premises and shall be subject to
the provisions of this Lease, and no Leasehold Mortgage shall extend to or affect Lessor’s fee interest in the Premises
or the reversionary interest and estate of Lessor in and to the Premises or any part thereof. The execution and delivery
of a Leasehold Mortgage by Lessee shall not be deemed to constitute an Assignment or other transfer of this Lease or
an interest in Lessee nor shall the holder of any Leasehold Mortgage, as such, be deemed an assignee or transferee of
this Lease so as to require such Leasehold Mortgagee to assume the performance of any of the terms, provisions,
covenants or conditions on the part of Lessee to be performed hereunder, unless such Leasehold Mortgagee obtains
actual possession of the Premises following a Leasehold Foreclosure or by agreement of Lessee and Leasehold
Mortgagee. Lessor acknowledges and agrees that any collateral assignment and/or pledge to a Leasehold Mortgagee
that is a Qualified Lender for financing purposes is a Permitted Transfer pursuant to Section 22.2 herein.
21.2. Covenants of Lessor . If Lessee or any of its direct and/or indirect owners shall execute a Leasehold Mortgage in
favor of a Qualified Lender in accordance with this Section 21 , Lessor agrees that so long as such Leasehold
Mortgage shall remain unsatisfied of record or until written notice of satisfaction is given by the holders of any such
Leasehold Mortgage to Lessor, the following provisions shall apply:
21.2.1. There shall be no cancellation, termination (except in accordance with Section 25.3 and Section 25.5 ),
surrender, waiver, acceptance of surrender, amendment, change or modification of this Lease without the prior
written consent of each Leasehold Mortgagee. Any action requiring the consent of Leasehold Mortgagee
hereunder that is taken without such written consent, shall be null and void and of no force or effect, and shall
not be binding on any Leasehold Mortgagee (or, following a Leasehold Mortgage Foreclosure, Lessee).
21.2.2. Lessor shall, upon Lessor (or any Person acting on behalf of Lessor) serving Lessee with any notice which
would lead to an Event of Default or any termination pursuant to Section 25.3 (to the extent that notice to
Lessee is required under such section), simultaneously serve (or cause such Person acting on behalf of Lessor
to serve) a copy of such notice upon each Leasehold Mortgagee who has delivered to Lessor a written request
for such notices, including an address for notices to such Leasehold Mortgagee.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
21.2.3. Each Leasehold Mortgagee shall have the right, but not the obligation, at any time prior to termination of this
Lease, to pay all of the Lessor’s Participation Payment or any other charges due hereunder, with all due
interest and late charges, to purchase any insurance, to pay any Impositions, to make any repairs, replacements
or improvements, to do any other act or thing required of Lessee hereunder, and to do any act or thing which
may be necessary and proper to be done in the performance and observance of the agreements, covenants and
conditions hereof, including without limitation those necessary to prevent termination of this Lease. As against
Lessor, any Leasehold Mortgagee and its agents and contractors shall have full access to the Premises for
purposes of accomplishing any of the foregoing during the Lease Term, provided that the Leasehold
Mortgagee shall be required to comply with Section 11.3 of this Lease with respect to any work to be
performed on the Premises by the Leasehold Mortgagee or its agents or contractors. Any of the foregoing done
by any Leasehold Mortgagee shall be as effective (including without limitation to prevent a termination of this
Lease) as the same would have been if done by Lessee.
21.2.4. Anything contained in this Lease notwithstanding, if Lessor is entitled to terminate this Lease pursuant to
Section 25.3 , Lessor shall not be entitled to terminate this Lease, and any notice of same shall be rendered
void, if the Leasehold Mortgagee shall cure the Event of Default described in Section 25.3 within the time
period granted to Lessee hereunder. Notwithstanding anything to the contrary set forth herein, following the
date on which the Leasehold Mortgagee (or its Affiliate) obtains title to and possession of the Premises (or the
ownership interests in Lessee, as applicable) any non-monetary default that by its nature is impossible for the
Leasehold Mortgagee to cure, despite gaining possession of the Premises (an “ Uncurable Default ”) shall be
deemed cured for purposes of terminating the Lease, as between Lessor and the Leasehold Mortgagee (or
Lessee, as applicable) such that Lessor shall not terminate this Lease by reason of such Uncurable Default. For
the avoidance of doubt, nothing herein shall require any Leasehold Mortgagee to attempt to cure an Uncurable
Default in order to comply with and be entitled to the benefits of the rights set forth in Section 21 with respect
to all other monetary defaults and non-monetary defaults. Leasehold Mortgagee shall not be responsible for
curing any defaults by Lessee under the Cross-Marketing Agreement first arising or accruing prior to date on
which the Leasehold Mortgagee (or its Affiliate) obtains title to and possession of the Premises (or the
ownership interests in Lessee, as applicable), but shall be responsible for complying with the terms of the
Cross-Marketing Agreement from and after such date.
21.2.5. The right of Lessor to terminate this Lease for cessation of operations pursuant to Section 25.3 shall be subject
to, and conditioned upon, Lessor having first given to each Leasehold Mortgagee of which Lessor has been
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
advised in writing, including an address for notices to such Leasehold Mortgagee, written notice of such Event
of Default as required under Section 21.2.2 and such Leasehold Mortgagees having failed to remedy such
Event of Default or acquire Lessee’s leasehold estate hereunder or commence foreclosure or other appropriate
proceedings in the nature thereof as set forth in Section 21.2.4 .
21.2.6. If any Leasehold Mortgagee is prohibited from commencing or prosecuting Leasehold Foreclosure or other
appropriate proceedings in the nature thereof by any process or injunction issued by any court or by reason of
any action by any court having jurisdiction of any bankruptcy or insolvency proceeding involving Lessee or its
direct and/or indirect owners, the times specified in Section 21.2.4 for commencing or prosecuting Leasehold
Foreclosure or other proceedings shall be extended for the period of the prohibition, provided that the
Leasehold Mortgagee shall have fully cured any Event of Default in the payment of any monetary obligations
of Lessee under this Lease and shall continue to pay currently those monetary obligations as and when the
same fall due.
21.2.7. Lessor agrees that the names of each Leasehold Mortgagee may be added by Lessee to the “Mortgagee
Endorsement” of any and all insurance policies required to be carried by Lessee under this Lease on condition
that the insurance proceeds are to be applied in the manner specified in this Lease.
21.2.8. Leasehold Foreclosure of any Leasehold Mortgage, or any sale thereunder, whether by judicial proceedings or
by virtue of any power contained in the Leasehold Mortgage, or any conveyance of the leasehold estate
hereunder from Lessee to any Leasehold Mortgagee or its designee through, or in lieu of, Leasehold
Foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Lessor or
constitute a breach of any provision of or an Event of Default under this Lease, and upon such Leasehold
Foreclosure, sale or conveyance, Lessor shall recognize the purchaser or other transferee in connection
therewith as the Lessee hereunder.
21.2.9. In the event any Leasehold Mortgagee or its designee becomes the Lessee under this Lease (or the owner of
direct and/or indirect ownership interests in Lessee, as applicable), such Leasehold Mortgagee or its designee
(or the Lessee, as applicable) shall, subject to the foreclosing lender’s obligation to cure all but the Uncurable
Defaults, be personally liable for the obligations of Lessee under this Lease or a new lease only for the period
that the Leasehold Mortgagee or its designee remains the actual beneficial holder of the leasehold estate
hereunder, and only to the extent provided in this Lease or such new lease.
21.2.10.
Subject to Applicable Laws, the senior Leasehold Mortgagee may reserve the right to apply to its
Leasehold Mortgage debt all, or any part, of
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Lessee’s share of the proceeds from any insurance policies arising from a Casualty pursuant to the debts
secured by such Leasehold Mortgage, up to the amount of indebtedness secured by the Leasehold Mortgage.
21.2.11.
21.2.12.
Whichever party has the primary obligation to notify any Leasehold Mortgagee hereunder shall give
each such Leasehold Mortgagee of which the parties have been notified (including an address for
notices), notice of any litigation, or condemnation proceedings, or of any pending adjustment of
insurance claims as each may relate to the Premises, and any Leasehold Mortgagee shall have the right,
at Leasehold Mortgagee’s expense, to intervene therein and to be made a party to such proceedings.
The parties hereto do hereby consent to such intervention. In the event that any such Leasehold
Mortgagee shall not elect to intervene or become a party to the proceedings, such Leasehold
Mortgagee shall receive notice and a copy of any award or decision made in connection therewith, but
any such intervention shall not diminish Lessor’s rights under this Lease. For avoidance of doubt, the
parties acknowledge and agree that Lessee shall have the primary obligation to notify any of its
Leasehold Mortgagees under this Section 21.2.11 ; provided , however , Lessor shall give notices to
any such Leasehold Mortgagees as required under this Lease.
If required by Leasehold Mortgagee, Lessor shall execute a written agreement (a “ Consent
Agreement ”) among Lessor, Lessee and Leasehold Mortgagee, in a commercially reasonable written
agreement as reasonably approved by Lessor, for non-recourse financing, as may be required by
Lessee or Leasehold Mortgagee, pursuant to which Lessor shall acknowledge the existence of the
Leasehold Mortgage, and, subject to the limitations set forth in Section 21.3 below, make certain
commercially reasonable undertakings for the benefit of the Leasehold Mortgagee thereunder,
including, without limitation, providing copies of any notices that Lessor may from time to time
deliver to Lessee under this Lease.
21.3. Modification of Lease . Lessor shall not unreasonably withhold its consent to any modification to this Section 21 or
any other provision of this Lease relating to the rights of a Leasehold Mortgagee that are reasonably requested by a
Leasehold Mortgagee that is a Qualified Lender, provided that (w) such modification is (i) consistent with the
customary requirements of institutional lenders at such time, including those imposed by applicable rating agency
guidelines, or (ii) required by banking, insurance or similar laws and regulations setting forth provisions that must
appear in a ground lease in order for such lease to be accepted as security by any Leasehold Mortgagee or prospective
Leasehold Mortgagee requesting such modification, (x) such modification does not (i) adversely affect any of
Lessor’s rights, benefits or privileges in any material respect, (ii) increase any of Lessor’s liabilities or obligations in
any material respect under this Lease, (iii) create any new material liability or material obligation of Lessor, or (iv)
reduce the Lessor’s
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Participation Payment or any other charges due hereunder, (y) if such modification requires the consent or approval of
any existing Fee Mortgagee, such consent or approval shall have been obtained (and Lessor shall use commercially
reasonable efforts to obtain such consent or approval), and (z) Lessee shall pay any actual reasonable third party costs
and expenses (including reasonable attorney’s fees) incurred by Lessor in connection with any such modification.
Lessor shall not be required to review any proposed modification of this Lease unless it is accompanied by a
certificate of Lessee representing and warranting that the execution and effectuation of the requested modification has
been approved by all existing Leasehold Mortgagees and requires no further review, consent or approval by any such
Leasehold Mortgagee.
21.4. Upon a termination of this Lease as to all or any portion of the Premises for any reason whatsoever, provided that
Lessor will notify any Leasehold Mortgagee that is a Qualified Lender of such termination and all amounts then owed
to Lessor under this Lease, or upon a rejection of this Lease by Lessee or a trustee in a bankruptcy, such Leasehold
Mortgagee shall have the right, for a period of thirty (30) days after receiving written notice thereof from Lessor, to
require Lessor to (and Lessor shall to the extent not prohibited by court order or governmental action from doing so)
enter into a New Lease (as defined below) for the Premises with the Leasehold Mortgagee (or its designee or
nominee) in accordance with the terms of this Section 21.4 below within five (5) business days of receipt of
Leasehold Mortgagee’s written request therefor.
21.4.1 The Leasehold Mortgagee (or its designee or nominee becoming the tenant under such New Lease)
shall pay to Lessor within thirty (30) days after the execution and delivery of the New Lease all reasonable
attorneys’ fees and reasonable court costs, incurred by Lessor in connection with the preparation of and entry
into the New Lease and not otherwise paid by Lessee to Lessor pursuant to the terms of this Lease.
