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Madison Square Garden, Inc. (NASDAQ:MSG)

Q2 2011 Earnings Call

August 26, 2011 10:00 am ET

Executives

Ari Danes - VP, IR

Hank Ratner - President & CEO

Bob Pollichino - EVP & CFO

Mike Bair - President, MSG Media

Scott O'Neil - President, MSG Sports

Analysts

Ryan Fiftal - Morgan Stanley

Vasily Karasyov - Susquehanna Financial Group

Bryan Goldberg - Bank of America Merrill Lynch

Robert Routh - Phoenix Partners Group

David Joyce - Miller Tabak & Company

John Tinker - Maxim

Ben Mogil - Stifel Nicolaus

Operator

Good morning, my name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to The Madison Square Garden Company second quarter and six months 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Ari Danes, Vice President of Investor Relations for the Madison Square Garden Company. Please go ahead.

Ari Danes

Thanks, Melissa. Good morning and welcome to The Madison Square Garden Company's second quarter and six months 2011 transition period earnings conference call. Joining us this morning are members of the MSG management team including Hank Ratner, President and CEO; Bob Pollichino, EVP and Chief Financial Officer; Mike Bair, President, MSG Media; and Scott O'Neil, President, MSG Sports.

Following a discussion of the company's financial results, we will open the call for questions. If you do not have a copy of today's earnings release, it is available in the Investor section of our website at themadisonsquaregardencompany.com.

Please take a note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the company and its business, operations, financial condition and the industry in which it operates, and the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled risk factors and management's discussion and analysis of financial condition and results of operations contained therein. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

Let me point out that on Page 4 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow or AOCF to operating income.

I would now like to introduce, Hank Ratner, President and CEO of the Madison Square Garden Company.

Hank Ratner

Thank you Ari. This morning we released our second quarter and six months 2011 transition period results as we shift to our new fiscal year ending June 30. Our results for both periods reflect continued revenue growth and solid overall adjusted operating cash flow with a strong end of period cash position. We achieved these results even as the Garden and the Theatre at Madison Square Garden was unavailable for events starting in mid-April due to the transformation project. While we cannot precisely determine the number of events which would have taken place if the venues had been open, our second quarter results were clearly impacted by the off season shutdown.

Looking back to last year as a frame of reference, from mid April through June 30, we generated nearly $12 million in event-related revenues and approximately $6.5 million in direct AOCF contribution for events that were held at the Garden and the Theater at Madison Square Garden. That being said the impact to our business of the three off season shutdowns was factored into our plans for the transformation project from the start.

During the second quarter, we also continued to balance near-term financial objectives with positioning the company for long-term growth by making strategic programming investments and key sports team player personnel decisions. Turning to the MSG Media segment, top line growth continues to be led by our core base of affiliate fee revenues with advertising revenues benefiting during the second quarter from both the Knicks and Rangers participating in the playoffs, the strong ratings results as Mike Bair will discuss with you shortly.

We also continue to invest in Fuse core programming to further increase viewership building on two consecutive years of ratings growth. In terms of MSG Entertainment segment, we remain focused on increasing the utilization of our theaters while managing through the off season shutdown of the Garden and the Theatre at Madison Square Gardens. With respect to the forum, we’ve replaced our option to buy with a definitive purchase agreements with our obligation to close being subject to certain customary and other closing conditions.

We remain excited about this opportunity to revitalize the forum and expand our presence to the second largest market in the country. As we previously disclosed, we’re making significant enhancements to the 2011 Radio City Christmas Spectacular. While the holiday season is still several months away, we’ve begun our marketing efforts for this year’s production.

Turning to our MSG Sports segment. As Scott O'Neil will discuss shortly, we continue to make steady progress with respect to our transformation sales objectives having recently completed a very successful season ticket renewal effort for the next in Rangers. With respect to the Rangers the team made great strides this off season including signing the most coveted free agent on the market All-Star center Brad Richards.

The team also resigned several key home grown players including Ryan Callahan and Brandon Dubinsky. Those players along with All-Stars Henrik Lundqvist and Marc Staal, had the team positioned for near-end, long-term success.

As you know the NBA’s Collective Bargaining Agreement with the Players Association has expired. If the current NBA work stoppage continues for a significant duration, it would have a material negative effect on our revenues and AOCF during such period. That being said, we are confident that we have sufficient liquidity, including approximately $305 million of cash on hand as of June 30 to complete the Arena Transformation project and our other initiatives, per NBA League Rules we cannot otherwise comment on the work stoppage.

