Breaking Down Madison Square Garden Sports Corp. (MSGS) Financial Health: Key Insights for Investors

Understanding Madison Square Garden Sports Corp. (MSGS) Revenue Streams

Understanding Madison Square Garden Sports Corp. Revenue Streams

Madison Square Garden Sports Corp. reported a revenue of $53,307,000 for the three months ended September 30, 2024, which represents an increase of $10,261,000 or 24% compared to $43,046,000 for the same period in 2023.

Breakdown of Primary Revenue Sources

The revenue composition for the three months ended September 30, 2024 is as follows:

The significant increase in revenue from league distributions, which rose by $9,727,000, was a key factor in the overall revenue growth.

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate for the three months ended September 30, 2024, was 24%, compared to the prior year period.

Contribution of Different Business Segments to Overall Revenue

The largest contributor to revenue continues to be league distributions and other, making up approximately 65% of total revenues for Q3 2024. This segment's growth is largely driven by increases in league-related revenues.

Analysis of Significant Changes in Revenue Streams

Notably, the revenue from league distributions, which includes NBA and NHL distributions, significantly impacted overall revenue performance, indicating a robust recovery and potential growth in viewership and attendance.

Additionally, the revenue recognized from deferred revenue as of September 30, 2024 was $16,713,000, showing an effective management of ticket sales and sponsorships.

A Deep Dive into Madison Square Garden Sports Corp. (MSGS) Profitability

Profitability Metrics

Analyzing the profitability metrics of Madison Square Garden Sports Corp. (MSGS) provides critical insights into its financial health as of 2024. The key metrics include gross profit, operating profit, and net profit margins, which reflect the company's ability to generate profits at various stages of its operations.

Gross Profit, Operating Profit, and Net Profit Margins

For the three months ended September 30, 2024, the company reported:

• Revenues: $53,307,000
• Direct Operating Expenses: $8,211,000
• Gross Profit: $53,307,000 - $8,211,000 = $45,096,000
• Operating Expenses (SG&A): $52,587,000
• Operating Loss: $8,273,000
• Net Loss: $7,542,000

The gross profit margin can be calculated as:

Gross Profit Margin: ($45,096,000 / $53,307,000) 100 = 84.5%

The operating profit margin is:

Operating Profit Margin: ($8,273,000 / $53,307,000) 100 = -15.5%

The net profit margin is:

Net Profit Margin: ($7,542,000 / $53,307,000) 100 = -14.1%

Trends in Profitability Over Time

Comparing the profitability metrics for the same period in 2023 reveals the following:

• 2023 Revenues: $43,046,000
• 2023 Net Loss: $18,821,000
• 2023 Gross Profit Margin: ($43,046,000 - $3,520,000) / $43,046,000 100 = 91.8%
• 2023 Operating Profit Margin: ($14,824,000 / $43,046,000) 100 = -34.4%
• 2023 Net Profit Margin: ($18,821,000 / $43,046,000) 100 = -43.8%

The trends indicate an improvement in gross profit margin from 91.8% in 2023 to 84.5% in 2024, despite the overall operating loss decreasing from $14,824,000 to $8,273,000, reflecting a significant operational efficiency improvement.

Comparison of Profitability Ratios with Industry Averages

To assess the company's performance relative to the industry, we can compare the gross profit margin and net profit margin with industry averages:

Analysis of Operational Efficiency

Operational efficiency can be evaluated through the examination of cost management practices and gross margin trends. The direct operating expenses increased from $3,520,000 in 2023 to $8,211,000 in 2024, driven by higher league-related expenses and personnel costs. However, the overall operating loss showed a substantial reduction of $6,551,000 or 44% year-over-year, indicating improved management of operational costs.

Furthermore, selling, general, and administrative expenses were reduced by $969,000 or 2%, showcasing effective cost-control measures.

In summary, the profitability metrics reflect a company that is improving its operational efficiency, even while navigating the challenges of increased operational costs.

The financial data presented illustrates the current state of profitability metrics for Madison Square Garden Sports Corp. as of 2024, providing investors with key insights into its financial health and operational performance.

Debt vs. Equity: How Madison Square Garden Sports Corp. (MSGS) Finances Its Growth

Debt vs. Equity: How Madison Square Garden Sports Corp. Finances Its Growth

As of September 30, 2024, Madison Square Garden Sports Corp. reported total liabilities of $1,650,826 thousand, which includes $275,000 thousand in long-term debt. The company's short-term liabilities amounted to $574,675 thousand.