21.4.2 Such New Lease (x) shall be and remain an encumbrance on all or a portion of the Premises demised
thereby, having the same lien priority thereon as this Lease; and (y) shall be for the remainder of the Term
and, subject to the terms of this Section 21 , shall be on the same terms and conditions as this Lease.
22.
Assignment by Lessee or MSG S&E and Subleases .
22.1. Except for a Permitted Transfer or an Approved Transfer, neither Lessee nor MSG S&E shall Assign its right, title,
and interest in this Lease without the prior written consent of Lessor, which consent shall be granted by Lessor unless
Lessor makes a good faith determination that the proposed transferee is not sufficiently creditworthy or lacks the
experience to comply with the obligations of Lessee or MSG S&E, as applicable, as set forth in this Lease. Following
any Permitted Transfer under clause (ii) of Section 22.2 below, any Approved Transfer, or any Assignment consented
to
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
by Lessor pursuant to this Section 22.1 , the assignor thereunder shall be released from liability under this Lease, the
Path of Travel License, and the Parking License.
22.2. A “ Permitted Transfer ” shall mean (i) any Assignment by Lessee to The Madison Square Garden Company or any
of its direct or indirect subsidiaries, provided that MSG S&E (or its permitted assigns) shall not be released from
liability hereunder upon any such transfer, (ii) any assignment or transfer of Lessee’s or MSG S&E’s interest in this
Lease to any entity that is not an Affiliate or subsidiary of The Madison Square Garden Company and that acquires all
or substantially all of the entertainment venues of the Madison Square Garden Company (whether leased or owned),
with or without Madison Square Garden in New York City, New York ( provided that in the case of an assignment or
transfer by MSG S&E under this clause (ii) , a “Permitted Transfer” shall not include an assignment of an interest in
this Lease to an entity for the sole purpose of the equity of that entity being distributed to the shareholders of The
Madison Square Garden Company by way of dividend), or (iii) a Leasehold Mortgage of the Premises in accordance
with the terms of Section 21 hereof, provided that MSG S&E (or its permitted assigns) shall not be released from
liability hereunder upon any such Leasehold Mortgage or transfer thereunder.
22.3. An “ Approved Transfer ” shall mean an Assignment of either Lessee’s or MSG S&E’s right, title, and interest in
this Lease following the Opening Date to a Qualified Transferee ( provided that if both Lessee and MSG S&E are
assigning their respective interests in the Lease concurrently, then only the assignee of MSG S&E must be a Qualified
Transferee). A “ Qualified Transferee ” shall mean an entity which would immediately prior to such transfer (A) if a
private company, have a minimum Tangible Net Worth of at least ***** according to its most recent audited financial
statements; (B) if a public company, (1) have a minimum Tangible Net Worth of at least ***** according to its most
recent financial statements, or (2) have an enterprise value of at least ***** according to its most recent financial
statements and public equity value based on a 60-day trailing volume-weighted average price; (C) has minimum
unrestricted cash of ***** (subject to an annual increase of ***** over the Term of this Lease), according to its most
recent audited financial statements; (D) has (or its Controlling Affiliate has) at least ***** years’ demonstrable
experience in operating a live concert and performance venues of a similar type and scale as the Project; and (E) shall
not cause a Regulatory Conflict or Suitability Issue.
22.4.
In connection with any Assignment of Lessee’s or MSG S&E’s interest in this Lease, Lessee shall provide Lessor
with advance written notice of such Assignment and all information reasonably requested by Lessor that relates to the
ability of the assignee or transferee to satisfy the conditions of this Lease including without limitation the terms of this
Section 22 . As a condition to any Assignment of Lessee’s or MSG S&E’s interest in this Lease (whether or not
Lessor’s consent is required), any assignee or transferee of Lessee’s obligations shall assume in writing all of the
obligations of Lessee or MSG S&E, as applicable, hereunder and under the other Arena Documents. Lessee shall pay
Lessor’s reasonable out of pocket costs and
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
expenses (including reasonable out of pocket attorneys’ fees) in connection with reviewing any requested Assignment
(other than a Permitted Transfer or an Approved Transfer). In no event shall any assignee or transferee under an
Assignment (whether or not Lessor’s consent is required) be a Lessor Competitor.
22.5. No consent of Lessor hereunder shall relieve Lessee of the obligation to obtain Lessor’s consent to a subsequent
transaction under this Article 22 . No Assignment of this Lease or subletting of all or any portion of the Property
(excluding any Leasehold Foreclosure of any Leasehold Mortgage, or any sale thereunder, whether by judicial
proceedings or by virtue of any power contained in the Leasehold Mortgage, or any conveyance of the leasehold
estate hereunder from Lessee to any Leasehold Mortgagee or its designee through, or in lieu of, Leasehold
Foreclosure or other appropriate proceedings in the nature thereof) shall be permitted without the prior written
consent of Lessor, which consent shall not be unreasonably withheld, conditioned or delayed, if at the time of such
assignment an Event of Default is continuing.
22.6. Any Assignment made contrary to the terms of this Section 22 shall be void. In no event shall either Lessee or MSG
S&E be relieved of its liability under this Lease following an Assignment except as expressly permitted under this
Article 22 .
22.7. Any subletting of all or any part of the Property (including without limitation in the form of subleases, licenses,
concessions and occupancy agreements) shall be subject and subordinate to this Lease and the terms and conditions
hereof and Lessee shall remain liable for the performance of all of the covenants and agreements to be performed on
Lessee’s part hereunder.
22.8.
In the event that VCR or MSG S&E or their permitted assigns hereunder, as applicable, remain jointly and severally
liable under this Lease in accordance with Section 2.3 and substantially all of the assets of VCR or MSG S&E or their
permitted assigns hereunder are transferred to another entity (an “ Asset Transferee ”), then VCR or MSG S&E or
their permitted assigns hereunder, as applicable, shall assign its interest in this Lease to such Asset Transferee, subject
to the terms hereof.
23.
Performance on Behalf of Lessee . In the event that Lessee shall fail to perform any obligation required hereunder in
connection with removal of liens, procurement of insurance, or maintenance of the Bridge, then, if such failure becomes an
Event of Default, Lessor may, but shall be under no obligation to, perform such obligation with the same effect as if made by
Lessee (including, without limitation, insurance under Section 18 ). Lessee shall, within thirty (30) days following receipt of
demand therefor from Lessor, accompanied by documentation reasonably satisfactory to Lessee of the amounts paid or costs
incurred, reimburse Lessor for (i) all sums so paid by Lessor and (ii) all costs and expenses incurred by Lessor in connection
with such performance, together with interest thereon at the Default Rate until paid. Alternatively, Lessor may seek to
specifically enforce Lessee’s performance of any of Lessee’s obligations under this Lease.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
24.
Events of Default .
24.1. Any one or more of the following events shall constitute an “ Event of Default ” hereunder:
24.1.1. With respect to the non-monetary obligations of Lessee hereunder, Lessee shall have failed to perform or
comply in any material respect with any obligation under this Lease and such failure shall have continued for
thirty (30) days after notice thereof from Lessor is duly given pursuant to Section 35 below, and if the curing
of such non-monetary default is not reasonably feasible within such 30-day period, Lessee shall not, subject to
Force Majeure, have commenced the curing of such failure within such thirty (30) day period, or having so
commenced, shall thereafter have failed or neglected, for reasons other than Force Majeure, to prosecute or
complete the curing of such Event of Default with diligence and dispatch within ninety (90) days after the
original notice thereof or such longer period as may be reasonably necessary to effect such cure; or
24.1.2. Either Lessee shall have made a general assignment for the benefit of creditors, or shall have admitted in
writing its inability to pay its debts as they become due or shall have filed a petition in bankruptcy, or shall
have been adjudicated bankrupt or insolvent, or shall have filed a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future
statute, law or regulation, or shall have filed an answer admitting, or shall have failed reasonably to contest,
the material allegations of a petition filed against it in any such proceeding, or shall have sought or consented
to or acquiesced in the appointment of any trustee, receiver or liquidator of Lessee or any material part of its
properties; or
24.1.3. Either (i) within ninety (90) days after the commencement of any proceeding against either Lessee or any
trustee, receiver or liquidator of Lessee seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute, law, rule or regulation, such
proceeding shall not have been dismissed, or (ii) if, within ninety (90) days after the appointment without the
consent or acquiescence of either Lessee or any trustee, receiver or liquidator of Lessee or of any material part
of its properties, such appointment shall not have been vacated; or
24.1.4. With respect to the monetary obligations of Lessee hereunder that have been reduced to a liquidated amount,
Lessee shall have failed to pay such amounts within ten (10) Business Days after written notice thereof from
Lessor is duly given pursuant to Section 35 below.
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
24.2. As to any Event of Default relating to any matter which Lessee is entitled to contest or cure pursuant to Section 12 ,
the cure periods set forth in Section 24.1.1 shall be deemed extended for so long as Lessee is diligently contesting or
curing such matter in good faith in accordance with Section 12 .
25.
Remedies .
25.1. Remedies of Lessor . Upon the occurrence of any uncured Event of Default Lessor shall have the right to recover
damages, or specifically enforce Lessee’s covenants set forth in this Lease.
25.2. No Waiver by Lessor or Lessee . No failure by Lessor or Lessee to insist upon the strict performance of any term
hereof or to exercise any right, power or remedy consequent upon an Event of Default or any breach hereof, and no
submission by Lessee or acceptance by Lessor of full or partial Lessor’s Participation Payment during the continuance
of any such breach shall constitute a waiver of any such Event of Default or any such breach or of any such term. No
waiver of any Event of Default or breach shall affect or alter this Lease, which shall continue in full force and effect,
or the respective rights of Lessor or Lessee with respect to any other then existing or subsequent breach or Event of
Default.
25.3. TERMINATION FOR CESSATION OF OPERATIONS, PROHIBITED USE, OR FAILURE TO ACHIEVE
MILESTONE DATE . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
LEASE, AND SUBJECT TO THE PROVISIONS OF SECTIONS 21.2.4 AND 21.2.5 , LESSOR SHALL BE
ENTITLED TO TERMINATE THIS LEASE PRIOR TO THE EXPIRATION OF THE LEASE TERM IF
LESSEE HAS (A) CEASED TO USE THE PREMISES AS A PERFORMANCE AND EVENT VENUE FOR
A CONSECUTIVE PERIOD OF MORE THAN ONE (1) CALENDAR YEAR, SUBJECT TO FORCE
MAJEURE AND EXCEPT AS MAY BE REQUIRED TO ACCOMMODATE SUBSTANTIAL
RENOVATION OF THE VENUE, AND SUCH ABANDONMENT CONTINUES FOR THIRTY (30) DAYS
AFTER NOTICE THEREOF FROM LESSOR; OR (B) UTILIZED THE PREMISES FOR A PROHIBITED
USE AND CONTINUED TO ENGAGE IN SUCH PROHIBITED USE FOR THIRTY (30) DAYS AFTER
NOTICE THEREOF FROM LESSOR; OR (C) FAILED TO COMMENCE CONSTRUCTION OF THE
PROJECT BY THE CONSTRUCTION COMMENCEMENT DATE; OR (D) FAILED TO ACHIEVE
DEVELOPMENT COMPLETION BY THE OUTSIDE DEVELOPMENT COMPLETION DATE. IF ANY
OF THE EVENTS OF DEFAULT DESCRIBED IN THE PRECEDING SENTENCE REMAINS UNCURED
AFTER EXPIRATION OF THE NOTICE AND CURE PERIOD SET FORTH IN THIS SECTION 25.3 (THE
PARTIES AGREEING THAT THE NOTICE AND CURE PERIOD SET FORTH IN SECTION 24.1 SHALL
NOT APPLY WITH RESPECT TO SUCH EVENTS OF DEFAULT), THEN LESSOR MAY,
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
AT ITS OPTION, UPON WRITTEN NOTICE TO LESSEE, TERMINATE THIS LEASE. As used herein, “
Substantial Renovation ” shall mean work having an aggregate cost of not less than ***** (subject to increase by
CPI over the Term of this Lease). If the Lease has terminated in accordance with this Section 25.3 , then Lessor shall
have the immediate right to re-enter the Premises and terminate Lessee’s right to possession of the Premises and may,
but shall have no obligation to, remove all persons and property therefrom. Such property may be removed and stored
in a warehouse or elsewhere at the sole cost and expense and risk of and for the account of Lessee. ANY NOTICE
DELIVERED PURSUANT TO THIS SECTION 25.3 SHALL BE INVALID UNLESS THE SAME
CONTAINS A LEGEND IN BOLD CAPITAL LETTERS PROMINENTLY DISPLAYED AT THE TOP OF
SUCH NOTICE THAT FAILURE TO RESPOND TO SUCH NOTICE MIGHT RESULT IN THE
TERMINATION OF THE LEASE.
