Sphere Entertainment Co. - Annual Report: 2020 (Form 10-K)

---

---

---

•	Strong and growing presence in major live entertainment markets through:

◦	A portfolio of world-renowned venues;

◦	Marquee live entertainment brands and content; and

◦	Globally recognized brands in entertainment dining and nightlife.

•	Deep industry relationships that drive top-tier performers and a wide variety of events to the Company’s venues;

•	Proven track record of delivering significant value for partners through innovative sponsorships and premium hospitality;

•	Reputation for world-class customer experience driven by decades of expertise in sales and marketing, and venue operations;

•	Expertise in utilizing data to drive decisions to maximize revenue and the guest experience;

•	Established history of successfully planning and executing comprehensive venue design and construction projects;

•	Long-term agreements to host home games at The Garden for two of the most recognized franchises in professional sports — the Knicks and the Rangers; and

•	A strong and seasoned management team.

•	A unique strategy for our performance venues. The Company has a collection of iconic performance venues through which we deliver live entertainment and sporting events. This portfolio includes The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. These venues, along with our

---

◦

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 guests — whether they are first-time visitors or repeat customers — 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 The Garden, Radio City Music Hall, the Beacon Theatre and the Forum arena in Inglewood, California (which the Company sold in May 2020) 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 on-site 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 entertainment experience, we strive to give our customers the best experience in the industry. For example, we survey thousands of guests annually across our venues to collect data on how we can better optimize their experience. Our commitment to exceptional service and innovation will be elevated even further with the introduction of MSG Sphere — a venue that is being built, from the ground up, to deliver an entirely new guest experience through the use of advanced, cutting-edge architectural, visual and audio technologies that will create a fully immersive and customized entertainment experience. See “— Our Business — Our Performance Venues — MSG Sphere” for a description of the key design features of MSG Sphere that we believe will deliver this entirely new guest experience.

◦

Leveraging our live entertainment expertise to increase productivity across our performance venues. Part of what drives our success is our “artist first” approach, which has created significant growth at our venues over our history. Through dedicated artist areas and top-tier service, this talent-friendly environment not only attracts artists to our venues, but also brings 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. We believe our proven ability to deliver entertainment-focused venues, coupled with our unique capabilities, technologies and “artist first” approach, can deliver a differentiated experience for artists, fans and partners. In February 2018, we unveiled our vision for MSG Sphere, along with our plans to build these state-of-the-art venues in Las Vegas and London. MSG Sphere venues will be the first large-scale venues to combine cutting-edge technology and multi-sensory storytelling to deliver fully immersive 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

---

•

An innovative approach to marketing and sales. Our Company possesses powerful and attractive assets able to deliver significant exposure for marketing partners who share our vision of creating brand new experiences and innovative opportunities to engage with audiences. We also benefit from being part of a broader entertainment and sports offering as a result of our various agreements with MSG Sports and MSG Networks, through which the Company offers an integrated approach to marketing partnerships and corporate hospitality solutions to drive sponsorship, signage and suite sales.

◦

Delivering unrivaled exposure for our partners. Our assets are highly sought after by companies that value the popularity of our venues and brands, which include The Garden — The World’s Most Famous Arena — as well as Radio City Music Hall’s cherished holiday tradition, the celebrated Christmas Spectacular production. Utilizing these powerful platforms, we collaborate with companies to create elevated experiences that showcase their brands in meaningful ways. With the debut of MSG Sphere, we expect the value proposition for our partners to continue to expand as we introduce unprecedented opportunities for them to connect with our guests. MSG Sphere in Las Vegas will feature cutting-edge technology capable of delivering innovative activations. For example, the venue will feature an exterior covered in fully-programmable LED, creating a digital showcase for brands, events and partners.

◦

The Company also offers a wide array of premium corporate hospitality offerings that cater to a variety of audiences. For example, The Garden has a range of suite and club products, including 21 Event Level suites, 58 Lexus Madison Level suites, 18 Signature Level suites, the Madison Club, Suite Sixteen and the Loft Club. These suites and clubs - which provide exclusive private spaces, first-class amenities and some of the best seats in The Garden - are primarily licensed to corporate customers with the majority being multi-year agreements, most of which have annual escalators. We believe the unique combination of our entertainment offerings and MSG Sports’ premium live sporting events, along with the continued importance of corporate hospitality to our guests, position us well to continue to grow this business. And as the Company’s expansion plans progress, our MSG Sphere venues will deliver additional hospitality options in other major markets.

◦

Understanding our customers. 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 database of millions of customers, which drives revenue and engagement across our events, benefiting the Company through ticket sales and sponsorship activation. This database provides us with an opportunity to tailor offerings and cross-promote our products and services, introducing customers to our wide range of assets and brands.