Turning to the Madison Square Garden Transformation, the first of three consecutive off-season shutdowns started in mid-April. On a daily basis, we have over 1000 construction workers in and around the Garden with work taking place around the clock. We remain on schedule and expect to open the Garden and unveil the transformed Lower Bowl of the Arena in late October. You can follow our progress to date at msgtransformation.com. We are posting updated pictures and time-lapse video of the work taking place inside the Garden during the off-season shutdown.

When we re-open, fans will experience new Lower Bowl seating, the first phase of the Madison Lower Concourse which will be nearly doubled the current size with city views, new retail and concession options, (inaudible) event level suites, the Delta SKY360° Club, The 1879 Club presented by J.P. Morgan and the 8th and 10th Floor Viewing Areas with the direct views into the Arena Bowl.

We will also be announcing next month the variety of new food and beverage offerings to debut by the end of the calendar year. In addition, the Transformation work will continue behind the scenes year out.

We’ve now incurred total transformation related construction cost in excess of $340 million over second quarter of 2011. At the same time, our Transformation sales initiatives continue to progress well and we remain confident that this Transformation project will generate meaningful growth for our company.

I will now turn the call over to Bob Pollichino to take you to the specifics on our financial results.

Bob Pollichino

Thank you, Hank. For the six month transition period ending June 30, 2011, revenues and AOCF include the impact from our mid-April to June 30 of the scheduled shutdown of the Garden and The Theatre at Madison Square Garden due to the Transformation project. As previously disclosed, the off-season shutdown is expected to continue until late October.

Operating income also reflects an increase in depreciation expense, primarily associated with the Transformation project, specifically six-month 2011 revenues of $564.3 million, a 5.7% increase versus the prior year period. Consolidated AOCF was $95.7 million, an increase of 5.3% and operating income affected by the increase in depreciation expense was $44.9 million, a 19.6% decrease both as compared to the prior year period.

The remainder of my comments will focus on the calendar second quarter results. As with the six month transition period, revenues and AOCF for the 2011 second quarter include the impact of the off-season shutdown. Operating and net income also reflect an increase in depreciation expense primarily associated with the Transformation project.

For the 2011 second quarter, we generated $233.9 million in total revenues, an increase of 3% versus the prior year period. Consolidated AOCF was $40.9 million, down 3.7% as compared to the 2010 second quarter. Operating income of $14.5 million and net income of $8.5 million, both affected by the increase in depreciation expense, were down 43.7% and 39.1% respectively as compared to the prior year quarter.

Turning to the second quarter results of our business segment, our MSG Media segment generated a $139.6 million in revenues, an increase of $5.1 million or 3.8% as compared to the second quarter of 2010. Affiliate fee revenues increased $3.3 million versus the prior year period, primarily attributable to higher affiliation rates with the overall increase being substantially offset by the impact of the expiration of certain affiliation agreements that were previously disclosed.

Advertising revenues increased $2.4 million versus the second quarter of 2010, with growth at both MSG Networks and Fuse. MSG Media segment AOCF of $58.2 million was down 6.3% versus the 2010 second quarter. Higher direct operating and SG&A expenses were only partially offset by the increase in revenues. The increase in direct operating expenses was primarily attributable to higher programming expenses driven by costs associated with new Fuse programming. The growth in SG&A expenses was primarily attributable to higher advertising and marketing cost.

Our efforts to-date have translated into increased ratings and advertising revenues at Fuse. As a result, we will continue to monitor our progress and strategically invest in Fuse programming going forward which we expect to be reflected in operating expense growth in the MSG Media segment in fiscal 2012.

Turning to Entertainment: Our MSG Entertainment segment generated $36 million in revenues, a 23.1% decrease versus the 2010 second quarter. The decrease in revenues was primarily due to lower event-related revenues at the Garden, the Theater at MSG and Radio City Music Hall as well as lower productions revenue. These declines were partially offset by increased event related revenues at the Beacon Theatre.

Revenues at the Garden and the Theater at MSG were down primarily due to the off season shutdown, while Radio City Music Hall saw a decline as a result of the use of the venue for the five week loading and rehearsal period of Cirque du Soleil production of Zarkana, which primarily runs during our fiscal first quarter ending September 30th.

