Madison Square Garden Entertainment’s quarterly revenue grew 36% to $401.2 million, up nearly $107 million year over year, thanks to a busy calendar for its venues, including Harry Styles‘ 15 sold-out concerts at the company’s eponymous venue in New York City.
However, that revenue wasn’t enough to offset an overall operating loss of $44 million and a 73% decline in adjusted operating income to $2.8 million due to expenses related to the return of live events and increased construction costs for MSG Sphere’s enterprise-wide operations caused expenses to rise to $88.1 million.
Speaking to analysts on Wednesday, executives expressed optimism, saying the company is entering the lucrative holiday season — a boom time for MSG gigs like the Radio City Christmas Spectacular.
“This is expected to be the first full year of events at our venues since fiscal 2019,” David Byrnes, executive vice president and chief financial officer, said. “The best months are ahead for our events business.”
The company’s entertainment revenue quadrupled to $147.1 million for the fiscal first quarter ended September 30. Compared to $34.2 million last year.
Investors were undeterred by executives’ comments that the company hosted a record 1 million guests at events during the quarter. Madison Square Garden Entertainment Corp. shares are down 10.47% at $40.43 as of 11 a.m. New York.
Executives announced that the cost of building MSG Sphere, the state-of-the-art venue under construction in Las Vegas, rose again from $2 billion to $2.175 billion, reflecting higher costs due to inflation and global supply chain issues is due. The project still has about 8-9 months of construction.
Byrnes briefly commented on the proposed spin-off of the company’s live entertainment and MSG Networks businesses. If the plan is approved, the venues and networks business would be called Madison Square Garden Entertainment Corp, while the business, which includes MSG Sphere and Tao Group Hospitality, owners of TAO, Hakkasan, LAVO and Beauty & Essex, would be called MSG Sphere corp
MSG Entertainment’s board of directors approved the plan in August and it is now subject to review by the US Securities and Exchange Commission. Under the plan, the new, publicly traded company would house MSG Entertainment’s venues — including Madison Square Garden, Radio City Music Hall, the Beacon Theater and The Chicago Theater — and MSG Networks, which will broadcast five basketball and hockey teams on MSG Network and MSG+ . This new entity would also include MSG Entertainment’s sports and entertainment booking business, the Radio City Rockettes and Christmas Spectacular production and arena licensing agreements with the NBA Knicks and NHL Rangers.
Executives and analysts said the spin-off could offer investors more clarity about the company’s many businesses and a clearer choice between the type of investment they want to make. The Venues and Networks businesses have a long-term track record as stable revenue generators, while the Sphere and Tao Group businesses are more speculative but offer the opportunity for higher returns.
Below is a larger breakdown of the company’s earnings for the quarter.
Q1 FY 2023 Results for Entertainment:
- Revenue of $147.1 million, up $112.9 million year-on-year
- Event-related revenue increased by $80.6 million
- Revenue from arena licensing deals with MSG Sports increased $18.3 million
- Suite royalty revenue increased $8.4 million
- Direct operating expenses increased by $65.5 million year-over-year to $101.8 million due to expenses related to events and arena licensing agreements with MSG Sports.
- SG&A expenses increased 11% to $103.4 million due to higher employee compensation and benefits.
- Operating losses totaled $75.3 million for the quarter, a 34% improvement from the prior-year period when operating losses were $114.7 million. Adjusted operating losses totaled $44.4 million.
Fiscal 2023 Quarter Results for MSG Networks Division:
- Revenue decreased 13% year-over-year to $122.5 million as membership fee income decreased $19 million.
- Direct operating expenses increased 10% to $75.4 million due to a $5.9 million increase in rights fees and a $1.1 million increase in other programming and production costs.
- SG&A expenses decreased 63% year over year to $17.8 million.
Q1 2023 Overall Results for Tao Group Division:
- Revenue increased 11% to $132.7 million, including $7.5 from new venue openings.
- Direct operating expenses increased 25% to $76.6 million, driven by a $7.9 million increase in employee compensation and related benefits.
- Food and beverage costs increased by $4.1 million due to inflation and the opening of new venues
This article has been updated to accurately identify the speaker during the company’s conference call. In addition, construction cost figures for the MSG Sphere project in Las Vegas have been revised from $2.75 billion to $2.175 billion.