•

A growing portfolio of proprietary content. We continue to explore the creation of proprietary content — including the development of attraction-like shows for our existing and planned venues — that enables us to benefit from being both content creator and venue operator. Content development will ultimately give us greater control over the utilization of our venues, making us less reliant on touring schedules. The Company is supporting this strategy with the creation of MSG Sphere Studios, a creative studio that brings together expertise from across the entertainment industry. The Company is also developing a set of tools specifically for MSG Sphere that makes content creation for this powerful platform an intuitive experience and maximizes the potential of the venues’ immersive technologies - whether someone is adapting existing content or developing original creations. The Company expects to collaborate with third-party creators and to also develop its own catalogue of unique and compelling material that can be used across MSG Sphere venues. This will range from original attractions, purpose-built for MSG Sphere, to the establishment of a dynamic library of content that can be used by artists or third parties who want to bring their experiences to life — whether for concerts, residencies or corporate events. The Company’s creation of new proprietary content will also include exploring opportunities for our world-renowned entertainment brand — the Radio City Rockettes.

---

•

Utilizing our world-class hospitality expertise. The Company owns a controlling interest in Tao Group Hospitality — a leader in the hospitality industry. Tao Group Hospitality operates 28 entertainment dining and nightlife venues in New York City, Las Vegas, Los Angeles, Chicago, Singapore and Sydney, Australia with widely recognized brands that include: Tao, Marquee, Lavo, Avenue, Beauty & Essex and Cathédrale. Tao Group Hospitality is actively developing opportunities in select markets — both domestically and internationally — to expand. Since September 2018, Tao Group Hospitality has opened Tao Chicago, along with new entertainment dining and nightlife venues as part of the Moxy Chelsea and Moxy East Village hotels in New York City. Tao Group Hospitality also debuted three new venues in Singapore — Marquee, Avenue, and KOMA. In addition to its expansion plans, Tao Group Hospitality has become a valuable strategic partner for the Company. This includes at The Garden, where Tao Group Hospitality is playing a larger role in our food and hospitality offerings, as well as in Las Vegas, where it has a 15-year history in the market and will help to create a world-class guest experience for MSG Sphere.

---

---

---

---

•	A fully-programmable LED exterior and an interior bowl that features the world’s largest and highest resolution LED screen known today — more than 160,000 square feet of display surface;

•	An advanced acoustics system featuring beamforming technology that will deliver crystal clear audio;

•	An infrasound haptic system that will use deep vibrations so guests can “feel” the experience; and

•	An advanced architecture for connectivity that will enable a broader range of content, greater interaction among guests and more immersive entertainment experiences.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	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, such as the E.U. General Data Protection Regulation, and changes in these laws;

•	the impact of Brexit, which legally took place on January 31, 2020, and any agreements reached during the transition period in effect until December 31, 2020;

•	the instability of foreign economies and governments;

•	war, acts of terrorism and the outbreak of epidemics or pandemics abroad;

•	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.

---

•	entering into any transaction pursuant to which 50% or more of our shares or assets would be acquired, whether by merger or otherwise, unless certain tests are met;

•	issuing equity securities, if any such issuances would, in the aggregate, constitute 50% or more of the voting power or value of our capital stock;

•	certain repurchases of our common shares;

•	ceasing to actively conduct our business;

•	amendments to our organizational documents (i) affecting the relative voting rights of our stock or (ii) converting one class of our stock to another;

•	liquidating or partially liquidating; and

•	taking any other action that prevents the Entertainment Distribution and certain related transactions from being tax-free.

---

---

•	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 10 votes per share and is entitled collectively to elect the remaining 75% of our Board of Directors.

•	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.

---

---

---

---

---

---

(a)

Beginning in Fiscal Year 2017, operating and balance sheet data includes the results of Tao Group Hospitality operating information from February 1, 2017 to March 26, 2017. Beginning in Fiscal Year 2018, operating and balance sheet data includes the results of Obscura Digital (“Obscura”) since the acquisition date of November 20, 2017. For Fiscal Year 2020, the Company’s results of operations have been, and continue to be, materially impacted by the COVID-19 pandemic and actions taken in response by governmental authorities and certain professional sports leagues. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Introduction — Impact of the

---

(b)

On April 17, 2020 (the “Entertainment Distribution Date”), 23,992 shares of common stock were distributed to MSG Sports (formerly known as The Madison Square Garden Company) stockholders as of April 13, 2020. This share amount is being utilized for the calculation of basic and diluted earnings (loss) per share for both the years ended June 30, 2019 and 2018 and for period prior to April 17, 2020 in the year ended June 30, 2020 because Madison Square Garden Entertainment Corp. was a wholly-owned subsidiary of MSG Sports prior to the Entertainment Distribution Date.

(c)	Long-term debt presented above is net of debt issuance costs of $832, $1,039, $3,613, and $4,567 as of June 30, 2020, 2019, 2018, and 2017 respectively. See “Item 8. Financial Statements and Supplementary Data — Consolidated and Combined Financial Statements — Notes to Consolidated and Combined Financial Statements — Note 13. Credit Facilities” for more information.