25.4. Termination by Lessee for Unforeseeable Conditions . Lessee may terminate this Lease upon reasonable prior written
notice to Lessor (an “ Unforeseeable Condition Termination ”) prior to the Outside Unforeseeable Condition Date
if, prior to completion of the excavation of the Premises in connection with the Project, soil, geotechnical,
environmental, or other unknown and reasonably unforeseeable physical conditions of the Premises (“ Unforeseen
Conditions ”) are discovered which are reasonably expected to increase budgeted Project costs by more than *****
in Lessee’s good faith and reasonable estimation based on reasonable documentary evidence provided to Lessor,
unless (i) within ninety (90) days of Lessee’s Unforeseeable Condition Termination notice Lessor gives Lessee
written notice (Lessor having no obligation to do so) of Lessor’s election to bear the incremental costs above ***** of
such Unforeseen Conditions, which election shall be in a form reasonably acceptable to Lessee and (ii) such
Unforeseen Conditions shall not result in a material delay in the Development Completion Date for the Project. If
Lessor elects to cure any Unforeseen Condition, Lessor shall cure the same within such period to be reasonably
agreed upon in writing by Lessor and Lessee based on an independent third party contractor estimate of the time for
such cure, and to the extent such cure results in an actual delay in the Development Completion Date, the Outside
Development Completion Date shall be extended by such period. “ Outside Unforeseeable Condition Date ” shall
mean not later than thirty (30) days following completion of excavation and prior to pouring of the foundation of the
Project. In the event of an Unforeseeable Condition Termination, Lessee shall, at its expense, deliver the Premises to
Lessor upon such termination in a reasonably safe and secure condition. ANY NOTICE DELIVERED PURSUANT
TO THIS SECTION 25.4 SHALL BE INVALID UNLESS THE SAME CONTAINS A LEGEND IN BOLD
CAPITAL LETTERS PROMINENTLY DISPLAYED AT THE TOP OF SUCH NOTICE THAT FAILURE
TO RESPOND TO SUCH NOTICE MIGHT RESULT IN THE TERMINATION OF THE LEASE.
25.5. Termination by Lessor for Pre-Existing Hazardous Materials . Prior to Development Completion, Lessor may
terminate this Lease upon reasonable prior written notice
45
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
to Lessee if Pre-Existing Hazardous Materials are discovered at the Premises that are the obligation of Lessor to pay
for or mitigate and that cost in excess of ***** in Lessor’s good faith and reasonable estimation based on reasonable
documentary evidence provided to Lessee, unless Lessee agrees in writing (Lessee having no obligation to do so) no
later than thirty (30) days after receipt of such notice from Lessor that Lessee will bear the incremental costs
associated with such Pre-Existing Hazardous Materials above ***** which agreement shall be in a form reasonably
acceptable to Lessor. “ Pre-Existing Hazardous Materials ” shall mean Hazardous Materials in the environment,
including surface water, groundwater and land surface and subsurface strata, in such quantities, concentrations and
locations as were present at the Premises prior to the Lease Commencement Date, but shall not include any
Hazardous Materials arising as a result of the actions of Lessee or its agents, contractors, employees or others acting
by through or under Lessee. ANY NOTICE DELIVERED PURSUANT TO THIS SECTION 25.5 SHALL BE
INVALID UNLESS THE SAME CONTAINS A LEGEND IN BOLD CAPITAL LETTERS PROMINENTLY
DISPLAYED AT THE TOP OF SUCH NOTICE THAT FAILURE TO RESPOND TO SUCH NOTICE
MIGHT RESULT IN THE TERMINATION OF THE LEASE.
25.6. NO TERMINATION BY LESSOR OR LESSEE . EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS
19.1 , 20.2 , AND 25.4 , IN NO EVENT SHALL LESSEE HAVE THE RIGHT TO TERMINATE THIS
LEASE UNDER THE TERMS HEREOF, AT LAW OR IN EQUITY, REGARDLESS OF ANY CLAIMS OF
HABITABILITY OR CONSTRUCTIVE EVICTION OR OTHERWISE.
EXCEPT AS EXPRESSLY
PROVIDED IN SECTIONS 25.3 AND 25.5 , IN NO EVENT SHALL LESSOR HAVE THE RIGHT TO
TERMINATE THIS LEASE OR PROSECUTE AN EVICTION ACTION UNDER THE TERMS HEREOF,
AT LAW OR IN EQUITY, REGARDLESS OF ANY CLAIMS OF EVENT OF DEFAULT, BREACH,
HABITABILITY, OR CONSTRUCTIVE EVICTION OR OTHERWISE.
Acceptance of Surrender . Except to the extent otherwise stated herein, no modification, termination or surrender of this
Lease or surrender of the Premises, or any part thereof or of any interest therein, by Lessee shall be valid or effective unless
agreed to and accepted in writing by Lessor, and no act by any representative or agent of Lessor other than such a written
agreement and acceptance by Lessor shall constitute an acceptance thereof.
Brokers . Lessor and Lessee each represents and warrants to the other that it has not engaged or dealt with any broker or
finder in connection with the transactions contemplated by this Lease. If any individual or entity shall assert a claim to a
finder’s fee or commission as a broker or a finder with respect to the Premises or this Lease, then the party who is alleged to
have retained such individual or entity or whose acts, omissions or representations are alleged to give rise to such claim shall
defend (with counsel reasonably acceptable to the indemnified party), indemnify and hold harmless the other party from and
against any such
26.
27.
46
28.
29.
30.
31.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
claim and all costs, expenses, liabilities and damages incurred in connection with such claim or any action or proceeding
brought thereon.
No Merger of Title . There shall be no merger of the leasehold estate created by this Lease with the fee estate in the
Premises by reason of the fact that the same Person may own or hold both (a) the leasehold estate created by this Lease or
any interest in such leasehold estate and (b) any interest in such fee estate; and no such merger shall occur (A) unless and
until all Persons having any interest in (i) the leasehold estate created by this Lease and (ii) the fee estate in the Premises shall
join in a written instrument effecting such merger and shall duly record the same, and (B) without the prior written consent of
each Leasehold Mortgagee and each Fee Mortgagee of all or any portion of the fee estate in the Premises.
Estoppel Certificate . Within thirty (30) days after request by any Party (which request may be from time to time as often as
reasonably required by a Party but not more than once every six (6) months), the non-requesting Party shall execute and
deliver to the requesting Party, without charge, an estoppel certificate (the “ Estoppel Certificate ”) related to the facts
pertaining to this Lease in such form as the requesting Party may reasonably request and as reasonably approved by the non-
requesting Party. Any such Estoppel Certificate may be conclusively relied upon by any lender, investor, or subtenant.
If any Party fails to respond to such request within such thirty (30) day period, then the requesting Party may deliver a second
notice to the other Party using the Deemed Approval Process stating that the failure of the other Party to respond to such
request within five (5) business days after receipt of such second request will result in a deemed approval with respect to the
requested matters. The failure to deliver such statement within that five (5) business day period shall (with respect to third
parties relying upon such Estoppel Certificate), without limiting any other remedy which the requesting party may have as a
result of such failure, be conclusive upon the Party which fails to deliver such statement that this Lease is in force and effect
with only such modifications as have been identified by the requesting Party, and that there are no outstanding Defaults in the
performance of the requesting Party.
Intentionally Deleted .
Representations, Warranties, and Covenants .
31.1. Lessor . Each of Lessor and VCR represents and warrants that it has the legal power, right and authority to enter into
this Lease and to consummate the transaction contemplated hereby. The person(s) executing this Lease on behalf of
Lessor and VCR, respectively, have been duly authorized to do so. Lessor is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of Nevada. VCR is a limited liability
company duly organized, validly existing and in good standing under the laws of the state of Nevada. Neither the
entry into nor the performance of this Lease, nor the entering into of the transaction, by Lessor or by VCR will (i)
violate, conflict with, result in a breach under, or constitute a default under, any corporate charter, certificate of
incorporation, by-law,
47
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
partnership agreement, limited liability company agreement, indenture, contract, agreement, permit, judgment, decree
or order to which Lessor or VCR, as applicable, is a party or by which Lessor or VCR, as applicable, is bound, or (ii)
require the consent of any third party other than as has already been obtained.
31.1.1. No Bankruptcy Proceedings . Neither Lessor nor any Affiliate of Lessor is the subject of any dissolution
proceedings or any voluntary or involuntary case under the federal bankruptcy laws or any other similar
federal or state insolvency law, and no receiver, trustee, assignee for the benefit of creditors or other similar
official has been appointed with respect to Lessor or any Affiliate of Lessor, or any of their respective assets.
Lessor shall not, and shall not permit any Affiliate of Lessor to, institute proceedings to be adjudicated
bankrupt or insolvent, consent to the institution of bankruptcy or insolvency proceedings against it, or file, or
consent to, a petition seeking reorganization relief under any applicable federal or state law relating to
bankruptcy or insolvency, or consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of any of its property, or make an assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they become due, or take corporate
action in furtherance of any such action.
31.1.2. Patriot Act and Related Matters . None of Lessor, nor any owner of a direct or indirect interest in Lessor, (i) is
listed on any Government Lists (as defined below), (ii) is a Person who has been determined by competent
authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23,
2001) or any other similar prohibitions contained in the rules and regulations of OFAC (as defined below) or
in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously
indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act
Offense (as defined below), or (iv) is currently under investigation by any governmental authority for alleged
criminal activity. For purposes hereof, the term “ Patriot Act Offense ” means any violation of the criminal
laws of the United States of America or of any of the several states, or that would be a criminal violation if
committed within the jurisdiction of the United States of America or any of the several states, relating to
terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against
terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the
Money Laundering Control Act of 1986, as amended, or the (E) Patriot Act. “Patriot Act Offense” also
includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense.
For purposes hereof, the term “ Government Lists ” means (1) the Specially Designated Nationals and
Blocked Persons Lists maintained by the Office of Foreign Assets Control (“ OFAC ”), (2) any other list of
terrorists, terrorist organizations or narcotics traffickers maintained
48
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
pursuant to any of the rules and regulations of OFAC that Lessee notified Lessor in writing is now included in
Government Lists, or (3) any similar lists maintained by the United States Department of State, the United
States Department of Commerce or any other government authority or pursuant to any Executive Order of the
President of the United States of America that Lessee notified Lessor in writing is now included in
Government Lists.
31.2. Lessee . Each of Lessee and MSG S&E represents and warrants that it has the legal power, right and authority to enter
into this Lease and to consummate the transaction contemplated hereby. The person(s) executing this Lease on behalf
of Lessee and MSG S&E, respectively, have been duly authorized to do so. Lessee is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of Delaware. MSG S&E is a limited
liability company duly organized, validly existing and in good standing under the laws of the state of Delaware.