MSG’s Entertainment AOCF, a negative $11.9 million, improved by 40.5% versus the second quarter of 2010. The improvement in AOCF was primarily attributable to the absence of operating losses including a $9.9 million impairment charge recorded in the 2010 second quarter related to a co-production, as well as improved event related results at the Beacon Theatre. These results were partially offset by lower event related results at the Garden, the theatre at MSG and Radio City Music Hall.

Turning to Sports: Our MSG Sports segment generated $75.4 million in revenue, an 18% increase versus the second quarter of 2010. The increase in revenues was primarily driven by an increase in play-off related revenues as both the Knicks and Rangers made the play-offs this past season.

MSG Sports’ AOCF, a negative $1.3 million was down $4.8 million from the 2010 second quarter. Higher direct operating expenses, including a $5.5 million increase and expenses for certain team personnel transactions and higher SG&A expenses were only partially offset by the increase in revenue.

With regard to MSG’s liquidity position, total net cash and cash equivalents as of June 30th was $304.9 million, down $5.9 million from March 31, 2011. Construction cost for the transformation project incurred for the 2011 second quarter were approximately $119 million, while the project to-date cost incurred through June 30th were approximately $341 million.

We continue to monitor all the dynamics of our business including the NBA work stoppage and believe that we have sufficient liquidity to fund the arena transformation project and our other initiatives from our substantial level of cash on hand, cash flow from operations and if necessary our revolving credit facility.

The $375 million revolver remains undrawn with the borrowing availability as of June 30th in excess of $368 million as there was approximately $6.9 million in letters of credit outstanding.

Finally, we’ll be filing a transition report later today for the six-month period ended June 30, 2011. The next full 12 month fiscal year will run from July 1, 2011 through June 30, 2012.

I will now turn the call over to Mike Bair to provide highlights from our MSG Media segment.

Mike Bair

Thank you, Bob. Following strong regular season campaigns with a compelling story line both Knicks and Rangers returned to the playoff this past April. MSG Networks telecast six Knicks and Rangers first round playoff games with strong ratings results. For example, the average total household rating for the Knicks playoff games was up over 60% versus the 2010-‘11 regular season average rating which itself was up with 100% versus 2009-‘10 regular season.

The NBA and NHL are now in their off seasons. We continue to maintain a strong presence on MSG Networks during the several months, including New York Red Bulls and New York Liberty regular season games or third annual Summer Block Party featuring themed programming blocks every night through everyday which includes MSG Vault our original series which was back at memorable Madison Square Garden and New York-area sports moments and our weekdays telecast of the Boomer & Carton show. Hockey Night Live, also recently ramped up the 2010-‘11 season. The special episodes in June and July dedicated to the NHL draft in the start of the NHL free agency period.

In addition, Scott O'Neil will discuss shortly, in September, MSG Networks and Fuse will broadcast in The Quicksilver Pro New York, the first ASP World Tour Pro Surf competition on the East Coast. MSG Networks again saw a strong increase in advertising revenues in the second quarter. The auto, financial services, telecom and fast food categories were all key contributors to advertising growth during the quarter. We continue to believe we have meaningful long-term advertising upside on MSG Networks from increased interest in our sports franchises.

Turning to our national music network Fuse, as we measure the success of our new shows, we will continue to build thoughtfully and invest in Fuse’s core programming to further increase viewership. Hoppus on Music, our weekly all music talk show hosted by Blink-182’s Mark Hoppus continued with recent guests including Kid Rock, the Red Hot Chili Peppers, Three Doors Down, and They Might Be Giants. Cee Lo Green, four time Grammy Award winner and host of NBC’s breakout hit, The Voice returned this past June with his interview and performance based-show talking to strangers, with guests including Lupe Fiasco, Train, and Estelle. Our “Fuse Presents” concert series returns Tuesday with the world premier of the Red Hot Chili Peppers live from the Roxy Theater in Los Angeles presented by Coca-Cola. The band will play classic hits as well as songs from their new album I’m With You scheduled to hit stores the very same day. Fuse also recently simulcast the 2011 music video awards for the second consecutive year with performances by Lady Gaga, Bruno Mars, Selena Gomez and Avril Lavigne. Higher ratings in the second quarter on Fuse led to a solid increase in advertising revenues versus the prior-year period. Confectionaries, beverages, restaurant and movies were all key contributors to adverting growth during the quarter.