(d)

The Company’s operating results for the years ended June 30, 2020 and 2019 were impacted by the adoption of ASC Topic 606. The Company used the modified retrospective method of adoption. Results for reporting periods beginning after July 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting guidance under ASC Topic 605. See “Item 8. Financial Statements and Supplementary Data — Consolidated and Combined Financial Statements — Notes to Consolidated and Combined Financial Statements — Note 4. Revenue Recognition” for more information.

(e)

The Company’s operating results for the year ended June 30, 2020 and balance sheet data as of June 30, 2020 were impacted by the adoption of ASC Topic 842. The Company used the modified retrospective method of adoption. Upon adoption of this standard, the Company recorded initial operating right-of-use assets of $259,840, current operating lease liabilities of $50,996, and long-term operating lease liabilities of $206,418. The Company did not record any adjustment to retained earnings. See “Item 8. Financial Statements and Supplementary Data — Consolidated and Combined Financial Statements — Notes to Consolidated and Combined Financial Statements — Note 2. Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements” for more information.

---

•	our ability to effectively manage the impacts of the COVID-19 pandemic and the government actions taken in response;

•	the level of our expenses and our operational cash burn rate, including our corporate expenses as a stand-alone publicly traded company;

•	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 the temporary suspension of construction and any other construction delays and/or cost overruns;

•	the level of our revenues, which depends in part on the popularity of the Christmas Spectacular Starring the Radio City Rockettes (“Christmas Spectacular”) and other entertainment and sports events which are presented in our venues;

•	the level of our capital expenditures and other investments;

•	general economic conditions, especially in the New York City, Las Vegas, Chicago and London metropolitan areas where we have (or plan to have) business activities;

•	the demand for sponsorship arrangements and for advertising;

•	competition, for example, from other venues and other sports and entertainment options, including the construction of new competing venues;

•	changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate;

•	any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations;

•	seasonal fluctuations and other variations in our operating results and cash flow from period to period;

•	the successful development of new live productions or attractions, enhancements or changes to existing productions and the investments associated with such development, enhancements, or changes, as well as investment in personnel, content and technology for the MSG Spheres;

•	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 (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues;

•	the continued popularity and success of Tao Group Hospitality entertainment dining and nightlife venues, as well as its existing brands, and the ability to successfully open and operate new entertainment dining and nightlife venues;

•	the ability of Boston Calling Events, LLC (“BCE”) to attract attendees and performers to its future festivals;

•	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;

•	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 New York City’s Pennsylvania Station;

•	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 status as an emerging growth company;

•	the tax-free treatment of the Entertainment Distribution (as defined below);

•	our ability to achieve the intended benefits of the Entertainment Distribution;

•	the performance by MSG Sports of its obligations under various agreements with the Company related to the Entertainment Distribution and ongoing commercial arrangements;

•	lack of operating history as an operating company and costs associated with being an independent public company; and

•	the additional factors described under “Part I — Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

---

•	events at The Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre and The Chicago Theatre;

•	license fee payments under the Arena License Agreements;

•	sponsorships, suite licenses and in-venue advertising;

•	the 2020 production of the Christmas Spectacular; and

•	the 2020 Boston Calling Music Festival.

---

---

---

---

---

---

•	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.

---

---

---

(a)	See “Business Segment Results” for a more detailed discussion of the operating results of our segments.

(b)	Direct operating expenses primarily include:

•	event costs related to the presentation, production and marketing of our events;

•	revenue sharing expenses associated with the venue-related signage, sponsorship and suite license fee revenues that are attributable to MSG Sports;

•	venue lease, maintenance and other operating expenses, net of recovery charges for venue usage from MSG Sports for hosting the home games of the Knicks and Rangers at The Garden;

•	the cost of concessions, merchandise and food and beverage sold at our venues; and

•	restaurant operating expenses, inclusive of labor costs.

(c)	Selling, general and administrative expenses (“SG&A”) primarily consist of administrative costs, including compensation, professional fees, sales and marketing costs, including non-event related advertising expenses, and business development costs, as well as costs associated with the development of MSG Sphere, including technology and content development costs.

---

---

(a)	Depreciation and amortization included purchase accounting adjustments of $12,454 and $15,901 for the years ended June 30, 2020 and 2019, respectively.

(b)	Other purchase accounting adjustments for the years ended June 30, 2020 and 2019 primarily included rent expenses associated with the amortization of favorable leases in connection with the Tao Group Hospitality acquisition.

---

---

---

---

---

---

---

(a)	See “Business Segment Results” for a more detailed discussion of the operating results of our segments.

---

(a)	Depreciation and amortization included purchase accounting adjustments of $15,901 and $15,188 for the years ended June 30, 2019 and 2018, respectively.

(b)	Other purchase accounting adjustments for the year ended June 30, 2019 and 2018 primarily included the amortization of favorable leases in connection with the Tao Group Hospitality acquisition.

