10-Q: MSG Sports Q1 Loss Widens on Revenue Decline, Media Rights Cuts

Madison Square Garden Sports Corp. reported a wider net loss in the first fiscal quarter, driven by a significant drop in revenues due to reduced media rights fees and lower league distributions.

Summary

• Net loss for the three months ended September 30, 2025, widened to $8,798,000, compared to a net loss of $7,542,000 in the prior year period, an increase of 17%.
• Revenues decreased by $13,853,000, or 26%, to $39,454,000 for the three months ended September 30, 2025, primarily due to a $11,429,000 decrease in league distributions and a $2,253,000 decrease in local media rights fees.
• The decrease in local media rights fees resulted from amendments to the Knicks and Rangers agreements with MSG Networks, including a 28% reduction for the New York Knicks and an 18% reduction for the New York Rangers, both effective January 1, 2025, and the elimination of annual rights fee escalators.
• Operating loss increased significantly to $27,425,000 for the current quarter, up from $8,273,000 in the prior year period.
• Selling, general and administrative expenses rose by $5,202,000, or 10%, to $57,789,000, driven by higher costs related to the Services Agreement, operating lease costs, and employee compensation.
• Net cash used in operating activities increased substantially to $84,954,000 for the three months ended September 30, 2025, compared to $26,158,000 in the prior year, mainly due to changes in working capital.
• Cash and cash equivalents decreased from $144,617,000 as of June 30, 2025, to $48,634,000 as of September 30, 2025.
• The company recognized a miscellaneous income, net, of $15,085,000, primarily due to unrealized gains on equity investments with readily determinable fair value and warrants, notably from Xtract One Technologies Inc.

Sentiment

Score: 3

Explanation: The company reported a significant decline in revenues and a wider net and operating loss, indicating a deteriorating financial performance in its core business. While there were notable unrealized gains on investments, the substantial increase in cash used in operating activities and the reduced cash balance are concerning. The long-term impact of reduced media rights fees is a significant negative.

Positives

• Miscellaneous income, net, saw a significant increase to $15,085,000, primarily driven by unrealized gains on equity investments and warrants, including an $8,826,000 unrealized gain on Xtract One common stock and a $5,711,000 unrealized gain on Xtract One warrants.
• Interest expense decreased by $464,000, or 8%, due to lower average interest rates and reduced average borrowings under the Knicks Revolving Credit Facility.
• The company remains in compliance with debt service ratio covenants for both the Knicks and Rangers credit facilities.
• Annual impairment tests for goodwill and identifiable indefinite-lived intangible assets performed in the first quarter of fiscal year 2026 identified no impairments.

Negatives

• Total revenues decreased by 26% year-over-year, primarily due to a significant reduction in local media rights fees and lower league distributions.
• The net loss widened by 17% to $8,798,000, and the operating loss increased by $19,152,000, indicating deteriorating core operational performance.
• Selling, general and administrative expenses increased by 10%, contributing to the wider operating loss.
• Net cash used in operating activities increased by $58,796,000, reflecting a substantial increase in cash burn from operations.
• Cash and cash equivalents decreased significantly by $95,983,000 during the quarter, reducing the company's liquidity position.
• The amendments to media rights agreements resulted in a 28% reduction in annual rights fees for the New York Knicks and an 18% reduction for the New York Rangers, along with the elimination of annual rights fee escalators, impacting future revenue streams.

Risks

• The level of revenues is dependent on the popularity and competitiveness of the sports teams.
• Costs associated with player injuries, waivers, or contract terminations of team personnel can impact financial results.
• Changes in professional sports team compensation, including free agent signings, trades, salary caps, and luxury tax, pose financial risks.
• General economic conditions, especially in the New York City metropolitan area, including downturns, recessions, financial instability, government shutdowns, or inflation, can adversely affect demand for sponsorships and advertising.
• Competition from other teams and entertainment options could impact revenue.
• Changes in NBA or NHL rules, regulations, collective bargaining agreements, salary caps, escrow requirements, revenue sharing, and media rights can affect operations.
• Developments affecting the regional sports network industry, including the solvency of MSG Networks Inc. and its ability to perform obligations under local media rights agreements, are a significant risk.
• A default by subsidiaries under their respective credit facilities could substantially impair assets and negatively affect the business.
• Any NBA, NHL, or other work stoppage would severely impact operations and revenue.
• Economic, political, or other actions, such as boycotts, protests, or campaigns by labor organizations, could disrupt business.
• The performance of affiliates' obligations under various agreements with the company is crucial.
• Seasonal fluctuations in operating results and cash flow are inherent to the business.
• Operational, business, reputational, and litigation risks exist if security incidents result in loss, disclosure, or misappropriation of personal information or if third-party systems are interrupted.
• The impact of any government plans to redesign New York City's Pennsylvania Station could affect operations.
• Changes in international trade policies and practices, including tariffs, and resulting economic impacts, volatility, and uncertainty.
• Business, economic, reputational, and other risks associated with litigation and other proceedings.
• Financial community and rating agency perceptions of the business, operations, financial condition, and industry.
• Certain restrictions on transfer and ownership of common stock related to professional sports franchises in the NBA and NHL.
• The expansion of Section 162(m) of the U.S. Internal Revenue Code, effective for the fiscal year ending June 30, 2028, could reduce tax deductions and increase income tax expense.