I will now turn the call back over to Hank Ratner to provide highlights from our MSG Entertainment segment.

Hank Ratner

Thanks, Mike. The Madison Square Garden was again named the top grossing arena in North America by Billboard Magazine for the six months ended May 2011. Despite the venue being unavailable for almost seven weeks due to the off season shutdown. Radio City Music Hall and the Theatre at Madison Square Garden were ranked at number one and three respectively in the 5000 to 10000 seat category while The Beacon theater, The Wang Theatre and The Chicago Theater all were in the top ten in the 5000 seat and under category.

Many of the most popular concerts in the country played at our venues during the calendar second quarter including The Strokes and LCD Soundsystem at the Garden in early April, Adele and Alicia Keys at Beacon, Eddie Vedder at The Chicago Theater and Neil Young at The Wang Theater. We also continued to advance our multi-market, multi-night strategy while managing through the off season shutdown of the Garden and the Theater at Madison Square Garden. In fact despite the two venues being unavailable starting in mid-April, we drove an over 50% increase in multi-market performances during the quarter which included Elvis Costello, Paul Simon, Neil Young and Chelsea Handler.

We also saw strong trends in multi-night performances at the Beacon where over half of the performances for the quarter were multi-night shows. Eddie Vedder, Deep Purple, Earth, Wind & Fire and Chelsea Handler all played two nights each at the Beacon. With Cirque du Soleil's Zarkana playing at Radio City and the Theater at Madison Square Garden being closed, we’ve also focused on driving concerts and events which would have otherwise played at those venues to Beacon theatre. ,For example after a long run at Radio City Music Hall, we hosted the 65th Annual Tony awards this past June at the Beacon theatre, the first of three consecutive years The Tony Awards is scheduled to take place at the Beacon.

Cirque du Soleil’s New acrobatic production Zarkana began its preview run on June 9th at Radio City Music Hall, officially opens on June 29th and is expected to run into early fall. The show has been well received and will return in June 2012.

Turning to productions, as we discussed on our last earnings call the 2011 Radio City Christmas Spectacular will be one of the most innovative and contemporary productions in the show’s 79 year history. We are making significant enhancements including never before seen 3DLive technology and state-of-the-art digital mapping technology, the latter of which will create a more immersive experience for our customers.

The show will continue to feature classic scenes and beloved production numbers. This represents the first significant investment in the Christmas Spectacular in four years and is designed to attract new customers and increase attendance frequency among our repeat customers.

While Christmas is still several months away, we have launched our marketing initiatives, all of which are designed to highlight the uniqueness and excitement of this year’s production. We kicked off our annual Christmas in August event which was held two weeks ago in Times Square and which included a performance by The Rockettes on NBC’s Today Show.

We also continue to pursue various marketing partnerships to boost awareness of this year’s production. This October Chase will feature The Christmas Spectacular on its ATM networks in New York City and we renewed our partnership with Gray Line Tours which will include 15 fully-wrapped Gray Line buses advertising the show.

Finally, the Theatre version of the Christmas Spectacular will play this holiday season at the Wang Theatre in Boston as well as in Durham and Nashville, all featuring significant production enhancements. These enhancements result from the utilization of existing tour production assets not currently in use.

I will now turn the call over to Scott O'Neil to provide highlights from MSG Sports segment.

Scott O'Neil

Thank you, Hank. Excitement is building for the Rangers season boosted by the free-agent signing of All-Start center, Brad Richards. The Rangers will open their 2011-12 season against The LA Kings and Anaheim Ducks on October 7 and 8 in Stockholm, Sweden as part of the 2011 Compuware NHL Premiere.

The Rangers home opener at the Garden will be on October 27 against The Toronto Maple Leafs, where Rangers fans will be able to experience the transformed Lower Bowl of Madison Square Garden Arena for the first time.

As a reminder, this past March we announced the 2011-12 Knicks and Rangers season ticket prices would increase by an average of 49% and 23% respectively with the increases primarily reflecting the significantly enhanced fan experience will provide in the transformed Arena.

As you know, our season tickets make up the significant majority of our overall ticket revenue for the Knicks and Rangers. Our renewal rates for the season have been very strong and are inline with renewal rates from last season.