---

---

---

---

---

•	We have revised our processes and construction schedule for MSG Sphere, providing for a substantially reduced spend in fiscal year 2021 and a lengthened timetable that enables the Company to preserve cash in the near-term. We now expect to open MSG Sphere in Las Vegas in calendar year 2023;

•	In connection with our extended construction timeline, we have reduced our expected near-term spending on technology and content development for MSG Sphere;

•	At the end of May, we ended all financial support that was previously provided for certain event-level employees at the Company’s performance venues, and as a result virtually all venue employees, approximately 6,000 in total, are effectively furloughed;

•	At the end of March, Tao Group Hospitality eliminated essentially all of its venue line staff and manager positions, with limited numbers of employees returning as operations slowly resume. In August, Tao Group Hospitality reduced its corporate workforce;

•	In August, we reduced our regular full-time workforce by approximately 350 positions; and

•

We have implemented and are continuing to pursue additional comprehensive cost reduction measures, including terminating certain third-party services, negotiating reduced rates and/or reduced service levels with third parties, and pursuing targeted savings and reductions in spending on marketing and travel and entertainment, and deferring or limiting non-essential operating or other discretionary expenses.

•	The Company is having conversations with landlords and other vendors about relief from cash payments, some of which may not be successful; and

•	We are actively pursuing potential financing options, including incurring up to $500,000 of long-term debt, which is expected to be comprised of senior notes or term loan and revolver facilities.

---

---

---

---

(a)

Off balance sheet arrangements disclosed in the table above do not include MSG Sphere related commitments of approximately $1,220,000 that are not reflected on the balance sheet. Such arrangements are associated with the development and construction of MSG Sphere in Las Vegas. The timing of the future cash payments disclosed is uncertain and may change as the development and construction of MSG Sphere in Las Vegas progresses.

(b)	Consists of letters of credit obtained by the Company as collateral for development of MSG Sphere in Las Vegas and lease agreements of the Company and Tao Group Hospitality.

(c)

Includes 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 Hospitality venues and various corporate offices. These commitments are presented exclusive of the imputed interest used to reflect the payment’s present value. See Note 9 to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information.

(d)	See Note 13 to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information surrounding the principal repayments required under the Tao Senior Secured Credit Facilities and a note with respect to a loan received by BCE from its noncontrolling interest holder that is due in April 2021.

(e)	Includes MSG Sphere related commitments of approximately $74,955 associated with the development and construction of MSG Sphere in Las Vegas, all due within fiscal year 2021.

(f)	Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See Note 14 to the consolidated and combined 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.

(g)

In connection with the Entertainment Distribution, the Company entered into the DDTL Facilities. Pursuant to the DDTL Facilities, two of MSG Sports’ subsidiaries, MSG NYK Holdings, LLC and MSG NYR Holdings, LLC may draw up to $110,000 and $90,000, respectively, until October 17, 2021 subject to certain conditions. The lending requirements under DDTL Facilities have been excluded from the table above as the timing of the future cash payments is uncertain.

---

---

•	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.

---

•	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.

---

---

---

---

---

---

---

---

---

---

†	This exhibit is a management contract or a compensatory plan or arrangement.

+	Certain confidential information - identified by bracketed asterisks “[*****]” - has been omitted from this exhibit pursuant to Item 601(b)(10) of Regulation S-K because it is both (i) not material and (ii) would be competitively harmful to the Registrant if publicly disclosed.

---

(a)

Prior to the Entertainment Distribution, the Company’s collection for ticket sales, sponsorships and suite rentals in advance were recorded as deferred revenue and were recognized as revenues when earned for both accounting and tax purposes. The tax recognition on most of these deferred revenues was accelerated to the date of the Entertainment Distribution and is the responsibility of MSG Sports. The Company will not reimburse MSG Sports for such taxes. At the time of the Entertainment Distribution, the Company recorded a deferred tax asset of $57,230 and a corresponding valuation allowance of $57,230 with regard to the deferred revenue acceleration for income tax purposes.

(b)

For the year ended June 30, 2018, the valuation allowance was revalued under provisions contained in the Tax Cuts and Jobs Act, including a reduction in the valuation allowance of $66,200 resulting from the change which provides that future federal net operating losses have an unlimited carry forward period. This reduction in the valuation allowance was partially offset by an increase of $7,495 relating to current operations.

---

---

---

---

---

---

---

(a)	Includes revenues from related parties of $18,408, $18,259 and $16,187 for the years ended June 30, 2020, 2019 and 2018, respectively.

(b)	Includes net charges from related parties of $57,741, $94,014 and $89,656 for the years ended June 30, 2020, 2019 and 2018, respectively.

(c)	Includes net charges to related parties of $(119,389), $(119,666) and $(111,553) for the years ended June 30, 2020, 2019 and 2018, respectively.

(d)	Interest income includes interest income from nonconsolidated affiliates of $3,105 and $5,696 for the years ended June 30, 2019 and 2018, respectively.