Future Outlook

The company expects to record media rights fees reflecting the reduced rates from the amended agreements in future periods. The expansion of Section 162(m) of the U.S. Internal Revenue Code, effective for the fiscal year ending June 30, 2028, is anticipated to reduce available tax deductions and could increase income tax expense. The business is subject to seasonality, with a disproportionate share of revenues typically earned in the second and third fiscal quarters when the majority of sports team games are played.

Management Comments

• Management believes its use of estimates in the financial statements to be reasonable and evaluates them on an ongoing basis using historical experience and other factors.
• We believe we have sufficient liquidity, including approximately $48,634,000 in cash and cash equivalents as of September 30, 2025, along with $258,000,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future.

Industry Context

The significant reduction in local media rights fees for both the Knicks and Rangers, coupled with the elimination of annual escalators, reflects potential pressures and evolving dynamics within the regional sports network industry. This trend could indicate a broader shift in how sports content is valued and distributed, potentially impacting other teams and leagues. The issuance of penny warrants to the company for 19.9% of MSG Networks' equity interests suggests a strategic move to maintain a stake in the media distribution landscape despite reduced direct rights fees.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is a defendant in various lawsuits. Management does not believe that the resolution of these lawsuits will have a material adverse effect on the company, including the extent of available insurance, if any.

Related Party Transactions

• Revenues from related parties, primarily local media rights from MSG Networks, totaled $6,760,000 for the three months ended September 30, 2025, down from $8,904,000 in the prior year.
• Operating expenses from related parties include $10,423,000 for the Services Agreement, $2,075,000 for rent expense under the Sublease Agreement, $2,604,000 for Sponsorship Sales and Service Representation Agreements, and $1,311,000 for operating lease expense associated with Arena License Agreements for the three months ended September 30, 2025.
• The company has extensive agreements with MSG Entertainment and Sphere Entertainment (entities controlled by members of the Dolan family), covering arena licenses, sponsorship sales, shared services, office subleases, and aircraft usage.
• Concurrent with media rights amendments, MSG Networks issued penny warrants to the company exercisable for 19.9% of MSG Networks' equity interests, accounted for as an equity method investment.

Stakeholder Impact

• Shareholders: Experienced a wider net loss and diluted loss per common share, indicating reduced profitability. The significant decline in core revenues and increased cash burn could negatively impact shareholder value. The issuance of warrants in MSG Networks could provide future upside if MSG Networks performs well.
• Employees: Higher employee compensation and related benefits contributed to increased SG&A expenses. Share-based compensation expense was $4,844,000 for the quarter. The company's financial performance could impact future compensation and job security.
• Customers (Fans/Sponsors): Reduced media rights fees could impact the quality or availability of local broadcasts in the long term, potentially affecting fan engagement. Changes in sponsorship values could affect marketing partners.
• Creditors: The company remains in compliance with debt covenants, but increased cash burn and reduced cash reserves could be a point of monitoring for lenders, although significant available borrowing capacity exists.
• MSG Networks: The media rights amendments significantly reduce fees paid to MSGS, which could improve MSG Networks' financial position, while MSGS gains an equity stake via warrants.

Next Steps

• The company will continue to evaluate the impact of new accounting pronouncements, including ASU 2023-09 (Income Tax Disclosures, effective FY2026), ASU 2024-03 (Expense Disaggregation, effective FY2028), and ASU 2025-06 (Internal-Use Software, effective Q1 FY2028).
• Management will continue to monitor liquidity and assess its ability to meet funding and investing requirements.
• The company may continue to make stock repurchases under its authorized program, depending on market conditions and other factors.

Key Dates

Recommendation

The filing reveals a significant deterioration in Madison Square Garden Sports Corp.'s core financial performance. Revenues declined sharply by 26%, primarily due to substantial reductions in local media rights fees and league distributions, which are structural and long-term in nature. This led to a wider net loss and a significantly increased operating loss. The company's cash burn from operating activities surged, and its cash reserves decreased substantially. While unrealized gains on investments provided a temporary boost to miscellaneous income, they do not offset the underlying weakness in the operating business. The extensive related-party transactions, while disclosed, add a layer of complexity and potential conflict of interest. Given the negative trends in core revenue, profitability, and cash flow, coupled with the long-term implications of reduced media rights, a seasoned investor would likely view this as a signal to sell or reduce exposure to the stock.

Keywords

Madison Square Garden Sports, MSGS, New York Knicks, New York Rangers, NBA, NHL, SEC filing, 10-Q, Quarterly Report, Financial Results, Media Rights, Operating Loss, Net Loss, Cash Flow, MSG Networks, Xtract One, Sports Franchises, Revenue Decline