We’re pleased to report that the Knicks have over 90% of season ticket holders renewed and the Rangers rate is over 85% for the season. Also we’re tracking towards selling out for season tickets for both teams.

Turning to Transformation suite sales, we’re also pleased to report that our 20 Event Level suites, which come online this fall, are sold out. As for our 58 Madison Level suites, which are expected to come online for the 2012-2013 NBA and NHL seasons, these suites are approximately 40% larger and much closer to the action than our current suites. Over 75% of these Madison Level suites are under contracts or have agreements that are in the process of being finalized over a year ahead of the suites coming online.

In June, we announced the launch of MSG Action Sports, a division of MSG Sports that will produce action sports and life style events, properties and television programming. The Action Sports Group provides a great opportunity for us to collaborate across divisions and leverage our expertise and infrastructure to grow our business outside of our venues.

We held our first Action Sports event in mid-June with Air in the Square, a BMX and Skateboarding competition featuring a 195-foot MegaRamp, nearly the length of a city block in Times Square. Air in the Square was televised nationally in non-MSG Networks.

MSG Media also announced plans to partner with Quiksilver, a leading outdoor sports lifestyle company and valued marketing partner of Air in the Square to make MSG Networks and Fuse the official broadcast partner of the Quiksilver Pro New York Surf competition, which is scheduled to run September 1 to the 15 in Long Beach, New York. We are currently exploring additional opportunities for future action sports events in New York and beyond.

Finally, the New York Liberty is playing the first of three regular seasons at the Prudential Center in Newark-New Jersey, led by All-Stars Cappie Pondexter and Essence Carson; Liberty are currently in playoffs position with a record of 16 and 12.

I will now turn back the call to Ari Danes.

Ari Danes

Thanks Scott. Melissa, we would now like to open the call to questions.

Question-And-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Ben Swinburne of Morgan Stanley.

Ryan Fiftal - Morgan Stanley

I think you guys said, you sounded a definitive deal for the LA Forums. So I was wondering if you could give us some more color on that with the deal that you signed also. Maybe you need discussion of the due diligence work that you did, anything that came out of that, like thoughts on investment that are required there and how competitive you think that markets are going to be to get bookings on live entertainment? Thank you.

Hank Ratner

While, we think that Los Angeles is the second largest marketplace in the United States. We think that there is room there for more live entertainment. Forum was available and we worked out of this point in definitive agreement, which as we said, is subject to certain conditions to closing. We continue to work and we continue to do our due diligence and move forward towards hopefully with reaching our closing point for that deal.

When we hit that point, you know, we’re going to be happy to discuss more aspects and what are plans are for the Forum, but we put a lot of work into it thus far and we’re very excited about that opportunity and the strategic benefit we think the LA market afford us along with the New York marketplace and the opportunities we’ve with Fuse. So we think it’s a great opportunity for this company and again at this point we get to where we were at the closing of that transaction. We will be talking more about it.

Ryan Fiftal - Morgan Stanley

Okay. I guess it’s still early. Are there any thoughts on any investments that might be required I think there hasn’t been a lot going on that Forum for a couple of years now?

Hank Ratner

That’s true and you know we are reviewing what make sense to go to, what was some more, and when where at the point of finalizing our plan that will make an announcement.

Operator

Your next question comes from Vasily Karasyov of Susquehanna Financial.

Vasily Karasyov - Susquehanna Financial Group

I have a couple. First, about the margins of the networks; you mentioned that you have programming investment in programming and accelerating now and its fine assume that you are correct you said that it will carry into 2012. So does that mean that we will see margin expansion or do you expect margin – I am sorry contraction in 2012?

Hank Ratner

Well Mike, why don’t you take the programming question?

Mike Bair

Sure. You know first of all we really like the network programming business because which will drive economic scalability and certainly we are investing digital money in the Fuse and that’s because over the last two years we have seen some really consistent ratings growth overtime which proves to us that our music strategy works. Advertisers have responded quite strongly which really gives us some encouragement.

Part of the unique opportunity for Fuse is that we are linked with Madison Square Garden Entertainment which provides us certain excess relationships due to that and stronger and powerful set of iconic venues as well as [putting] relationships that we have. And we have been able to build partnerships with the artist and labels and other music industry companies which we will continue to do.