Neither the entry into nor the performance of this Lease, nor the entering into of the transaction, by Lessee or MSG
S&E will (i) violate, conflict with, result in a breach under, or constitute a default under, any corporate charter,
certificate of incorporation, by-law, partnership agreement, limited liability company agreement, indenture, contract,
agreement, permit, judgment, decree or order to which Lessee or MSG S&E, as applicable, is a party or by which
Lessee or MSG S&E, as applicable, is bound, or (ii) require the consent of any third party other than as has already
been obtained.
31.2.1. No Bankruptcy Proceedings . Neither Lessee nor any Affiliate of Lessee is the subject of any dissolution
proceedings or any voluntary or involuntary case under the federal bankruptcy laws or any other similar
federal or state insolvency law, and no receiver, trustee, assignee for the benefit of creditors or other similar
official has been appointed with respect to Lessee or any Affiliate of Lessee, or any of their respective assets.
Lessee shall not, and shall not permit any Affiliate of Lessee to, institute proceedings to be adjudicated
bankrupt or insolvent, consent to the institution of bankruptcy or insolvency proceedings against it, or file, or
consent to, a petition seeking reorganization relief under any applicable federal or state law relating to
bankruptcy or insolvency, or consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of any of its property, or make an assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they become due, or take corporate
action in furtherance of any such action.
31.2.2. Intentionally Deleted .
31.2.3. Patriot Act and Related Matters . None of Lessee, nor any owner of a direct or indirect interest in Lessee, (i) is
listed on any Government Lists, (ii) is a Person who has been determined by a competent authority to be
subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept.
49
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC or in any enabling
legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously indicted for or
convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense, or (iv)
is currently under investigation by any governmental authority for alleged criminal activity.
31.2.4. Compliance with Nevada Gaming Commission Rules and Regulations . The provisions of Exhibit G attached
hereto are incorporated herein by reference.
31.2.5. Intentionally Deleted .
31.2.6. *****
31.2.7. *****
31.2.8. Regular Updates on Bookings . Lessee shall provide Lessor with regular written updates (no less frequently
than monthly) regarding confirmed bookings for all events at the Venue.
31.2.9. *****
31.2.10.
Intentionally Deleted .
31.2.11.
Confidentiality . Each of the parties to this Lease shall maintain the terms and conditions of, and any
information delivered to the other Party in accordance with, this Lease (collectively, “ Confidential
Information ”) in confidence, and, except in accordance with the immediately succeeding sentence,
shall not disclose any such Confidential Information to a third party, other than (i) to its officers,
directors, employees, advisors, attorneys, or accountants who need to know and who agree to keep
such information confidential; (ii) to its actual or proposed lenders or other financing sources, actual or
proposed purchasers, and actual or proposed investors (excluding any public shareholders), each
having been made aware of the restrictions set forth in this Section 31.2.11 and the confidential nature
of the Confidential Information disclosed, and in each case it being understood that, with respect to
disclosures to potential purchasers or potential investors only, such Confidential Information shall not
be disclosed to any MSG Confidentiality Competitor (as defined below) or to a Lessor Competitor;
(iii) to the extent disclosure is required by law, statute, rule, regulation, or judicial process (including,
but not limited to, applicable securities laws); (iv) upon the lawful demand of any court or agency or
regulator having jurisdiction over such Person (including, but not limited to, any securities regulatory
authority, including rating agencies and national securities exchanges, to which the disclosing party is
subject); or (v) to any governmental agency with jurisdiction over the Premises. With respect to any
disclosure pursuant to
50
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
clauses (i ) or (ii) above, the disclosing Party agrees to use and cause the parties to whom such Confidential
Information was disclosed (the “ Disclosure Parties ”) to use reasonable care to safeguard and protect the
confidentiality of the Confidential Information (but no less than the care that the disclosing Party and the
Disclosure Parties use to safeguard and protect their own confidential information). The disclosing Party
agrees to notify the non-disclosing Party in writing immediately upon first obtaining knowledge of the
occurrence of any unauthorized use, disclosure, or other release of any Confidential Information by the
disclosing Party or any of the Disclosure Parties or any other breach of this Section 31.2.11 by the disclosing
Party or any of the Disclosure Parties. The disclosing Party further agrees that any failure by any of the
Disclosure Parties to comply with any provision of this Section 31.2.11 which applies to the disclosing Party
will be deemed to be a breach of this Section 31.2.11 by the disclosing Party. Information shall not be deemed
“confidential” hereunder if (x) such information was available to the public prior to the time of disclosure or
(y) such information is or becomes generally available to the public through no act or omission of the other
Party. Notwithstanding the foregoing, either Party may disclose matters concerning the Premises to a
governmental authority if, (X) such Party is required by law to make such disclosure, and (Y) such Party gives
the other Party not less than ten (10) days’ prior written notice of the proposed disclosure. An “ MSG
Confidentiality Competitor ” shall mean at any time that such determination is made pursuant to this Section
31.2.11 , any entity (other than an Affiliate of The Madison Square Garden Company) that meets one of the
following criteria: (1) such entity directly or indirectly operates, manages, or owns a ten percent (10%) or
more interest in an entity which directly or indirectly owns, operates, or manages, either (a) (i) two or more
live entertainment venues in North America with at least 3,000 seats each or (ii) one or more professional
sports franchises in North America, or (b) promotes, produces, or schedules musical concerts, performances or
entertainment acts, or other family or theatrical productions in New York, Los Angeles, or multiple cities in
North America.
If any Party breaches, or threatens to commit a breach of, any of the provisions of this Section 31.2.11 , the
other Party shall have all rights and remedies available to such persons at law or in equity under this Lease or
otherwise, including, without limitation, the right and remedy of injunctive relief (without the necessity of
posting any bond or security) and to have each and every one of the restrictive covenants in this Section
31.2.11 specifically enforced by any court of competent jurisdiction, it being agreed that any breach or
threatened breach of these restrictive covenants would cause irreparable injury and that money damages would
not provide an adequate remedy.
32.
Intentionally Deleted .
51
33.
34.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Intentionally Deleted .
Sale Notice; Restriction on Sale to Competitor . Lessor shall deliver a written notice to Lessee (a “ Sale Notice ”) (a) prior
to the commencement of marketing for sale of all or a portion of Lessor’s right, title, and interest in the Premises and (b) at
such time that a potential buyer of Lessor’s right, title, and interest in the Premises has been identified. Lessor covenants and
agrees that in no event shall it sell any of its right, title, and interest in the Premises to an MSG Competitor during the Term
of this Lease. Notwithstanding the foregoing, Lessor shall not be required to deliver a Sale Notice, and shall not be prevented
from selling any of its right, title, and interest in the Premises to an MSG Competitor, in the event of (a) a sale to an Affiliate
of Lessor, (b) a sale in connection with the sale of all or substantially all of the casino, hotel, or resort properties owned by
Lessor or its Affiliates in Clark County, Nevada, (c) a sale in connection with the sale of all or substantially all of Lessor’s
(or its Affiliates’) casino, hotel, or resort businesses worldwide, or (d) a transfer to a Fee Mortgagee or otherwise in
connection with a foreclosure or a deed in lieu of foreclosure). With respect to any Sale Notice identifying a potential buyer
of the Premises, if Lessee believes that such entity is a MSG Competitor, then Lessee shall deliver reasonable evidence of
same to Lessor within ten (10) business days of receipt of Lessor’s Sale Notice. If Lessor does not agree that such buyer is an
MSG Competitor, then such disapproval shall be in writing and shall specify the specific reasons for the denial, at which time
Lessor and Lessee shall promptly meet and confer in good faith to resolve such issues. If Lessor fails to respond to the above
notice by Lessee within ten (10) business days of receipt of same, then Lessee may send Lessor a second notice requesting
Lessor’s response, which notice shall be in accordance with the Deemed Approval Process set forth in Section 34 hereof. If
Lessor fails to respond to such second notice within five (5) business days, then Lessor shall be deemed to have agreed that
such potential buyer is an MSG Competitor and that Lessor shall not sell any of its right, title, and interest in the Premises to
such entity.
35.
Notices . All notices, requests, demands or other communications hereunder shall be in writing and shall be addressed as
follows:
If to Lessee: MSG Las Vegas, LLC
2 Penn Plaza
New York, New York 10121
Attention: General Counsel
Phone: (212) 465-6300
Email: lawrence.burian@msg.com
with a copy to:
Gibson Dunn & Crutcher LLP
333 South Grand Avenue, Suite 4900
Los Angeles, California 90071
Attention: Douglas M. Champion
Phone: (213) 229-7128
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CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
If to Lessor:
Email: dchampion@gibsondunn.com
Sands Arena Landlord LLC
3355 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: General Counsel
Phone: (702) 414-1000
Email: Carol.Wetzel@sands.com
with copies to:
DLA Piper LLP (US)
500 Eighth Street, NW
Washington, D.C. 20004
Attention: Jay Epstien
Phone: (202) 799-4100
Email: jay.epstien@dlapiper.com
and
DLA Piper LLP (US)
33 Arch Street, 26 th Floor
Boston, Massachusetts 02110
Attention: Anita Agajanian
Phone: (617) 406-6058
Email: anita.agajanian@dlapiper.com
If to MSG S&E:MSG Sports & Entertainment, LLC
2 Penn Plaza
New York, New York 10121
Attention: General Counsel
Phone: (212) 465-6300
Email: lawrence.burian@msg.com
with a copy to:
Gibson Dunn & Crutcher LLP
333 South Grand Avenue, Suite 4900
Los Angeles, California 90071
Attention: Douglas M. Champion
Phone: (213) 229-7128
Email: dchampion@gibsondunn.com
53
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
or such other addresses as either party from time to time may specify in writing to the other in accordance with this notice
provision. All notices, requests, demands or other communications under this Lease shall be deemed duly given (A) when
delivered by hand, (B) one (1) Business Day after being given to an express courier with a reliable system for tracking
delivery, (C) when sent by confirmed electronic mail with a copy sent by another means specified in this Section, or (D) five
(5) business days after the day of mailing, when mailed in Clark County, Nevada by United States certified mail, return
receipt requested, postage prepaid. The parties agree that any notices given pursuant to methods (A), (B) and (D) above shall
also be confirmed by electronic mail.
If a notice is sent in accordance with the “ Deemed Approval Process ”, it shall be in writing and otherwise in accordance
with the terms of this Section 35 , with the following language in all bold and capital letters prominently displayed on the
envelope and letter: “ THIS IS A SECOND NOTICE. FAILURE TO RESPOND WITHIN [____________ (___)
BUSINESS] DAYS SHALL RESULT IN YOUR DEEMED APPROVAL” and with the appropriate number of days
filled in the blanks.
End of Lease Term . Lessee hereby agrees to execute all commercially reasonable and customary documents as Lessor may
deem necessary to evidence any termination of this Lease, other than by expiration of the Lease Term.
Limitation of Liability . Each of Lessor and Lessee, on behalf of itself and all of its successors and assigns, covenants and
agrees that, in the exercise of any of such party’s remedies pursuant to this Lease, no direct or indirect trustee, member (other
than VCR or MSG S&E as expressly set forth in Section 2.3 herein), officer, director, shareholder, or partner of Lessor or
Lessee or their respective Affiliates shall be sued or named as a party in any suit or action (except, in the case of a
partnership, as may be necessary to secure jurisdiction over the partnership), it being understood that the obligations under
this Lease do not constitute personal obligations of the individual direct or indirect trustees, members, officers, directors,
shareholders or partners of Lessor or Lessee or their respective Affiliates, and the parties shall not seek recourse against
individual direct or indirect trustees, members, officers, directors, shareholders or partners of Lessor or Lessee or their
respective Affiliates, or any of their personal assets for satisfaction in any liability in respect to this Lease.
36.
37.
