MADISON SQUARE GARDEN SPORTS CORP.
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
Madison Square Garden Sports Corp. and its direct and indirect subsidiaries
(collectively, "we," "us," "our," "MSG Sports ," or the "Company") on our future
operations. 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;
•costs associated with player injuries, waivers or contract terminations of players and other team personnel;
•changes in professional sports teams' compensation, including the impact of signing free agents and executing trades, subject to league salary caps and the impact of luxury tax;
•general economic conditions, especially in the
•the demand for sponsorship arrangements and for advertising;
•competition, for example, from other teams, and other sports and entertainment options;
•changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements, including the leagues' respective collective bargaining agreements ("CBAs") with their players' associations, salary caps, escrow requirements, revenue sharing, NBA luxury tax thresholds and media rights, or other regulations under which we operate;
•the duration and severity of the COVID-19 pandemic and our ability to effectively manage the impacts, including the availability of The Garden with no or limited fans, league decisions regarding play and other matters, the cancellation of games, the impact of governmental restrictions, reduced tourism, and general hesitancy among the public to engage in public activities due to COVID-19;
•any NBA, NHL or other work stoppage in addition to those related to COVID-19 impacts;
•labor market disruptions due to the COVID-19 pandemic or otherwise;
•any economic, political or other actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;
•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;
•business, reputational and litigation risk if there is a security incident resulting in loss, disclosure or misappropriation of stored personal information or other breaches of our information security;
•activities or other developments that discourage or may discourage congregation at prominent places of public assembly, including The Garden where the home games of the Knicks and the Rangers are played;
•a default by our subsidiaries under their respective credit facilities;
•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 or new businesses into our operations;
•the operating and financial performance of our strategic acquisitions and investments, including those we may not control;
•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 (including for The Garden) and the ability for us andMSG Entertainment to maintain necessary permits or licenses; 26 --------------------------------------------------------------------------------
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•the impact of any government plans to redesign
•business, economic, reputational and other risks associated with, and the outcome of, litigation and other proceedings;
•financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;
•Certain restrictions on transfer and ownership of our common stock related to our ownership of professional sports franchises in the NBA and NHL;
•the tax-free treatment of the MSGS Distribution and the MSGE Distribution;
•the performance byMSG Entertainment and its subsidiaries of its obligations under various agreements with the Company related to the MSGE Distribution and ongoing commercial arrangements; and
•the factors described under "Risk Factors" in our Annual Report on Form 10-K
for the fiscal year ended
We disclaim any obligation to update or revise the forward-looking statements
contained herein, except as otherwise required by applicable federal securities
laws.
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All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
Introduction This MD&A is provided as a supplement to, and should be read in conjunction with, the Company's unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 , to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to "we," "us," "our," "MSG Sports ," or the "Company" refer collectively toMadison Square Garden Sports Corp. , a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are conducted.
The Company operates and reports financial information in one segment.
Factors Affecting Results of Operations
Impact of COVID-19 on Our Business
During fiscal years 2020 and 2021, COVID-19 disruptions and actions taken in response by governmental authorities and the leagues materially impacted the Company's revenues and the Company recognized materially less revenues, or in some cases, no revenues, across a number of areas. In fiscal year 2022, the Company's operations and operating results were also impacted by temporary declines in attendance due to ongoing reduced tourism levels as well as an increase in COVID-19 cases during certain months of the fiscal year. See Note 1, Description of Business and Basis of Presentation, to the Company's audited consolidated financial statements and notes thereto for the year endedJune 30, 2022 included in the Company's Annual Report on Form 10-K for more information regarding the impact of the COVID-19 pandemic on our business during fiscal years 2020, 2021 and 2022.
It is unclear to what extent COVID-19, including new variants thereof, could result in renewed governmental and/or league restrictions on attendance or otherwise impact the Company's operations and operating results.
This MD&A is organized as follows:
Results of Operations. This section provides an analysis of our unaudited
results of operations for the three and six months ended
Liquidity and Capital Resources. This section focuses primarily on (i) the
liquidity and capital resources of the Company, (ii) an analysis of the
Company's cash flows for the six months ended
Seasonality of Our Business. This section discusses the seasonal performance of our business.
Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, if any, as well as the results of the Company's annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2023. This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 under "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" and in the notes to the consolidated financial statements of the Company included therein. 28 --------------------------------------------------------------------------------
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Results of Operations
Comparison of the three and six months ended
The table below sets forth, for the periods presented, certain historical
financial information.