(e)	Miscellaneous expense, net includes charges to related parties of $(178), $(451) and $(777) for the years ended June 30, 2020, 2019 and 2018, respectively.

(f)

On April 17, 2020 (the “Entertainment Distribution Date”), 23,992 shares of common stock were distributed to Madison Square Garden Sports Corp. (formerly known as The Madison Square Garden Company) stockholders as of April 13, 2020. This share amount is being utilized for the calculation of basic and diluted earnings (loss) per share for both the years ended June 30, 2019 and 2018 and for period prior to April 17, 2020 in the year ended June 30, 2020 because Madison Square Garden Entertainment Corp. was a wholly-owned subsidiary of Madison Square Garden Sports Corp. prior to the Entertainment Distribution Date.

---

---

---

---

---

---

---

---

---

---

•	We have revised our process and construction schedule for MSG Sphere, providing for a substantially reduced spend in fiscal year 2021 and a lengthened timetable that enables the Company to preserve cash in the near-term. We now expect to open MSG Sphere in Las Vegas in calendar year 2023;

•	In connection with our extended construction timeline, we have reduced our expected near-term spending on technology and content development for MSG Sphere;

•	At the end of May, we ended all financial support that was previously provided for certain event-level employees at the Company’s performance venues, and as a result virtually all venue employees, approximately 6,000 in total, are effectively furloughed;

•	At the end of March, Tao Group Hospitality eliminated essentially all of its venue line staff and manager positions with limited numbers of employees returning as operations slowly resume. In August, Tao Group Hospitality reduced its corporate workforce;

•	In August, we reduced our regular full-time workforce by approximately 350 positions; and

•

We have implemented and are continuing to pursue additional comprehensive cost reduction measures, including terminating certain third-party services, negotiating reduced rates and/or reduced service levels with third parties, and pursuing targeted savings and reductions in spending marketing and travel and entertainment, and deferring or limiting non-essential operating or other discretionary expenses.

•	The Company is having conversations with landlords and other vendors about relief from cash payments, some of which may not be successful; and

•	We are actively pursuing potential financing options, including incurring up to $500,000 of long-term debt, which is expected to be comprised of senior notes or term loan and revolver facilities.

---

---

---

---

---

---

---

---

•	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.

---

---

---

---

---

---

---

(a)

Consists of (i) ticket sales and other ticket-related revenues, (ii) Tao Group Hospitality’s entertainment dining and nightlife offerings, (iii) venue license fees from third-party promoters, and (iv) food, beverage and merchandise sales. Event-related revenues and entertainment, dining and nightlife offerings are recognized at a point in time. As such, these revenues have been included in the same category in the table above.

(b)	Primarily consists of (i) advertising commission revenue from MSG Networks and MSG Sports and (ii) Tao Group Hospitality’s managed venue revenues. The Company’s other revenues also included revenues from Obscura Digital’s

---

(a)	Amounts include ticket sales, including other ticket-related revenue, and venue license fees from the Company’s events such as (i) concerts, (ii) the presentation of the Christmas Spectacular, and (iii) other live entertainment and sporting events. In

---

(b)	Primarily consist of revenues from (i) entertainment dining and nightlife offerings and (ii) venue management agreements.

(c)	Amounts include revenues from Obscura’s third-party production business, which decreased significantly for Fiscal Year 2020 as compared to the prior year periods due to the Company’s decision to wind down Obscura’s third-party production business to focus those resources on the MSG Sphere development.

(a)

Receivables from contracts with customers, which are reported in Accounts receivable, net and Net related party receivables in the Company’s consolidated and combined balance sheets, represent the Company’s unconditional rights to consideration under its contracts with customers. As of June 30, 2020 and 2019, the Company’s receivables from contracts with customers above included $2,644 and $126, respectively, related to various related parties. See Note 19 for further details on these related party arrangements.

(b)

Contract assets, which are reported as Other current assets in the Company’s consolidated and combined balance sheets, primarily relate to the Company’s rights to consideration for goods or services transferred to the customer, for which the Company does not have an unconditional right to bill as of the reporting date. Contract assets are transferred to accounts receivable once the Company’s right to consideration becomes unconditional.

(c)

Deferred revenue primarily relates to the Company’s receipt of consideration from a customer in advance of the Company’s transfer of goods or services to that customer. Deferred revenue is reduced and the related revenue is recognized once the underlying goods or services are transferred to the customer. Revenue recognized for the year ended June 30, 2020 relating to the deferred revenue balance as of June 30, 2019 was $164,297.

---

(a)	See the Consolidated and Combined Statements of Operations for how the weighted-average shares were derived for the years ended June 30, 2019 and 2018 and for the period prior to the Entertainment Distribution in Fiscal Year 2020.

(a)	See Note 2 for more information regarding the nature of restricted cash.