38. Memorandum of Lease . Neither party shall record this Lease. Lessor and Lessee agree to execute, acknowledge and
deliver, concurrently with the full execution and delivery of this Lease, a memorandum of this Lease, in the form attached
hereto as Exhibit D (the “ Memorandum of Lease ”), which shall be modified solely to the extent necessary to make such
form suitable for recording in Clark County, and which shall be recorded on or promptly following the Lease
Commencement Date. Upon expiration of the Term or earlier termination of this Lease, Lessee shall execute, acknowledge
and deliver a cancellation of the Memorandum of Lease, which may be recorded by Lessor at any time.
39. Miscellaneous .
54
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
39.1. Sections and Headings; Number and Gender . The headings in this Lease are for purposes of reference only and shall
not limit or define the meaning hereof. Wherever appropriate, each term stated in the singular shall include the plural
and vice
versa
. Words in any gender shall include all other genders, as appropriate.
39.2. Counterparts . This Lease may be executed in any number of counterparts, each of which is an original, but all of
which shall constitute one instrument.
39.3. Corporate Authority . Each individual executing this Lease on behalf of a corporation, limited liability company,
partnership, trust or other entity represents and warrants that he or she is duly authorized to execute and deliver this
Lease on behalf of such corporation, limited liability company, partnership, trust or other entity, in accordance with a
duly adopted resolution of the board of directors or in accordance with the bylaws, operating agreement, partnership
agreement, trust agreement or other applicable charter documents of said entity, as applicable, and that this Lease is
binding upon said corporation, limited liability company, partnership, trust or other entity in accordance with its
terms.
39.4. Modification; Termination . This Lease may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.
39.5. Entire Agreement . This Lease contains all of the representations, understandings and agreements of the parties with
respect to the demise of the Premises, except for those provisions of the Agreement to Lease which expressly survive
by their terms.
39.6. Exhibits . All Exhibits attached to this Lease are hereby incorporated by reference herein.
39.7. Governing Law . This Lease shall be governed by and construed in accordance with the laws of the State of New
York, without regard to any choice of law or conflicts of laws provisions thereof, provided that matters related to the
creation of liens or statutory remedies of landlords and tenants shall be governed by the laws of the State of Nevada.
39.8.
Intentionally Deleted .
39.9. Calendar Days; Business Days . All references shall be to calendar days unless specified to be business days.
“Business days” shall be all days other than Saturdays, Sundays, and any and all federal and state holidays observed
in the State of Nevada.
39.10. Relationship . Nothing contained in the Lease shall be deemed or construed by the parties or by any third person to
create the relationship of principal and agent, or of partnership, or of joint venture, or of any association between
Lessor and Lessor.
55
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
39.11. Successors and Assigns . Subject to the provisions of Article 22 regarding assignment and subletting, all of the
provisions, terms, covenants and conditions of this Lease shall be binding upon and inure to the benefit of the parties
and their respective heirs, executors, administrators, successors and assigns.
39.12. No Other Beneficiaries . Unless expressly stated herein to the contrary, no third parties shall have any rights under
this Lease.
39.13. Attorneys’ Fees . If either party hereto brings an action at law or in equity to enforce, interpret or seek redress for the
breach of this Lease, then the prevailing party in such action shall be entitled to recover all court costs, witness fees
and reasonable attorneys’ fees, at trial or on appeal.
39.14. Severability . If any provision of this Lease or any portion of any provision of this Lease shall be deemed to be
invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not alter the remaining portion of
such provision, or any other provision hereof, as each provision of this Lease shall be deemed severable from all other
provisions hereof. Notwithstanding the foregoing, if any provision of this Lease is deemed to be invalid, illegal or
unenforceable and the effect of the invalidity, illegality or unenforceability of such provision would be to materially
alter the fundamental economic relationship of Lessor and Lessee, then the provisions of this Section 39.14 shall not
be given effect.
39.15. Dispute Resolution .
Except as expressly provided herein, in the event of any dispute, claim, or controversy arising
out of or relating to this Lease or the breach, enforcement, interpretation or validity thereof, including the
determination of the scope or applicability of this agreement to arbitrate (“ Dispute ”), the Parties agree to first try in
good faith to settle the Dispute by mediation administered by JAMS. If the matter is not resolved through mediation,
then it shall be submitted to JAMS, or its successor, for final and binding arbitration pursuant to the provisions set
forth below.
Either Party may commence mediation by providing to JAMS and the other Party a written request for mediation,
setting forth the subject of the Dispute and the relief requested. The Parties will cooperate with JAMS and with one
another in selecting a mediator from the JAMS panel of neutrals and in scheduling the mediation proceedings. The
Parties agree that they will participate in the mediation in good faith and that they will share equally in its costs. All
offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the
Parties, their agents, employees, experts and attorneys, and by the mediator or any JAMS employees, are confidential,
privileged, and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving
the Parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or
non-discoverable as a result of its use in the mediation.
56
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Either Party may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for
arbitration at any time following the initial mediation session or at any time following forty-five (45) days from the
date of filing the written request for mediation, whichever occurs first (“ Earliest Initiation Date ”). The mediation
may continue after the commencement of arbitration if the Parties so desire. At no time prior to the Earliest Initiation
Date shall either side initiate an arbitration or litigation related to this Lease except to pursue a provisional remedy
that is authorized by law or by JAMS Rules or by agreement of the Parties. However, this limitation is inapplicable to
a Party if the other Party refuses to comply with the requirements regarding mediator selection and mediation
scheduling above. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled
from the date of filing of the written request for mediation until fifteen (15) days after the Earliest Initiation Date. The
Parties will take such action, if any, required to effectuate such tolling.
Any arbitration shall take place in Washington, D.C. before three (3) neutral arbitrators selected from a national
panel. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules & Procedures.
The panel shall in its substantive (as opposed to procedural) rulings apply New York law (subject to the provision of
Section 39.7 that rulings related to the creation of liens or statutory remedies of landlords and tenants shall apply the
laws of the State of Nevada), and the Parties shall agree to reasonable limits on discovery rights as reasonably
determined by the arbitrators. The arbitrators shall not have the power to terminate this Lease or otherwise compel an
eviction action against Lessee. The arbitrators also shall not have the power to force a sale of the Project. Any
Disputes related to termination of this Lease shall be submitted to the federal courts of the state of New York and
governed by New York law. The arbitrators shall not have the power to award relief, equitable or otherwise, beyond
that specified in this Lease and requested by the Parties. Following a hearing, and in accordance with JAMS rules, the
arbitrators shall issue a signed and dated written opinion which shall decide all issues submitted. The Parties are to
share arbitrator fees and arbitration costs equally. Notwithstanding the foregoing, the prevailing party in the
arbitration shall be entitled to an award of its reasonable fees and expenses as an element of the arbitrator’s award.
Judgment on the award may be entered in any court having jurisdiction if necessary to enforce the award, if the non-
prevailing Party has not complied with the decision within thirty (30) days after it has been rendered. This clause shall
not preclude the Parties from seeking provisional remedies in aid of arbitration from a court of appropriate
jurisdiction.
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57
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
The Parties are each separately aware that by agreeing to this dispute resolution procedure, each is giving up the right
to have the Dispute decided in civil court by a judge or jury (other than Disputes related to termination of this Lease).
Instead, the Dispute will be resolved by impartial arbitrators whose decisions will be binding and final. By initialing
in the spaces provided immediately below, each Party indicates its knowing and voluntary consent to arbitration of the
Dispute in accordance with this dispute resolution procedure.
_____Lessor _____Lessee
[REMAINDER OF PAGE INTENTIONALLY BLANK]
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
39.1.
Holding Over .
39.161.
39.162.
With Lessor’s Consent . If Lessee, with Lessor’s prior written consent, remains in possession of the
Premises after the expiration or sooner termination of the Lease, such possession by Lessee shall be
deemed to be a month-to-month tenancy, terminable on thirty (30) days prior written notice given at
any time by either party. All provisions of this Lease shall apply to the month-to-month tenancy,
except those specifying the Lease Term.
Without Lessor’s Consent . If Lessee, without Lessor’s consent, remains in possession of the Premises
after the expiration or sooner termination of the Lease, (a) such possession by Lessee shall be deemed
a tenancy at sufferance only and not a renewal of this Lease or an extension of the Lease Term, (b)
Lessee shall pay a holdover fee equal to ***** (subject to increase by CPI over the term of the Lease)
per day and all other charges due hereunder shall be payable in an amount equal to ***** of such
charges in effect as of the last full calendar month of the Lease Term, and each shall be due and
payable at the times specified therefor in this Lease, and (c) such tenancy shall be subject to every
other term, covenant and agreement contained herein other than any provisions for rent concessions or
optional rights of Lessee requiring Lessee to exercise the same by written notice. Nothing contained in
this Section 39.16 shall be construed as a consent by Lessor to any holding over by Lessee, or limit any
of Lessor’s rights and remedies incident to a holding over under this Lease, at law or in equity. Lessee
shall indemnify, defend and hold harmless Lessor from all claims, losses and damages in connection
with any holding over under this Section 39.16.2 , and such indemnification shall survive the date of
delivery of possession of the Premises to Lessor for a period of one (1) year.
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59
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
I N W ITNESS W HEREOF , the parties hereto have executed this Lease as of the day and year first written above.
L ESSOR:
SANDS ARENA LANDLORD LLC,
a Nevada limited liability company
By:
/s/ Randy Hyzak
Name:
Title:
Randy Hyzak
President
VCR:
VENETIAN CASINO RESORT, LLC,
a Nevada limited liability company
By:
By:
Las Vegas Sands,LLC,
a Nevada limited liability company
its Manager
/s/ George M. Markantonis
Name:
Title:
George M. Markantonis
SVP
[signatures continue on following page]
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
L ESSEE :
MSG LAS VEGAS,LLC,
a Delaware limited liability company
By:
/s/ James L. Dolan
Name:
Title:
James L. Dolan
Executive Chairman and
Chief Executive Officer
MSG S&E:
MSG SPORTS & ENTERTAINMENT, LLC,
a Delaware limited liability company
By:
/s/ James L. Dolan
Name:
Title:
James L. Dolan
Executive Chairman and
Chief Executive Officer
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
List of Exhibits
Exhibit A Legal Description of Premises
Exhibit B Permitted Exceptions
Exhibit C Intentionally Deleted
Exhibit D Form of Memorandum of Lease
Exhibit E Additional Provisions Regarding Construction
Exhibit F Project Entitlements
Exhibit G Provisions Related to Nevada Gaming Commission Rules and Regulations
Exhibit H Intentionally Deleted
Exhibit I Insurance Requirements
Exhibit J List of Plans
Exhibit K Pre-Approved Sponsors
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT A
Legal Description of the Premises
PARCEL 1:
THAT PORTION OF THE NORTH HALF (N 1/2) OF THE SOUTHEAST QUARTER (SE 1/4) OF SECTION 16, TOWNSHIP 21
SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA.
PARCEL 1 AS SHOWN BY MAP THEREOF IN FILE 121 OF PARCEL MAPS, PAGE 21 IN THE OFFICE OF THE COUNTY
RECORDER, CLARK COUNTY, NEVADA.
PARCEL 2:
AN EASEMENT FOR PEDESTRIAN AND VEHICULAR INGRESS AND EGRESS AS SET FORTH IN THAT CERTAIN
DOCUMENT ENTITLED, "EASEMENT AGREEMENT", RECORDED APRIL 20, 2005 IN BOOK 20050420 AS
INSTRUMENT NO. 01253 OF OFFICIAL RECORDS.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT B
Permitted Exceptions
(a) Applicable zoning, subdivision, building, and other land use laws and regulations.
(b) The lien of real estate taxes and assessments not yet due and payable.
(c) Any leasehold mortgage, assignment of leases and rents, or other security interest in Lessee’s leasehold interest in the
Premises, to the extent permitted under the terms of the Lease.