Three Months Ended Six Months Ended
December 31, Change December 31, Change
2022 2021 $ % 2022 2021 $ %
Revenues $ 353,694 $ 289,581 $ 64,113 22 % $ 377,783 $ 308,375 $ 69,408 23 %
Direct operating expenses 225,702 192,847 32,855 17 % 229,383 201,425 27,958 14 %
Selling, general and
administrative expenses 75,636 59,600 16,036 27 % 130,917 103,328 27,589 27 %
Depreciation and
amortization 838 1,215 (377) (31) % 1,863 2,641 (778) (29) %
Operating income 51,518 35,919 15,599 43 % 15,620 981 14,639 NM
Other expense:
Interest expense, net (5,512) (3,542) (1,970) (56) % (8,468) (6,595) (1,873) (28) %
Miscellaneous income
(expense), net 385 (64) 449 NM 219 (127) 346 NM
Income (loss) from
operations before income
taxes 46,391 32,313 14,078 44 % 7,371 (5,741) 13,112 NM
Income tax (expense)
benefit (24,555) (17,115) (7,440) (43) % (4,062) 4,054 (8,116) NM
Net income (loss) 21,836 15,198 6,638 44 % 3,309 (1,687) 4,996 NM
Less: Net loss attributable
to nonredeemable
noncontrolling interests (655) (647) (8) (1) % (1,362) (1,127) (235) (21) %
Net income (loss)
attributable to Madison
Square Garden Sports
Corp.'s stockholders $ 22,491 $ 15,845 $ 6,646 42 % $ 4,671 $ (560) $ 5,231 NM
Revenues
Revenues increased
Three Six
Months Months
Increase in pre/regular season ticket-related revenues $ 29,671 $ 30,770
Increase in suite license fee revenues 12,484 14,027
Increase in sponsorship and signage revenues 10,003 10,105
Increase in pre/regular season food, beverage and merchandise sales
4,041 4,513
Increase in revenues from local media rights fees 3,916 4,317
Increase in revenues from league distributions 3,179 4,089
Other net increases 819 1,587
$ 64,113 $ 69,408
The increases in pre/regular season ticket-related revenues for the three and
six months ended December 31, 2022 were primarily due to higher average per-game
revenue and the Rangers playing additional games at The Garden during the
current year periods as compared to the prior year periods. The Rangers played
six more regular season games at The Garden during the current year periods as
compared to the prior year periods.
The increases in suite license fee revenues for the three and six months ended
December 31, 2022 were primarily due to the Rangers playing additional games at
The Garden during the current year periods as compared to the prior year periods
and higher net sales of suites products.
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The increases in sponsorship and signage revenues for the three and six months endedDecember 31, 2022 were primarily due to (i) the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods, (ii) higher net sales of existing sponsorship and signage inventory, and (iii) sales of new sponsorship and signage inventory. The increases in pre/regular season food, beverage, and merchandise sales for the three and six months endedDecember 31, 2022 were primarily due to higher average Knicks and Rangers per-game revenue and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.
The increases in revenues from local media rights for the three and six months
ended
The increases in revenues from league distributions for the three and six months endedDecember 31, 2022 were primarily related to increased NBA and NHL national media rights fees and other league distributions in the current year periods.
Direct operating expenses
Direct operating expenses increased$32,855 , or 17%, to$225,702 for the three months endedDecember 31, 2022 as compared to the prior year period. Direct operating expenses increased$27,958 , or 14%, to$229,383 for the six months endedDecember 31, 2022 as compared to the prior year period. The net increases were attributable to the following: Three Six Months Months Increase in team personnel compensation$ 19,083 $ 19,338 Increase in other team operating expenses 7,406 7,036
Increase in operating lease costs associated with the Knicks and Rangers playing home games at The Garden
3,932 3,932
Increase in pre/regular season expense associated with merchandise sales
2,556 2,460
Increase (decrease) in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax
1,137 (2,493)
Decrease in net provisions for certain team personnel transactions (1,259) (2,315)
$ 32,855 $ 27,958
The increases in team personnel compensation for the three and six months ended
December 31, 2022 were primarily related to the impact of roster changes for the
Knicks and the Rangers.
The increases in other team operating expenses for the three and six months
ended December 31, 2022 were primarily related to higher per-game average
expenses and the Rangers playing additional games at The Garden during the
current year periods as compared to the prior year periods. Other team operating
expenses primarily consists of expenses associated with day-to-day operations,
including variable day-of-event costs incurred at The Garden, team travel,
player insurance, and league assessments.