---

(a)

In accordance with the ASC Topic 321, Investments - Equity Securities, the Company applies the measurement alternative to its equity investments without readily determinable fair values. Under the measurement alternative, equity securities without readily determinable fair values are accounted for at cost, adjusted for impairment and changes resulting from observable price fluctuations in orderly transactions for the identical or a similar investment of the same issuer, which is classified within Level III of the fair value hierarchy. For Fiscal Year 2020, the Company recorded an impairment charge of $533. For Fiscal Year 2019, the Company recorded a $3,738 increase in carrying value from observable price fluctuations and an impairment charge of $398.

(b)	On August 5, 2019, immediately prior to the sale of the Company’s equity capital in Tribeca Enterprises for $18,000, the Company contributed the $18,000 of indebtedness under the Company’s revolving credit facility to the Company’s equity capital in Tribeca Enterprises.

(c)

As of June 30, 2019, the Company’s equity investment in equity without readily determinable fair value included a $9,834 investment in DraftKings Inc. (“DraftKings”). DraftKings became a publicly traded company in April 2020. Accordingly, the Company began accounting for its investment in DraftKings as an equity investment with a readily determinable fair value in accordance the ASC Topic 321, Investments - Equity Securities. See section “Equity Investment with Readily Determinable Fair Values” below for further discussion.

(d)	The following tables summarize the changes in the Company’s equity investments without readily determinable fair values for which the Company has used Level III inputs to determine fair value:

---

---

(a)

Balance sheet information above did not include equity method investees that were sold during the respective fiscal year. For equity method investments that were sold in Fiscal Year 2019, the results of operations information included the activities for those equity method investees until the date of sale. In addition, the Company did not include results of operations information from Tribeca Enterprises for the year ended June 30, 2020 since the Company did not record any earnings from this investment in Fiscal Year 2020 prior to the disposal in August 2019.

---

(a)	In connection with the execution of the MIPA on March 24, 2020, and subsequent sale of the Forum in Inglewood to CAPSS LLC (see Note 3) on May 1, 2020, the Company disposed of $103,065 of property and equipment, net of accumulated depreciation and amortization of $49,490, which substantially consisted of buildings and, to a lesser extent, land.

(b)	During Fiscal Year 2020, the Company recorded a non-cash impairment charge of $8,047 for long-lived assets associated with two venues within the Company’s Tao Group Hospitality reportable segment. See Note 1 for further details.

---

---

(a)	Operating lease payments exclude minimum lease payments related to a location associated with the entertainment dining and nightlife offerings as the Company has not yet taken possession of the space.

---

(a)

In connection with the execution of the MIPA on March 24, 2020, pursuant to which the Company agreed to sell the Forum in Inglewood to CAPSS LLC (see Note 3), the Company allocated $2,666 of goodwill associated with the Forum to assets held for sale in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other, ASC Subtopics 350-20-40-1 to 350-20-40-7. The allocation of goodwill to the Forum was based on the fair value of the Forum compared to the fair value of the Company’s reporting unit. The fair value of the Company’s reporting unit and the Forum were based on unobservable inputs classified within Level III of the fair value hierarchy, primarily from utilizing the discounted cash flow model, which is an income-based approach. Subsequent to this reclassification, the transaction closed on May 1, 2020.

(b)

During the first quarter of Fiscal Year 2020, 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. During the third quarter of Fiscal Year 2020, the Company’s operating results have been, and continue to be, materially impacted by the COVID-19 pandemic (see Note 1 “Impact of the COVID-19 Pandemic”). While the Company concluded that the effects of the COVID-19 pandemic would not more likely than not reduce the fair value of its Entertainment reporting unit below its carrying amount, the Company concluded that a triggering event had occurred for its Tao Group Hospitality reporting unit as of March 31, 2020 and performed an interim impairment test. For the interim impairment test, the Company estimated the fair value of the Tao Group Hospitality reporting unit based on a discounted cash flow model (income approach). This approach relied on numerous assumptions and judgments that were subject to various risks and uncertainties. Principal assumptions utilized, all of which are considered Level III inputs under the fair value hierarchy, include the Company’s estimates of future revenue and terminal growth rates, margin assumptions and the discount rate applied to estimate future cash flows. In the fourth quarter of Fiscal Year 2020, the Company completed an evaluation of the subsequent activity. As a result, the Company recorded a non-cash goodwill impairment charge of $88,583 during Fiscal Year 2020.

(a)

In connection with the execution of the MIPA on March 24, 2020, pursuant to which the Company agreed to sell the Forum in Inglewood to CAPSS LLC (see Note 3), the Company reclassified $540 of indefinite-lived intangible assets associated with the Forum to the assets held for sale in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other, ASC Subtopics 350-20-40-1 to 350-20-40-7. Subsequent to this reclassification, the transaction closed on May 1, 2020.

---

(b)	The decrease was due to a balance transfer of photographic related rights to MSG Sports made in connection with the Entertainment Distribution.

(a)	During Fiscal Year 2020, the Company recorded a non-cash impairment charge of $3,541 associated with one venue within Tao Group Hospitality (see Note 1 “Impact of the COVID-19 Pandemic”).