(d) All matters (1) shown on or referenced in that certain ALTA/NSPS survey made by Psomas on September 23, 2016 and
last revised October 17, 2016, designated Job Number 1MSG010100; or (2) disclosed in that certain leasehold owner’s policy of title
insurance with Policy No. 731432 issued by First American Title Insurance Company and effective as of the Lease Commencement
Date.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT C
Intentionally Deleted
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT D
Form of Memorandum of Ground Lease
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Gibson Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Douglas M. Champion, Esq.
APN: 162-16-702-002
(Space above this line for Recorder’s use only.)
MEMORANDUM OF GROUND LEASE
This Memorandum of Ground Lease (this “ Memorandum ”) is dated as of the 13th day of July, 2018, by and among Sands
Arena Landlord LLC , a Nevada limited liability company (“ Lessor ”), and MSG Las Vegas, LLC , a Delaware limited liability
company (“ Lessee ”), with reference to the following facts:
Lessor and Lessee have entered into that certain Ground Lease dated July 16, 2018 (the “ Lease ”), for those certain premises
(the “ Premises ”) located in the County of Clark, State of Nevada, and more particularly described on Exhibit A attached hereto and
incorporated herein by reference, together with all rights and privileges appurtenant thereto.
NOW, THEREFORE, for and in consideration of the foregoing, Lessor and Lessee hereby agree as follows:
1.
2.
3.
Agreement to Lease . Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises pursuant to
the Lease, upon all of the terms and conditions set forth in the Lease, which Lease is hereby incorporated herein by
reference. In the event of any inconsistency between the terms and conditions of this Memorandum and the terms and
conditions of the Lease, the terms and conditions of the Lease shall govern and control.
Term . Subject to the terms and conditions contained in the Lease, the Premises is leased for a term which is to expire
on the date that is fifty (50) years following the Development Completion Date (as such term is defined in the Lease).
Irrevocable License Rights . Concurrently with the execution of the Lease, (1) Lessee, Venetian Casino Resort, LLC,
a Nevada limited liability company (“ VCR ”), MSG Sports & Entertainment, LLC, a Delaware limited liability
company (“ MSG S&E ”), and Sands Expo & Convention Center, Inc., a Nevada corporation (“ Sands Expo ”), have
entered into that certain License Agreement (Path of Travel); and (2) Lessee,
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
VCR, and MSG S&E have entered into that certain Parking License Agreement (the “ Parking License ”).
In Witness Whereof , each of the parties hereto has executed this instrument as of the date first above written.
L ESSOR :
SANDS ARENA LANDLORD LLC,
a Nevada limited liability company
Venetian Casino Resort, LLC,
By:
a Nevada limited liability company
its manager
Las Vegas Sands, LLC,
By:
a Nevada limited liability company
its managing member
By:
Name:
Title:
A notary public or other officer completing this certificate
verifies only the identity of the individual who s igned the
document to which this certificate is attached, and not the
truthfulness , accuracy, or validity of that document.
STATE OF _____________________ )
)
COUNTY OF _____________________ )
2018,
personally appeared
On ____________________,
_______________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
____________________________,
a Notary Public,
before me,
I certify under PENALTY OF PERJURY under the laws of the State of ____________ that the foregoing paragraph is true and
correct.
WITNESS my hand and official seal.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Signature _____________________________ (Seal)
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
L ESSEE :
MSG LAS VEGAS LLC,
a Delaware limited liability company
By:
Name:
Title:
A notary public or other officer completing this certificate verifies
only the identity of the individual who s igned the document to
which this certificate is attached, and not the truthfulness ,
accuracy, or validity of that document.
STATE OF _____________________ )
)
COUNTY OF _____________________ )
2018,
On ____________________,
personally appeared
_______________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
____________________________,
a Notary Public,
before me,
I certify under PENALTY OF PERJURY under the laws of the State of ____________ that the foregoing paragraph is true and
correct.
WITNESS my hand and official seal.
Signature _____________________________ (Seal)
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Exhibit A to Memorandum of Ground Lease
PARCEL 1:
THAT PORTION OF THE NORTH HALF (N 1/2) OF THE SOUTHEAST QUARTER (SE 1/4) OF SECTION 16, TOWNSHIP 21
SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA.
PARCEL 1 AS SHOWN BY MAP THEREOF IN FILE 121 OF PARCEL MAPS, PAGE 21 IN THE OFFICE OF THE COUNTY
RECORDER, CLARK COUNTY, NEVADA.
PARCEL 2:
AN EASEMENT FOR PEDESTRIAN AND VEHICULAR INGRESS AND EGRESS AS SET FORTH IN THAT CERTAIN
DOCUMENT ENTITLED, "EASEMENT AGREEMENT", RECORDED APRIL 20, 2005 IN BOOK 20050420 AS
INSTRUMENT NO. 01253 OF OFFICIAL RECORDS.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT E
Additional Provisions Regarding Construction
In addition to the provisions set forth in the Lease regarding construction, including alterations and additions, the following
provisions shall apply in the event Lessee undertakes any work in, on, under or about the Premises.
1.
2.
Intentionally Deleted .
Prior to Construction . At least five (5) business days prior to the commencement of construction, Lessee shall deliver to
Lessor the following:
2.1.
2.2.
2.3.
2.4
Contact List . A list of names, and regular and 24-hour “emergency” phone numbers for Lessee’s construction
representative and general contractor.
Schedule . A schedule for construction to be performed at the Premises by or on behalf of Lessee or its agents,
employees, contractors, tenants or subtenants including all Improvements (“ Lessee’s Work ”), including starting and
completion dates.
Insurance . Certificates of insurance, to the extent required pursuant to the Lease and Exhibit I .
Permits . Photocopy of permit card(s) for Lessee’s Work as issued by governing agencies.
3.
Construction . Lessee’s Work shall be performed in compliance with all Applicable Laws and in accordance with the terms of
the Lease. Lessor shall be allowed to enter the Premises during construction for emergency purposes.
3.1.
3.2.
3.3.
3.5.
General Contractor . Lessee shall use a licensed, bondable, general contractor, experienced in commercial
construction for the construction of Lessee’s Work.
Disruptive Conduct . Lessee and Lessee’s contractor(s) shall use good faith, commercially reasonable efforts to
minimize disruption to neighboring land and any portion of the Premises to which such construction does not relate.
Safety . All of Lessee’s Work shall be planned and conducted in an orderly manner, with regard for the safety of the
public, the workers, and the Premises.
Utilities During Construction . Lessee shall arrange and pay for temporary utilities and facilities, including electricity,
water, sanitary facilities, etc.
, as reasonably necessary for the completion of Lessee’s Work.
4. Completion . Prior to opening any Improvements for business (either as part of the initial construction of the Project or in
connection with any future Improvements), Lessee shall deliver to Lessor a copy of a temporary or permanent Certificate of
Occupancy for the Premises, or final inspection sign-off from the applicable governmental agency(ies), as applicable.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT F
Project Entitlements
1) On February 21, 2018, the following applications were approved by Clark County:
• UC-17-1096 Venetian Casino Resort, LLC, consisting of:
• Use permits for the following: 1) a high impact project; 2) a recreational facility (events center/music venue) with accessory
commercial; 3) fairgrounds; 4) retail sales; 5) restaurants; 6) on-premises consumption of alcohol; 7) live entertainment; 8)
theater; 9) museum; and 10) deviations as shown per plans on file.
• Deviations for the following: alternative landscaping and screening along a collector street; and 2) all other deviations as
shown per plans on file.
• Waiver of Development Standards for the following: 1) reduce setbacks; 2) increase building height; 3) reduce on-site
parking; and 4) nonstandard improvements within a right-of-way.
• Design Reviews for the following: 1) a high impact project; a recreational facility (events center); 3) fairgrounds; 4) increase
sign area; 5) a pedestrian bridge; and 6) accessory buildings and structures in conjunction with existing resort hotels (Palazzo
and Venetian) on 18.6 acres in an H-1 (Limited Resort and Apartment) Zone in an MUD-1 Overlay District. Generally
located on the south side of Sands Avenue, 150 feet east of Koval Lane within Paradise.
• WS-17-1095-Venetian Casino Resort, LLC, et. Al, consisting of:
• Waivers of Development Standards for the following: 1) reduce setbacks; 2) reduce on-site parking; and 3) nonstandard
improvements (pedestrian bridge, landscaping and fencing) within a right-of-way.
• Design Review for a proposed pedestrian bridge connecting the existing Palazzo and Venetian Resort Hotels and the Sands
Expo Center to a proposed events center/music venue/recreational facility (Madison Square Garden) on 63.0 acres in an H-1
(Limited Resort and Apartment Zone in an MUD-1 Overlay District. Generally located south of Sands Avenue and on the
west and east sides of Koval Lane within Paradise.
The Notices of Final Action letters pertaining to the above two applications were filed on March 1, 2018.
2) On May 16, 2018, the following application was approved by Clark County:
• WS-18-0218-Phase II Mall Subsidiary, LLC, et al [ sic
] consisting of:
• Waiver of Development Standards for the following: 1) increase building height; and 2) increase time period for video or
graphics display for animated signage.
• Design Reviews for the following: 1) modifications to an approved High Impact Project for a recreational facility (event
center/music venue); 2) signage including an increase in
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
animated sign area; and 3) modifications to an approved pedestrian bridge in conjunction with existing resort hotels (Palazzo
and Venetian) on 81.6 acres in an H-1 (Limited Resort and Apartment) Zone in an MUD-1 Overlay District. Generally
located south of Sands Avenue and on the west and east sides of Koval Lane within Paradise.
The Notice of Final Action letter pertaining to the above application was filed on May 24, 2018.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT G
Provisions Related to Nevada Gaming Commission Rules and Regulations
*****
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT H
Intentionally Deleted
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT I
Insurance Requirements
Lessee, at its sole cost and expense, shall procure and keep in full force until all of its obligations have been discharged, insurance
against liabilities which may arise directly or indirectly from or in connection with the Property, with insurer(s) lawfully authorized
to do business in the jurisdiction in which the Property is located.
The insurance requirements herein are minimum requirements of this Lease and in no way limit the indemnity covenants hereunder.
Lessor in no way warrants that the minimum limits contained herein are sufficient to protect Lessee, its agents, representatives,
employees, contractors and/or subcontractors of every tier from liabilities that might arise directly or indirectly from or in connection
with the Property. Lessee, its contactors, and subcontractors MUST provide Lessor with evidence satisfactory to Lessor that the
insurance requirements in this Lease have been met prior to commencement of work or services and/or entry onto the premises of the
Property as outlined below.
Construction Insurance Requirements
Prior to commencement of construction of the Project or any other work by Lessee permitted under this Lease, including without
limitation, any Improvements, Lessee shall procure or cause to be procured, and after such dates, shall carry or caused to be carried,
until final completion of such work at least the following:
Builder’s Risk Insurance (standard “All Risk” or equivalent coverage) including without limitation, coverage against perils of fire
(with extended coverage) lightning, windstorm, hail, vehicle impact, explosion, smoke, theft, vandalism, malicious mischief, water
damage other than caused by flood, flood, explosion or rupture of pressure vessels, mechanical or electrical breakdown, collapse,
scaffolding and temporary structures, testing and startup, temporary buildings and debris removal including demolition occasioned
by enforcement of any applicable legal requirements, in an amount not less than one hundred percent replacement cost for all
materials and equipment incorporated into the buildings and structures forming part of the Property, and all materials and equipment
on or about the job site intended for incorporation into the Property, protecting Lessee, the Lessor, the general contractor, any Fee
Mortgagee, and any Leasehold Mortgagee, as their interests may appear; to include rental payment coverage from the date of
projected completion and extending the full period of construction or reconstruction or repair following the casualty and an
endorsement for an “extended period of indemnity” for an additional twelve (12) months.
The Builder’s Risk Insurance shall also include a Permission to Complete and Occupy endorsement as well as coverage for materials
stored off-site and in-transit and Business Interruption/Extra Expense coverage. The policy shall be issued in the names of Lessee,
Lessor, any Fee Mortgagee, and any Leasehold Mortgagee, as their interests may appear. Any proceeds received because of a loss
covered by such insurance shall be used and applied in the manner required by Section 19 .