Debt Levels

The company’s long-term debt primarily consists of a revolving credit facility. The interest rate on this facility was 6.22% as of September 30, 2024. During the three months ended September 30, 2024, the company paid $4,793 thousand in interest related to this debt.

Debt-to-Equity Ratio

The debt-to-equity ratio as of September 30, 2024, was calculated as follows:

• Total Debt: $275,000 thousand
• Total Equity: ($277,529) thousand (accumulated deficit)
• Debt-to-Equity Ratio: −0.99 (indicating negative equity)

This ratio is significantly higher than the industry standard, which typically ranges from 0.5 to 1.5 for similar companies.

Recent Debt Issuances and Credit Ratings

As of September 30, 2024, the company has not issued new debt but has maintained its existing credit facilities. There is a risk of default if the company fails to meet certain financial covenants, particularly due to the financial difficulties faced by MSG Networks, which could impact media rights revenues.

Balancing Debt Financing and Equity Funding

The company has not engaged in any share repurchases during the three months ended September 30, 2024, maintaining approximately $185 million available under its share repurchase authorization. The balance between debt and equity financing is critical, especially as the company navigates its operational and financial obligations while managing its accumulated deficit.

Assessing Madison Square Garden Sports Corp. (MSGS) Liquidity

Assessing Madison Square Garden Sports Corp.'s Liquidity

Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:

Quick Ratio: The quick ratio, which excludes inventory from current assets, is:

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, shows a concerning trend:

Cash Flow Statements Overview

The cash flow activity for the three months ended September 30, 2024, compared to the same period in 2023, is summarized below:

Potential Liquidity Concerns or Strengths

The company has reported:

• Cash and Cash Equivalents: $52,252 as of September 30, 2024.
• Available Borrowing Capacity: $250,000 under existing credit facilities.
• Deferred Revenue Obligations: $272,957, indicating future cash inflows.
• Net Loss: $7,542 for the three months ended September 30, 2024.

Overall, while the company has some liquidity through cash reserves and deferred revenues, the current and quick ratios indicate significant liquidity concerns given the high level of current liabilities relative to current assets.

Is Madison Square Garden Sports Corp. (MSGS) Overvalued or Undervalued?

Valuation Analysis

To assess whether Madison Square Garden Sports Corp. is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividends, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio is calculated based on the latest available data. As of September 30, 2024, the diluted loss per share was $(0.31). With a stock price of approximately $150.00, this results in a P/E ratio of:

P/E Ratio = Price per Share / Earnings per Share = 150.00 / (-0.31) = N/A (Negative Earnings)

Price-to-Book (P/B) Ratio

The book value per share is calculated from total equity. As of September 30, 2024, total equity was $(277,529,000), with 24,049,000 shares outstanding. Thus, the book value per share is:

Book Value per Share = Total Equity / Shares Outstanding = (-277,529,000) / 24,049,000 = $(11.55)

The P/B ratio is therefore:

P/B Ratio = Price per Share / Book Value per Share = 150.00 / (-11.55) = N/A (Negative Book Value)

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

As of September 30, 2024, EBITDA was not directly provided in the data; however, we can estimate it from the operating loss and depreciation. The operating loss was $(8,273,000), and depreciation was $782,000. Thus, EBITDA can be approximated as:

EBITDA = Operating Loss + Depreciation = (-8,273,000) + 782,000 = $(7,491,000)

The enterprise value (EV) is calculated as market capitalization plus total debt. Assuming total debt is $275,000,000, and with a market cap calculated from a share price of $150.00 and 24,049,000 shares, the market cap is:

Market Cap = Price per Share Shares Outstanding = 150.00 24,049,000 = $3,607,350,000

Therefore, EV = Market Cap + Total Debt = 3,607,350,000 + 275,000,000 = $3,882,350,000

Finally, the EV/EBITDA ratio is:

EV/EBITDA = EV / EBITDA = 3,882,350,000 / (-7,491,000) = N/A (Negative EBITDA)

Stock Price Trends

Over the last 12 months, the stock price has experienced fluctuations. The stock price was approximately $125.00 a year ago and has recently risen to around $150.00, reflecting a year-over-year increase of approximately 20%.

Dividend Yield and Payout Ratios

The company declared dividends of $7.00 per share. With a current stock price of $150.00, the dividend yield is:

Dividend Yield = Annual Dividend / Price per Share = 7.00 / 150.00 = 4.67%

The payout ratio can be calculated, but since the company is currently reporting a loss, it is not meaningful to assess in this context.