The increases in operating lease costs associated with the Knicks and the
Rangers playing home games at The Garden for the three and six months ended
The increases in pre/regular season expense associated with merchandise sales for the three and six months endedDecember 31, 2022 were primarily related to higher merchandise sales as a result of higher average Knicks and Rangers per-game revenue and the Rangers playing additional games at The Garden during the current year periods as compared to the prior year periods.
Net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 Increase 2022 2021 Decrease
Net provisions for league revenue
sharing expense (net of escrow and
excluding playoffs) and NBA luxury
tax $ 20,958 $ 19,821 The increase in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the three months endedDecember 31, 2022 was primarily related to the net impact of adjustments to prior seasons' revenue sharing expense (net of escrow and excluding playoffs), partially offset by higher estimated recoveries of NBA luxury tax in the current year period. The decrease in net provisions for league revenue sharing expense (net of escrow and excluding playoffs) and NBA luxury tax for the six months endedDecember 31, 2022 was primarily related to the net impact of adjustments to prior seasons' revenue 30 --------------------------------------------------------------------------------
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sharing expense (net of escrow and excluding playoffs) and higher estimated recoveries of NBA luxury tax in the current year period.
The Knicks were not a luxury tax payer for the 2021-22 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. The Knicks' roster as ofDecember 31, 2022 would not result in the team being a luxury tax payer for the 2022-23 season.
The actual amounts for the 2022-23 seasons 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.
Net provisions for certain team personnel transactions were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
Increase Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
Waivers/contract terminations $ 29 $ (69) $ 98
- - - 1,092 - 1,092
Season-ending player injuries - 1,357 (1,357) - 1,357 (1,357)
Net provisions for certain team
personnel transactions $ 29 $ 1,288 $ (1,259) $ (300) $ 2,015 $ (2,315) Selling, general and administrative expenses
Selling, general and administrative expenses for the three months endedDecember 31, 2022 increased$16,036 , or 27%, to$75,636 as compared to the prior year period. Selling, general and administrative expenses for the six months endedDecember 31, 2022 increased by$27,589 , or 27%, to$130,917 as compared to the prior year period. The increases were primarily due to higher employee compensation and related benefits, including executive management transition costs recorded in the current year periods, as well as higher marketing costs. In addition, for the six months endedDecember 31, 2022 , higher employee compensation and related benefits included the impact of staffing increases relative to the prior year period reflecting the business' return to normal operations.
Depreciation and amortization
Depreciation and amortization for the three months ended
Operating income
Operating income for the three months endedDecember 31, 2022 increased$15,599 , or 43%, to$51,518 as compared to the prior year period. Operating income for the six months endedDecember 31, 2022 increased$14,639 to$15,620 as compared to the prior year period. For the three and six months endedDecember 31, 2022 the increases in operating income were primarily due to increases in revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses. Interest expense, net Net interest expense for the three months endedDecember 31, 2022 increased$1,970 , or 56%, to$5,512 as compared to the prior year period. Net interest expense for the six months endedDecember 31, 2022 increased$1,873 , or 28%, to$8,468 as compared to the prior year period. The increases were primarily due to higher interest rates in the current year periods causing increased interest expense under the Knicks and the Rangers revolving credit facilities. The increases were partially offset by (i) higher interest income due to increased interest rates in the current year periods and (ii) the acceleration of previously incurred financing costs that were recognized in the prior year periods as a result of the Company terminating the 2020Knicks Holdings Revolving Credit Facility. In addition, for the six months endedDecember 31, 2022 the increase in interest expense was partially offset by lower average borrowings under the Rangers revolving credit facility in the current year period as compared to the prior year period. 31 --------------------------------------------------------------------------------
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Income taxes
See Note 16 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussions of the Company's income taxes.