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
blanket
contractors,
Commercial General Liability insurance against claims for bodily injury and property damage including but not limited to death,
independent
broad form property damage,
products/products-completed operations, and explosion, collapse and underground property damage (“XCU”) occurring upon, in or
about the Project or other Improvements, and on, in, or about the adjoining sidewalks and passageways (including bodily injury
including death, personal injury, and property damage resulting directly or indirectly from any change, alteration, improvement or
repair thereof), or arising out of or in connection with the construction of the Project or other Improvements, with limits of liability
in an amount not less than ***** each occurrence and ***** in the aggregate.
and advertising injury,
contractual
personal
liability,
Commercial General Liability Insurance may be arranged under a single policy for the full limits required or by a combination of
underlying policies with the balance provided by an Excess or Umbrella Liability policy. Coverage shall be at least as broad as the
primary Commercial General Liability Policy to the extent reasonably commercially available to Lessee in the marketplace.
Commercial Auto Liability insurance covering any automobile (Symbol 1) used in connection with work being performed on or
about or for the Property with limits of liability in an amount not less than ***** per occurrence. Coverage should include Motor
Carrier Act endorsement - hazardous materials clean up (MCS-90), if applicable. Commercial Auto Liability Insurance may be
arranged under a single policy for the full limits required or by a combination of underlying policies with the balance provided by an
Excess or Umbrella Liability policy
Workers’ Compensation insurance in accordance with the Nevada statute with waivers of subrogation in favor of Lessor and all its
Affiliates. Lessee shall cause all contractors and subcontractors of every tier to maintain Workers’ Compensation insurance in
accordance with the Nevada statute with waivers of subrogation in favor of Lessor and all its Affiliates.
Employers’ Liability insurance with limits in an amount not less than:
Each Accident *****
Disease - Each Employee *****
Disease - Policy Limit *****
Pollution Legal Liability insurance providing coverage for claims for bodily injury, property damage, clean-up costs, and related
legal defense expense for pollution conditions that result from, or are disrupted by or on behalf of, Lessee or by the services rendered
by a contractor or subcontractor of every tier, whether arising on-site or off-site. Coverage will include extensions for transportation
and disposal, and full asbestos, lead, and underground and above ground storage tanks (as applicable), will include full severability
of interests, and will not be restricted by any time element limitations. Coverage will apply to pollution conditions on, at, under, or
migrating from the Property with limits in an amount not less than ***** each loss and in the aggregate and shall provide coverage
for punitive damages, fines, or penalties where allowable by law.
Contractor’s Protective Professional Indemnity Insurance Policy (CPPI) providing coverage for actual or alleged breach of
duty, neglect, acts, errors, or omissions committed by a property developer, its design consultants, and contractors in the
development of the property
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
If Lessee decides to arrange the Property to be insured under an Owner Controlled Insurance Program (“OCIP”) or Contractor
Controlled Insurance Program (“CCIP”) during the construction phase. Lessor and all its Affiliates shall be endorsed as an additional
insured on the “OCIP” / “CCIP” including a waiver of subrogation in favor of Lessor and all its Affiliates.
Contractors and Subcontractors of All Tiers. Lessee shall require all contractors and subcontractors of all tiers to carry liability
insurance that complies with the requirements of the foregoing sections, with limits complying with a schedule of such limits to be
submitted by Lessee and approved by Lessor. Contractors and subcontractors of all tiers shall also (a) supply certificates of insurance
(i) to the fullest extent permitted by law, naming Lessor and its Affiliates as additional insureds with respect to liability arising out of
the operations of the contractor or subcontractor, including liability to their employees, representatives, heirs, and beneficiaries; (ii)
providing that their insurance is primary and the insurance of Lessor and each additional insured is secondary and non-contributory
to any other that may be in place; and (iii) waiving any right of subrogation against Lessor and each additional insured; or (b) supply
copies of the provisions in or endorsements to their insurance policies that confirm such terms. Lessee shall obtain from the
contractors and subcontractors of all tiers the certificates of insurance and/or policy provisions required by this subparagraph. Lessee
shall cause the general contractor to be responsible for identifying and remedying any deficiencies in the certificates of insurance or
policy provisions. Lessee shall make such certificates of insurance and/or policy provisions available to Lessor upon Lessor’s
reasonable request.
Operational Insurance Requirements
Property Insurance covering Lessee’s Improvements and other Improvements located on the Land, and on the FF&E and other
property installed or used in, on or about the Property at least equal to the full replacement cost thereof, without deduction for
depreciation, against all risk of direct physical loss or damage as may from time to time be included within the definition of an “All
Risk Insurance Policy” and, provided such is available from time to time on commercially reasonable terms, extended to include
coverage against earthquake, earth movement, flood (including back-up of sewers and drains), terrorism (which may be provided by
a stand-alone program otherwise meeting the requirements hereof), sprinkler leakage, breakdown of boilers, machinery and electrical
equipment, and such other risks (to the extend obtainable on commercially reasonable terms) as the Lessor may reasonably
designate. The All Risk Insurance Policy shall contain a waiver of subrogation for the benefit of Lessor and all of its Affiliates.
Increase Costs: The Property Insurance policy also shall cover increase cost of construction, demolition and debris removal
coverage, arising out of the enforcement of building laws and ordinance governing repair and reconstruction and shall include an
agreed amount provision or not contain a coinsurance clause. The replacement cost of the Property and such other improvements as
are located on the Land, and of the FF&E and other property installed or used in, on or about the Property shall be determined at
least once every forty-eight (48) months by Lessee.
Loss of Rent/Business Income: The insurance shall also include, at Lessee’s sole cost and expense, a rent endorsement protecting
the Lessor, for all Loss Rent for the full period of reconstruction or
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
repair following the casualty and an endorsement for an “extended period of indemnity” for an additional eighteen (18) months.
Stored FF&E: Lessee shall also keep in effect, at its sole cost and expense, insurance on the FF&E and other property intended for
installation or use in, on, or about the Property, while in temporary storage away from the Property, against all risk of loss or damage
as would typically be included within an “All Risk Policy” as then available, in an amount not less than the full replacement cost
thereof.
Liability Insurance: Lessee shall maintain, for the mutual benefit of the Lessee and Lessor, and shall add Lessor and all of its
Affiliates as an additional insured, Commercial General Liability insurance against claims for bodily injury and property damage
including but not limited to personal & advertising injury, death, premises, independent contractors, blanket contractual liability,
broad form property damage, products-completed operations, occurring upon, in or about the Property, and on, in or about the
adjoining sidewalks and passageways (including but not limited to personal injury, death, and property damage resulting directly or
indirectly from any change, alteration, improvement or repair thereof), or arising out of or in connection with the ownership
management, maintenance or operations of the Property with limits in an amount not less than ***** per occurrence and in the
aggregate. If Lessee’s liability policy does not contain the standard separation of insureds provision or a substantially similar clause,
the policy shall be endorsed to provide cross-liability coverage.
Tenant’s liability insurance policies must provide the following coverages with minimum limits as indicated (in each case to the
extent such coverage is applicable to the Property):
i. Liquor Liability insurance covering claims arising from providing, serving, or sale of alcoholic beverages with limits in an
amount not less than ***** per occurrence and in the aggregate.
ii. Liability policy should not exclude coverage for organized racing, speed, or stunting activities.
iii. Modification of Products Completed Operations Hazards Definition to include bodily injury and/or property damage arising
out of your products manufactured, sold, or distributed.
iv. Liability policy should not exclude coverage for Pyrotechnics.
v. Liability policy should not exclude coverage for the actions of live or exotic animals.
vi. Liability policy should include Participants Legal Liability Endorsement to the extent reasonably commercially available to
Lessee in the market place.
vii. Liability policy should include Incidental Medical Errors & Omissions Endorsement.
Commercial General Liability Insurance may be arranged under a single policy for the full limits required or by a combination of
underlying policies with the balance provided by an Excess or Umbrella Liability policy. Coverage shall be at least as broad as
primary Commercial General Liability Policy, to the extent reasonably commercially available to Lessee in the market place.
Errors & Omissions Insurance (including Privacy Liability Coverage, Network Security Coverage, Media and Content Coverage and
Software Copyright Coverage), in an amount not less than *****
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
each claim and in the aggregate providing coverage for damages and claims expense arising from any acts, error, or omission of the
Insured, and the Insured’s employees and independent contractors, related to all products and services of the Insured including but
not limited to, as applicable, the design, operation, and hosting of a website (including e-commerce) or content posted on the Internet
and including coverage for Network Security / Data Privacy claims including notification and forensics expenses. Coverage shall
also include:
i.
If subject to an Insured versus Insured exclusion, such exclusion must expressly carve out claims by an additional
insured.
ii. Coverage for Intellectual Property Infringement including, but not limited to, claims arising out of the actual or
ALLEGED infringement of copyright, trademark, trade name, trade dress, service mark, service name, or software
code.
iii. Coverage for liability arising from the failure to protect or the loss or disclosure of private / confidential information
no matter how the loss occurs.
iv. Coverage for failure to prevent denial of service, unauthorized access to, unauthorized use of, tampering with or the
introduction of malicious or damaging code into firmware, data, software, systems or networks.
v.
Includes Personal Injury coverage for injury other than bodily injury including defamation, libel, slander, invasion of
or violation of rights to privacy, infliction of emotional distress, outrage, or other tort related to disparagement or
harm of the reputation of any person or organization and other Personal Injury coverage for injury other than bodily
injury.
vi. Such insurance shall have a retroactive coverage date no later than the Effective Date of this Lease. Coverage must be
kept in force for at least two (2) years after termination of this Lease or an extended reporting period option of at least
two (2) years must be purchased.
Aviation Liability Insurance, if applicable, with limits in an amount not less than ***** per occurrence to include war risk and
personal injury liability.
Comprehensive blanket crime Insurance, in an amount not less than ***** which shall include coverage for lease, contract,
temporary or seasonal employees and employees of the Property.
Employment Practices Liability (EPL) Insurance, in an amount not less than ***** which shall include coverage for sexual
harassment, discrimination, wrongful termination, breach of employment contract, negligent evaluation, failure to employ or
promote, wrongful discipline, deprivation of career opportunity, wrongful infliction of emotional distress, and mismanagement of
employee benefit plan(s) and includes coverage for third party claims by non-employees.
Commercial Automobile Liability insurance covering all owned, hired, and non-owned vehicles in an amount not less than *****
each accident, including all statutory coverage for all states of operation. Commercial Auto Liability Insurance may be arranged
under a single policy for the full limits required or by a combination of underlying policies with the balance provided by an Excess
or Umbrella Liability policy
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Workers’ Compensation insurance in accordance with Nevada statute with waivers of subrogation in favor of Lessor and all its
Affiliates. Lessee shall cause all vendors, contractors and subcontractors to maintain Workers’ Compensation insurance in
accordance with Nevada statute with waivers of subrogation in favor of Lessor and all its Affiliates.
Employers’ Liability insurance with limits in an amount not less than:
Each Accident *****
Disease - Each Employee *****
Disease - Policy Limit *****
If Lessee is using its employees as armed or unarmed security for the Property then Liability insurance shall be obtained to provide
coverage for assault and battery, false arrest, libel and/or slander, discrimination, wrongful eviction, and any other related events that
would be typically insured by a prudent person and contain no exclusion for use of force. In the event a third party is used for
security at the Property then either MSG’s or such third party’s liability coverage shall cover the same risks and have a limit of not
less than ***** per occurrence and in the aggregate and name Lessor and all of its Affiliates as additional insureds in the General
Liability policy.
The following coverage shall only apply to the extent applicable to the operations on the Property: If Lessee operates, with its
employees, a valet service or parking garage then its General Liability shall include garage keepers’ liability and insurance for self-
park garages covering all damage to vehicles under the control of Lessee or its Affiliates. In the event a third party is used to operate
the valet or the parking garage, then such third party’s liability coverage shall cover the same risks and have a limit of not less than
***** per occurrence and in aggregate and name the Lessor and all of its Affiliates as additional insureds in the General Liability
policy.