(b)

Upon adoption of ASC Topic 842, the Company reclassified favorable lease assets net balance of $43,871, which was recognized in connection with the acquisition of Tao Group Hospitality, from Amortizable intangible assets, net, to Right-of-use lease assets in the accompanying combined balance sheet as of July 1, 2019. In addition, the Company also reclassified an unfavorable lease liability of $6,841, which was reported in Other liabilities in the accompanying combined balance sheet, to Right-of-use lease assets as of July 1, 2019.

(c)	The decreases in the Other intangibles gross and accumulated amortization balances related to the retirement of an Obscura asset after it was fully amortized on an accelerated basis.

---

(a)	Consists of letters of credit obtained by the Company as collateral for development of MSG Sphere in Las Vegas and lease agreements of the Company and Tao Group Hospitality.

---

(b)

Off balance sheet arrangements disclosed in the table above do not include MSG Sphere related commitments of approximately $1,220,000 that are not reflected on the balance sheet. Such arrangements are associated with the development and construction of MSG Sphere in Las Vegas. The timing of the future cash payments disclosed is uncertain and may change as the development and construction of MSG Sphere in Las Vegas progresses.

(c)	Includes 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 Hospitality venues and various corporate offices. These commitments are presented exclusive of the imputed interest used to reflect the payment’s present value. See Note 9 for more information.

(d)	See Note 13 for more information surrounding the principal repayments required under the Tao Senior Secured Credit Facilities and a note with respect to a loan received by BCE from its noncontrolling interest holder that is due in April 2021.

(e)	Includes MSG Sphere related commitments of approximately $74,955 associated with the development and construction of MSG Sphere in Las Vegas, all due within fiscal year 2021.

(f)	Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See Note 14 for information on the future funding requirements under our pension obligations.

(g)

In connection with the Entertainment Distribution, the Company entered into delayed draw term loan credit agreements with subsidiaries of MSG Sports (“DDTL Facilities”). Pursuant to the DDTL Facilities, two of MSG Sports’ subsidiaries, MSG NYK Holdings, LLC and MSG NYR Holdings, LLC, may draw up to $110,000 and $90,000, respectively, until October 17, 2021 subject to certain conditions. The lending requirements under DDTL Facilities have been excluded from the table above as the timing of the future cash payments is uncertain.

---

(a)

The Company’s notes receivable are invested with banking institutions as collateral for issuances of letters of credit. In addition, the Company’s short-term investments consist of investments that (i) have original maturities of greater than three months and (ii) can be converted into cash by the Company within one year. As of June 30, 2020, the Company’s short-term investments included $299,942 in U.S. treasury bills and $37,250 in term deposits. The Company’s short-term investments as of June 30, 2019 were in term deposits. The short-term investments in U.S. treasury bills are classified within Level I of the fair value hierarchy. The Company’s notes receivable and short-term investments in term deposits are carried at cost, including interest accruals, which approximate fair value and are classified within Level III of the fair value hierarchy.

(b)	See Note 7. Investments and Loans to Nonconsolidated Affiliates — Equity Investment with Readily Determinable Fair Value for more information on the Company’s equity investment with readily determinable fair value.

(c)

In connection with the sale of the Company’s joint venture interest in AMSGE in December 2018, the $63,500 outstanding balance under the revolving credit facility extended by the Company to AMSGE was converted to a subordinated term loan with an original maturity date of September 20, 2021. The subordinated loan was assumed by an affiliate of AMSGE. During Fiscal Year 2019, the Company received a $4,765 principal repayment. In December 2019, the Company received a $58,735 principal repayment for the remaining outstanding balance. The Company’s subordinated term loan receivable

---

(d)

On May 23, 2019, Tao Group Intermediate Holdings LLC and Tao Group Operating LLC entered into a $40,000 five-year term loan facility and a $25,000 five-year revolving 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. See Note 13 for more information and outstanding balances on this long-term debt.

(a)	The change in fair value of contingent consideration was recorded within Selling, general and administrative expenses in the accompanying consolidated and combined statements of operations for the years ended June 30, 2020 and 2019, respectively.

---

---

(a)	See Business Combinations and Noncontrolling Interests section under Note 2. Summary of Significant Accounting Policies for further discussion on consolidation of Tao Group Hospitality. In addition, the long-term debt maturities reported above did not include $637 of a note with respect to a loan received by BCE from its noncontrolling interest holder that is due in April 2021.

(a)	In addition to the outstanding balance associated with the Tao Term Loan Facility disclosed above, the Company’ s Current portion of long-term debt, net of deferred financing costs of $5,429 in the accompanying consolidated balance

---

(b)	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.

---

(a)	Represents the benefit obligation related to the MSG Sports Non-Qualified Plans as of April 17, 2020, the date of the Entertainment Distribution.