Adjusted operating income
The Company evaluates performance based on several factors, of which the key financial measure is operating income (loss) excluding (i) deferred rent expense under the Arena License Agreements withMSG Entertainment , (ii) depreciation, amortization and impairments of property and equipment, goodwill and other intangible assets, (iii) share-based compensation expense or benefit, (iv) restructuring charges or credits, (v) gains or losses on sales or dispositions of businesses, (vi) the impact of purchase accounting adjustments related to business acquisitions, and (vii) gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan (which was established inNovember 2021 ), which is referred to as adjusted operating income (loss), a non-GAAP measure. Management believes that given the length of the Arena License Agreements and resulting magnitude of the difference in deferred rent expense and the cash rent payments, the exclusion of deferred rent expense provides investors with a clearer picture of the Company's operating performance. Management believes that this adjustment is beneficial for other incremental reasons as well. This adjustment provides senior management, investors and analysts with important information regarding a long-term related party agreement withMSG Entertainment . In addition, this adjustment is a component of the performance measures used to evaluate, and compensate, senior management of the Company. Management believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the Company's business without regard to the settlement of an obligation that is not expected to be made in cash. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan provides investors with a clearer picture of the Company's operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company's Executive Deferred Compensation Plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the Company's Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Miscellaneous income (expense), net, which is not reflected in Operating income (loss). The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of the Company. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company's performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance and evaluates management's effectiveness with specific reference to these indicators. Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since adjusted operating income (loss) is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss). The following are the reconciliations of operating income to adjusted operating income for the three and six months endedDecember 31, 2022 as compared to the prior year periods: Three Months Ended Six Months Ended December 31, Change December 31, Change 2022 2021 $ % 2022 2021 $ % Operating income$ 51,518 $ 35,919 $ 15,599 43 %$ 15,620 $ 981 $ 14,639 NM Deferred rent 12,202 11,179 12,708 11,708 Depreciation and amortization 838 1,215 1,863 2,641 Share-based compensation 11,619 7,354 18,839 12,205 Remeasurement of deferred compensation plan liabilities 449 - 346 - Adjusted operating income$ 76,626 $ 55,667 $ 20,959 38 %$ 49,376 $ 27,535 $ 21,841 79 % For the three months endedDecember 31, 2022 , adjusted operating income increased$20,959 to$76,626 as compared to the prior year period. For the six months endedDecember 31, 2022 , adjusted operating income increased$21,841 to$49,376 as compared to the prior year period. The increases in adjusted operating income were primarily due to higher revenues, partially offset by higher direct operating expenses and selling, general and administrative expenses. 32 --------------------------------------------------------------------------------
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Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash equivalents, available borrowing capacity under our credit facilities, and cash flow from our operations. OnDecember 14, 2021 , the Company amended and extended the 2020 Knicks Credit Agreement and the 2020 Rangers Credit Agreement. In addition, inMarch 2021 , pursuant to the 2021 Rangers NHL Advance Agreement (the "2021 Rangers NHL Advance Agreement"), the NHL advanced the Company$30,000 , which the league made available to each of its member teams. See Note 11 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for a discussion of the 2021 Knicks Credit Agreement, 2021 Rangers Credit Agreement, and 2021 Rangers NHL Advance Agreement. Our principal uses of cash include the operation of our businesses, working capital-related items, the repayment of outstanding debt, the payment of a special, one-time cash dividend of$7.00 per share (the "Special Dividend"), repurchases of shares of the Company's Class A Common Stock, including$75,000 under the ASR (as defined below), and investments. As ofDecember 31, 2022 , we had approximately$44,000 in Cash and cash equivalents. In addition, as ofDecember 31, 2022 , the Company's deferred revenue obligations were approximately$183,844 , net of billed, but not yet collected deferred revenue. This balance is primarily comprised of obligations in connection with tickets, suites and local media rights. In addition, the Company's deferred revenue obligations included$30,000 from the NBA, which the league provided to each team. We regularly monitor and assess our ability to meet our net funding and investing requirements. 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, management's view of a favorable 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, restrictions imposed by the NBA and NHL and potentially challengingU.S. and global economic and market conditions could adversely impact its ability to do so at that time. We believe we have sufficient liquidity, including approximately$44,000 in Cash and cash equivalents as ofDecember 31, 2022 , along with$120,000 of additional available borrowing capacity under existing credit facilities, to fund our operations and satisfy any obligations for the foreseeable future. In addition, onFebruary 3, 2023 , the Company made an additional principal repayment of$15,000 under the 2021 Rangers Revolving Credit Facility.
Financing Agreements and Stock Repurchases
See Note 11 and Note 14 to the consolidated financial statements included in "Part I - Item 1. Financial Statements" of this Quarterly Report on Form 10-Q for discussions of the Company's debt obligations and various financing agreements, and the Company's stock repurchases, respectively.