Premise and Operation insurance covering those exposures to loss that fall outside the defined “products-completed operations
hazard,” including liability for injury or damage arising outside of the Property or outside of Lessee’s business operations while such
operations are in progress.
The above required minimum policies shall include the following:
1. Lessor, all its Affiliates, and its respective directors, officers, employees, and agents is an additional insured except for
Workers’ Compensation/Employer’s Liability/Crime/EPL policies and shall be covered to the full limits of liability
purchased by Lessee, even if those limits are in excess of those required by this Lease.
2. Lessee’s insurance policies shall be primary and non-contributory with respect to any other insurance available to or
maintained by Lessor.
3. Each policy will contain “Separation of Insureds” or “Severability of Interest” clause indicating this insurance applies as if
each named insured were the only named insured, and separately to each insured against whom claim is made or suit is
brought.
4. Waiver of subrogation in favor of Lessor, and all its Affiliates, and its respective agents, officers, directors, and employees
for recovery of damages.
Other Requirements
From time to time, Lessor may request other insurance in such amount as Lessee and Lessor in their reasonable judgment deem
advisable for protection against claims, liabilities and losses arising out
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
of or connected with the operations of the Property provided such increases in limits or coverages shall not occur more than once
every five years unless required by Lessor’s lender or if a new risk arises that is not currently anticipated by the existing insurance
coverage.
Insurance Carriers, Policies: All insurance provided for in this Lease shall be effected under valid and enforceable policies, issued
by insurers of recognized responsibility and having an A.M. Best Rating of “A-, VIII” or better. Notwithstanding the foregoing, the
use of captive insurance companies is permitted in order to obtain commercially reasonable terrorism insurance coverage in
satisfaction of the Lessee’s insurance obligations.
If Lessee fails to purchase and maintain, or to require to be purchased and maintained, any insurance required by this Lease, Lessor
may, but shall not be obligated to, upon five (5) days' written notice to Lessee, purchase such insurance on behalf of Lessee and shall
be reimbursed by Lessee upon demand for all amounts paid by Lessor in connection therewith, or may deduct such amounts from
sums due to Lessee.
If Lessee assigns or subleases all or any portion of its rights under this Lease, any assignee or sub lessee of such rights shall be bound
by the insurance and indemnity provisions of this Lease, and Lessor shall obtain from such assignee or sub lessee its express written
agreement that it shall comply with such provisions.
Lessee shall not violate the terms and conditions of Lessor’s insurance policies or engage in conduct that would prejudice or
diminish Lessor’s rights under its policies or result in higher premiums.
Lessee shall require that any subcontractor, vendor, or other supplier hired to perform work at the Property will agree to indemnify,
defend and hold harmless Lessee and Lessor from and against any and all claims, allegations, lawsuits, or other causes of actions
arising out of such subcontractor’s, vendor’s or supplier’s work done at the Property on behalf of Lessee due to such party’s
negligent acts, errors or omissions.
For any claims made policies, such policies shall have a retroactive coverage date no later than the Effective Date of this Lease.
Coverage must be kept in force for at least two (2) years after termination of this Lease or an extended reporting period option of at
least two (2) years must be purchased.
Verification of Coverage: Lessee shall furnish Lessor with a certificate of insurance, executed by a duly authorized representative
of each insurer, showing compliance with the insurance requirements set forth herein; the additional insured and waiver of
subrogation endorsements shall be attached to the certificate of insurance thereof.
Lessor shall have the right, but not the obligation, to prohibit Lessee or any contractors/subcontractors from entering the Property
until such certificates or other evidence that insurance has been placed in complete compliance with these requirements is received
and approved by Lessor, which shall not be unreasonably withheld.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
Failure of Lessor to demand such certificates or other evidence of full compliance with these insurance requirements or failure of
Lessor to identify a deficiency from evidence that is provided shall not be construed as a waiver of Lessee’s and/or its
contractors/subcontractors obligations to maintain such insurance.
Insurance Separate from Indemnity: For avoidance of doubt, the insurance obligations imposed by this Exhibit are separate and
distinct from any indemnification obligations imposed by this Lease. The insurance as required in this Lease shall in no way be
interpreted as relieving Lessee and/or its contractor/subcontractor of any indemnification obligation in this Lease.
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT J
List of Plans
*****
CONFIDENTIAL TREATMENT REQUESTED BY THE MADISON SQUARE GARDEN COMPANY
EXHIBIT K
*****
The Madison Square Garden Company
Subsidiaries
ENTITY NAME
Exhibit 21.1
STATE/COUNTRY
FORMED
NY
NY
DE
DE
Nova Scotia
DE
NY
NY
DE
DE
DE
NY
DE
DE
NY
NY
DE
NY
NY
DE
NY
DE
DE
NY
NY
NY
DE
DE
DE
NY
DE
NY
NY
DE
NY
DE
NY
DE
DE
NY
DE
DE
DE
1
11th Street Hospitality LLC
289 Hospitality, LLC
29th Street Club Brands LLC
29th Street F&B/Hotel Brands LLC
3292592 Nova Scotia Company
5 Chinese Brothers LLC
55th Street Hospitality Holdings, LLC
57th Street Hospitality Group, LLC
632 N. Dearborn Operations, LLC
ALA Hospitality LLC
Asia Chicago Management LLC
Asia Five Eight LLC
Asia Las Vegas LLC
Asia Los Angeles LLC
Asia One Six LLC
Avenue Hospitality Group, LLC
B&E Los Angeles LLC
Bayside Hospitality Group LLC
BD Stanhope, LLC
Boston Calling Events, LLC
Bowery Hospitality Associates LLC
Buddha Beach LLC
Buddha Entertainment LLC
Chelsea Hospitality Associates LLC
Chelsea Hospitality Partners, LLC
China Management, LLC
CLG Esports Holdings, LLC
CLG Esports, LLC
Dearborn Ventures LLC
Eden Insurance Company, Inc.
Entertainment Ventures, LLC
Genco Land Development Corp.
The Grand Tour, LLC
Guapo Bodega Las Vegas LLC
Guapo Bodega LLC
Hartford Wolfpack, LLC
IP BISC LLC
Knicks Gaming, LLC
Knicks Holdings, LLC
Lower East Side Hospitality LLC
Madison Entertainment Associates LLC
Madison Square Garden Investments, LLC
Manchester Prairie, LLC
The Madison Square Garden Company
Subsidiaries
Exhibit 21.1
ENTITY NAME
STATE/COUNTRY
FORMED
Marquee Brand Holdings, LLC
Miami Hospitality LP Group, LLC
Miami Hospitality Operating Group, LLC
MSG Aircraft Leasing, L.L.C.
MSG Arena Holdings, LLC
MSG Arena, LLC
MSG Aviation, LLC
MSG BCE, LLC
MSG BBLV, LLC
MSG Beacon, LLC
MSG Boston Theatrical, L.L.C.
MSG Cap, LLC
MSG CLG, LLC
MSG Chicago, LLC
MSG Eden Realty, LLC
MSG Entertainment Holdings, LLC
MSG Esports, LLC
MSG Flight Operations, L.L.C.
MSG Forum, LLC
MSG Holdings Music, LLC
MSG Immersive Ventures, LLC
MSG Interactive, LLC
MSG Las Vegas, LLC
MSG National Properties LLC
MSG Publishing, LLC
MSG Songs, LLC
MSG Sports & Entertainment, LLC
MSG Sports, LLC
MSG TE, LLC
MSG TG, LLC
MSG Theatrical Ventures, LLC
MSG Training Center, LLC
MSG Vaudeville, LLC
MSG Ventures Holdings, LLC
MSG Ventures, LLC
MSG Winter Productions, LLC
New York Knicks, LLC
New York Liberty, LLC
New York Rangers, LLC
Ninth Avenue Hospitality LLC
Obscura Digital, LLC
Radio City Productions LLC
Radio City Trademarks, LLC
2
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
NY
DE
DE
DE
The Madison Square Garden Company
Subsidiaries
Exhibit 21.1
ENTITY NAME
STATE/COUNTRY
FORMED
Rangers Holdings, LLC
RMC Licensing LLC
RMNJ Licensing LLC
RPC Licensing LLC
Roof Deck Australia LLC
Roof Deck Entertainment LLC
Seventh Avenue Hospitality, LLC
Stanton Surf Club LLC
Stay in Your Lane Holdings, LLC
Strategic Dream Lounge, LLC
Strategic Dream Midtown BL, LLC
Strategic Dream Midtown LL, LLC
Strategic Dream Midtown RT, LLC
Strategic Dream Restaurant, LLC
Strategic Dream Rooftop, LLC
Stratford Garden Development Limited
Stratford Garden Property Holdings Limited
Stratford Garden Property Limited
Strip View Entertainment LLC
Suite Sixteen LLC
TAO Group Holdings LLC
TAO Group Intermediate Holdings LLC
TAO Group Management LLC
TAO Group Operating LLC
TAO Licensing LLC
TAO Park Hospitality, LLC
TG 29 Hospitality, LLC
TG Hospitality Licensing, LLC
TG Hospitality Group LLC
TGPH Nightclub, LLC
TGPH Restaurant, LLC
TSPW Managers LA, LLC
VIP Event Management LLC
Westchester Knicks, LLC
Women’s Club Holdings, LLC
Women’s Club LP, LLC
WPTS, LLC
WPTS Restaurant, LLC
3
DE
NY
DE
NY
DE
DE
NY
NY
DE
NY
NY
NY
NY
NY
NY
United Kingdom
Jersey
Jersey
DE
DE
DE
DE
DE
DE
DE
DE
DE
DE
CA
DE
DE
DE
DE
DE
DE
DE
DE
DE
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
The Madison Square Garden Company:
We consent to the incorporation by reference in the registration statement (No. 333-207183) on Form S-8 of The Madison Square Garden Company of our reports
dated August 16, 2018 , with respect to the consolidated balance sheets of The Madison Square Garden Company as of June 30, 2018 and 2017 , the related
consolidated statements of operations, comprehensive income (loss), cash flows, and equity and redeemable noncontrolling interests for each of the years in the
three-year period ended June 30, 2018 , and the related notes and financial statement schedule II (collectively, the “consolidated financial statements”), and the
effectiveness of internal control over financial reporting as of June 30, 2018 , which reports appear in the June 30, 2018 annual report on Form 10‑K of The
Madison Square Garden Company.
/s/ KPMG LLP
New York, New York
August 16, 2018
Exhibit 31.1
I, James L. Dolan, certify that:
Certification
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Madison Square Garden Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 16, 2018
/ s / JAMES L. DOLAN
James L. Dolan
Executive Chairman and Chief Executive Officer
Exhibit 31.2
I, Donna Coleman, certify that:
Certification
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Madison Square Garden Company;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 16, 2018
/ s / DONNA COLEMAN
Donna Coleman
Executive Vice President and Chief Financial Officer
Certification
Exhibit 32.1
Pursuant to 18 U.S.C. §1350, the undersigned officer of The Madison Square Garden Company (the “Company”), hereby certifies, to such officer's
knowledge, that the Company's Annual Report on Form 10-K for the year ended June 30, 2018 (the “Report”) fully complies with the requirements of §13(a) or
§15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: August 16, 2018
/ s / JAMES L. DOLAN
James L. Dolan
Executive Chairman and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.
Certification
Exhibit 32.2
Pursuant to 18 U.S.C. §1350, the undersigned officer of The Madison Square Garden Company (the “Company”), hereby certifies, to such officer's
knowledge, that the Company's Annual Report on Form 10-K for the year ended June 30, 2018 (the “Report”) fully complies with the requirements of §13(a) or
§15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: August 16, 2018
/ s / DONNA COLEMAN
Donna Coleman
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.