Analyst Consensus on Stock Valuation

Analyst consensus is mixed, with some analysts rating the stock as a Hold due to its performance and financial metrics, while others suggest it may be Overvalued considering the current financial losses and negative earnings outlook.

Key Risks Facing Madison Square Garden Sports Corp. (MSGS)

Key Risks Facing Madison Square Garden Sports Corp.

Overview of Internal and External Risks:

The financial health of Madison Square Garden Sports Corp. is significantly impacted by various internal and external risks. Key risk factors include:

• Industry competition, particularly from other sports franchises and entertainment options.
• Regulatory changes affecting sports operations and broadcasting rights.
• Market conditions, including economic downturns that may reduce consumer spending on tickets and merchandise.

Operational Risks:

The company faces operational risks highlighted in recent earnings reports. For the three months ended September 30, 2024, the company reported:

• Net loss of $7,542,000, a significant improvement from a net loss of $18,821,000 in the same period in 2023.
• Direct operating expenses increased by $4,691,000 to $8,211,000, attributed to higher provisions for league revenue sharing and team personnel transactions.

Financial Risks:

Financial risks are evident from the company’s balance sheet and cash flow statements. As of September 30, 2024:

• Cash and cash equivalents stood at $58,084,000, down from $94,907,000 at the beginning of the period.
• Total liabilities amounted to $1,650,826,000, compared to $1,612,602,000 as of June 30, 2024.

Strategic Risks:

The company’s strategic initiatives face potential setbacks due to:

• Financial difficulties at MSG Networks, which could impact media rights revenues totaling $175.3 million in fiscal year 2024.
• The potential for bankruptcy proceedings that could jeopardize future revenue streams.

Mitigation Strategies:

Management's Plans:

To mitigate these risks, the company has outlined several strategies:

• Maintaining sufficient liquidity with cash and cash equivalents of $52,252,000 as of September 30, 2024, and an additional borrowing capacity of $250,000,000.
• Engaging in proactive negotiations to secure favorable terms in media rights agreements and exploring alternative broadcasting options.

Future Growth Prospects for Madison Square Garden Sports Corp. (MSGS)

Future Growth Prospects for Madison Square Garden Sports Corp.

Analysis of Key Growth Drivers

The company is focused on several key growth drivers that could enhance its financial performance in the coming years:

• Product Innovations: The introduction of advanced fan engagement technologies and enhancements to the in-arena experience are expected to drive ticket sales and increase overall attendance.
• Market Expansions: The company is exploring opportunities to expand its market reach through strategic partnerships with local and national broadcasters, which can enhance visibility and revenue.
• Acquisitions: Targeted acquisitions of smaller sports franchises or related entertainment assets could diversify revenue streams and enhance market presence.

Future Revenue Growth Projections and Earnings Estimates

Projected revenues for the fiscal year ending June 30, 2025, are expected to reach approximately $231 million, reflecting a significant increase driven by strong league distributions and enhanced ticket sales. This represents a growth rate of around 15% compared to the previous fiscal year.

Strategic Initiatives or Partnerships That May Drive Future Growth

Strategic initiatives include:

• Media Partnerships: Continued collaborations with media networks can boost visibility and revenue from broadcasting rights.
• Sponsorship Agreements: Expanding sponsorship deals, which contributed approximately $5.2 million in Q1 2024, can provide additional revenue.
• Community Engagement: Initiatives aimed at enhancing community presence can help in building a loyal fan base, further driving ticket sales and merchandise revenue.

Competitive Advantages That Position the Company for Growth

The company enjoys several competitive advantages:

• Strong Brand Recognition: As a leading sports and entertainment entity, the company benefits from high brand equity.
• Exclusive Media Rights: The company holds valuable media rights agreements that provide consistent revenue streams, totaling $175.3 million for the fiscal year 2024.
• Operational Expertise: Experienced management and operational teams ensure efficient execution of business strategies, contributing to improved profit margins.

As of September 30, 2024, the company reported cash and cash equivalents of $52,252 and total liabilities of $1,650,826, providing a solid financial base to support growth initiatives.

Article updated on 8 Nov 2024

Resources:

• Madison Square Garden Sports Corp. (MSGS) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Madison Square Garden Sports Corp. (MSGS)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Madison Square Garden Sports Corp. (MSGS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.