Special Dividend and Accelerated Share Repurchase
OnOctober 6, 2022 , the Company announced that its Board of Directors declared the Special Dividend payable onOctober 31, 2022 to shareholders of record onOctober 17, 2022 . During the three and six months endedDecember 31, 2022 , the Company made payments of$170,683 related to the Special Dividend. OnOctober 6, 2022 , the Company's Board of Directors authorized a$75,000 accelerated share repurchase ("ASR") program under the Company's existing share repurchase authorization. OnOctober 28, 2022 , the Company entered into a$75,000 ASR agreement withJPMorgan Chase Bank, National Association ("JP Morgan"). Pursuant to the ASR agreement, the Company made a payment of$75,000 to JP Morgan and JP Morgan delivered 388,777 initial shares of Class A Common Stock to the Company onNovember 1, 2022 , representing 80% of the total shares expected to be repurchased under the ASR (determined based on the closing price of the Company's Class A Common Stock of$154.33 onOctober 28, 2022 ). The ASR was completed onJanuary 31, 2023 with JP Morgan delivering 67,681 additional shares of Class A Common Stock to the Company upon final settlement. The average purchase price per share for shares of Class A Common Stock purchased by the Company pursuant to the ASR was$164.31 . 33 --------------------------------------------------------------------------------
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Borrowings under Revolving Credit Facilities
In connection with the Special Dividend and ASR, onOctober 27, 2022 , the Company borrowed an additional$55,000 under the 2021 Knicks Revolving Credit Facility and$160,000 under the 2021 Rangers Revolving Credit Facility. During the three months endedDecember 31, 2022 , the Company made principal repayments of$15,000 under the 2021 Knicks Revolving Credit Facility and$15,000 under the 2021 Rangers Revolving Credit Facility. Following the additional borrowings and principal repayments, the Company has$120,000 of additional available borrowing capacity under existing credit facilities.
Contractual Obligations
The Company did not have any material changes in its contractual obligations since the end of fiscal year 2022 other than activities in the ordinary course of business. Cash Flow Discussion
The following table summarizes the Company's cash flow activities for the six
months ended
Six
Months Ended
2022 2021
Net income (loss) $
3,309
25,283 12,053
Changes in working capital assets and liabilities 2,985 13,664
Net cash provided by operating activities 31,577 24,030
Net cash used in investing activities (1,314) (627)
Net cash used in financing activities (76,123) (39,879)
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
Net cash provided by operating activities for the six months endedDecember 31, 2022 was$31,577 as compared to net cash provided by operating activities in the prior year period of$24,030 . This was primarily due to the increase in net income (loss) adjusted for non-cash items partially offset by the impact of changes in working capital assets and liabilities.
Investing Activities
Net cash used in investing activities for the six months endedDecember 31, 2022 increased by$687 to$1,314 as compared to the prior year period primarily due to higher other investing activities and capital expenditures in the current year period as compared to the prior year period.
Financing Activities
Net cash used in financing activities for the six months endedDecember 31, 2022 increased by$36,244 to$76,123 as compared to the prior year period primarily due to the payment of the Special Dividend and the ASR in the current year period, partially offset by additional net borrowings under the Knicks and the Rangers credit facilities in the current year period as compared to the prior year period. Seasonality of Our Business The Company's dependence on revenues from its NBA and NHL sports teams generally means that it earns a disproportionate share of its revenues in the second and third quarters of the Company's fiscal year, which is when the majority of the teams' games are played. 34
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Table of Contents Critical Accounting Policies Critical Accounting Policies The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2023. There have been no material changes to the Company's critical accounting policies from those set forth in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 .
The carrying amount of goodwill as ofDecember 31, 2022 was$226,955 .Goodwill is tested annually for impairment as ofAugust 31st 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 the same as or one level below the operating segment level. The Company has one operating and reportable segment, and one reporting unit for goodwill impairment testing purposes. The Company has the option to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. If the Company can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would not need to perform a quantitative impairment test for that reporting unit. If the Company cannot support such a conclusion or the Company does not elect to perform the qualitative assessment, the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of the fair 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. The amount of an impairment loss is measured as the amount by which a reporting unit's carrying value exceeds its fair value determined in step one, not to exceed the carrying amount of goodwill.
The Company elected to perform the qualitative assessment of impairment for the Company's reporting unit for the fiscal year 2023 impairment test. These assessments considered factors such as:
•macroeconomic conditions;
•industry and market considerations;
•market capitalization;
•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 its most recent annual impairment test of goodwill during the first quarter of fiscal year 2023, and there was no impairment of goodwill. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.
Identifiable Indefinite-Lived Intangible Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment as ofAugust 31st 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 ofDecember 31, 2022 : Sports franchises$ 111,064 Photographic related rights 1,080$ 112,144 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 35 --------------------------------------------------------------------------------
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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. 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.
The Company performed its most recent annual impairment test of identifiable indefinite-lived intangible assets during the first quarter of fiscal year 2023, and there were no impairments identified. Based on this impairment test, the Company concluded it was not more likely than not that the fair value of the indefinite-lived intangible assets was less than their carrying amount.
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