---

(a)

For the years ended June 30, 2020, 2019 and 2018, lump-sum payments totaling $551, $343 and $506, respectively, were distributed to vested participants of the non-qualified excess cash balance plan, triggering the recognition of settlement losses in accordance with ASC Topic 715. Due to these pension settlements, the Company was required to remeasure its pension plan liability as of June 30, 2020 and 2019 and March 31, 2018 for the years ended June 30, 2020, 2019 and 2018, respectively. Discount rates used for the projected benefit obligation and interest cost were 2.95% and 2.83% as of June 30, 2020, respectively, 3.75% and 3.18% as of June 30, 2019, respectively, and 3.53% and 2.16% as of March 31, 2018, respectively. Additionally, settlement charges of $67, $52 and $87 were recognized in Miscellaneous income (expense), net for the years ended June 30, 2020, 2019 and 2018.

---

---

(a)	The Company’s target allocation for pension plan assets is 99% fixed income securities and 1% cash equivalents as of June 30, 2020.

---

•	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.

---

---

---

(a)	The share-based compensation expense reported for Fiscal Year 2018 includes expense associated with MSG Networks’ RSUs granted to the Company’s employees prior to the spin-off of MSG Sports from MSG Networks in 2015.

---

---

(a)	Amounts reclassified from accumulated other comprehensive loss represent the amortization of net actuarial loss and net unrecognized prior service credit included in net periodic benefit cost, which is reflected under Miscellaneous income (expense), net in the accompanying consolidated and combined statements of operations (see Note 14).

(b)	As of July 1, 2018, upon adoption of ASU No. 2016-01, the Company recorded a transition adjustment to reclassify accumulated other comprehensive loss associated with its investment in Townsquare in the amount of $2,466 pre-tax ($5,570, net of tax) to Madison Square Garden Sports Corp. Investment. See Note 7 for more information related to its investment in Townsquare.

(c)

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 Madison Square Garden Sports Corp. Investment.

---

(a)	For the year ended June 30, 2018, the valuation allowance was revalued under provisions contained in the TCJA, including a reduction in the valuation allowance of $66,199 resulting from the change which provides that future federal NOLs have an unlimited carry forward period. This reduction in the valuation allowance was partially offset by an increase of $7,494 relating to current operations.

(b)	The TCJA included changes to Internal Revenue Code Section 162(m), including elimination of the exception for qualified performance-based compensation over the $1,000 annual limit. Accordingly, effective January 1, 2018, all compensation for certain officers in excess of $1,000 is generally nondeductible.

---

---

•	Sponsorship sales and service representation agreements pursuant to which the Company has the exclusive right and obligation to sell MSG Sports’ sponsorships for an initial stated term of ten years for a commission;

•	Team sponsorship allocation agreement with MSG Sports, pursuant to which MSG Sports continues receiving an allocation of sponsorship and signage revenues associated with the sponsorship agreements that existed at the Entertainment Distribution Date;

•

Arena License Agreements pursuant to which the Company (i) provides MSG Sports the right to use The Garden for games of the Knicks and Rangers for a 35-year term in exchange for venue license fees, (ii) shares revenues collected for suite licenses, (iii) operates and manages the sale of the sports teams merchandise at The Garden for a commission, (iv) operates and manages the sale of food and beverage concessions and catering services during the Knicks and Rangers games, (v) provides day of game services that were historically provided prior to the Entertainment Distribution, and (vi) provides other general services within The Garden;

•

Transition Services Agreement (the “TSA”) pursuant to which the Company provides certain corporate and other transition services to MSG Sports, such as information technology, accounts payable, payroll, tax, certain legal functions, human resources, insurance and risk management, government affairs, investor relations, corporate communications, benefit plan administration and reporting, and internal audit functions as well as certain marketing functions, in exchange for service fees. MSG Sports also provides certain transition services to the Company, in exchange for service fees.

•	Sublease agreement, pursuant to which the Company subleases office space to MSG Sports;

•	Group ticket sales representation agreement, pursuant to which the Company appointed MSG Sports as its sales and service representative to sell group ticket packages related to Company events in exchange for a commission;

•	Single night rental commission agreement, pursuant to which MSG Sports may, from time to time, sell (or make referrals for sales of) licenses for the use of suites at The Garden for individual Company events in exchange for a commission;

---

•	The DDTL Facilities that provide for a $110,000 and $90,000 senior unsecured delayed draw term loan facilities, for the Knicks and Rangers, respectively;

•	Aircraft time sharing agreements (discussed below); and;

•	Other agreements with MSG Sports entered into in connection with the Entertainment Distribution such as a distribution agreement, a tax disaffiliation agreement, an employee matters agreement, a trademark license agreement and certain other arrangements.

---

---

---

---

---

---

(a)	Miscellaneous income (expense), net includes the followings:

---

(b)	Entertainment’s capital expenditures for the year June 30, 2018 included a purchase of land in London for the Company’s planned MSG Spheres in London.

(a)	A receivable from Customer A as of June 30, 2019 is primarily due to timing of cash receipts.

---

---