But I also want to point out that we do this in a very kind of prudent way. We place money against programming with eye having long-term returns always. We are pretty enough flexibility in our programming model that will allow us to make the appropriate moves if we think that programming doesn’t return. But it’s always an eye of growing ratings and then driving revenue against that prolonged term growth.

Vasily Karasyov - Susquehanna Financial Group

And then my second question is about macroeconomic situation; if we were to see a deterioration in macroeconomic situation, what business lines would you expect to be impacted first, is that your advertising which is local NHA, the networks or tantrums of the entertainment events and so after that can you tell us if you are seeing any signs of weakness at this point?

Hank Ratner

I think we are fortunate in that. Most of our assets are world class assets and what we found overtime is in times of certain economic distress that those are the ones that hold up best that customers, business partners, there’s very much applied to quality and they hold on to what delivers best and what’s most important.

So we thus far really haven’t felt much economic distress in our business; it’s still obviously early and we do a lot of fourth quarter business. And in order as it relates to the fourth quarter, we’re making an investment in the Christmas Spectacular which we think is going to blow a lot of people away with the new technology that’s being added to the show that’s going to add a dimension to the show that was never had before as well as keeping the classic favorites that are part of the show.

So we sit here and we remain pretty optimistic about where we are, despite the reports of the economic downturn. Our marketplace is focused mostly in New York and then Boston and Chicago seem to fair better than some of the other markets across the United States.

Operator

Your next question comes from Bryan Goldberg of Bank of America Merrill Lynch.

Bryan Goldberg - Bank of America Merrill Lynch

Hi thanks. Just a couple of questions; with regards to the transformation, things seemed to be progressing well so far, so from a project management standpoint you’ve been doing a large amount of construction this summer. What are your early lessons learned so far or what are the biggest surprises been; what’s going better than planned and what perhaps has not?

Hank Ratner

The early lessons I would say from the first summer shutdown are the years we spent in planning were very well spent. It’s amazing to watch the project unfold as we have closed down in mid April, started out looking like it was a war zone where the demolition took place; the whole lower bowl basically was gone. You walk in each week and each week is equivalent of three-four weeks because we have a thousand people there a day working around the clock. So the amount of progress that occurs on a daily, weekly or monthly basis is absolutely fascinating.

So all of a sudden there are no seats and now you walk in the building and all the new seats are in the lower bowl or you walk to the concourse and you see the concourse is double the size and you see the windows and light coming in to an area that was much smaller with no light before. Or you go into the locker room which a month ago didn't exist and you see a replica of the Garden ceiling being put on top of the next locker room.

So its just wonderful to watch and wonderful to see the progress and fortunately again the lesson was all the time and investment we spent in planning the project has worked out well for us thus far and we are very excited about the progress, we are very excited about October coming around, reopening the building and being able to show off what's happened to all the people of New York.

Bryan Goldberg - Bank of America Merrill Lynch

And also with regards to the company's activities or planning in advance of the upcoming sports season I mean how is the uncertainty surrounding possible game cancellations with the Knicks. How has that impacted dialogue or sales velocity if at all around items like signage, pre-sales in the arena or incremental sponsorship opportunities or even advertising pre-buys on the MSG network?

Scott O'Neil

Specifically we’re pretty well positioned when we go to market. You know Hank alluded to it earlier that flight to quality or there kind Grade A properties having an advantage and I think that really kind of comes true for us. When we go at the market we’re very rarely going to the market with Knicks specific. We go to the market and we talk about Madison Square Garden and the Radio City Music Hall and The Beacon Theatre, The Wang Theater, The Chicago Theater and eventually the Forum. The two regional sports networks, Fuse, the music network, the Liberty, Action Sports platform. It feels like it kind of continues to unfold that you know and we’re kind of in a dialogue and asked them series and series of questions which usually end very well for us.

In particular, with the mix and most sport teams you have a good percentage of your marketing and partnership revenue pretty baked in. So we’re standing pretty well out there. I must we’re bullish and optimistic and I think we have good days ahead.

Mike Bair

I think on the network side, you know what’s interesting, the Knicks for example are an important component but we broadcast over 700 sporting events each year with over 2100 hours of original programming. So in that we still have the Rangers and the Islanders, and the Devils, the Sabres, the Red Bulls in the Liberty. We’ve also have a very deep archive of historic Knicks games and other sporting and entertainment events that occurred at the Garden. We have some really good history and success over the last few years of programming during the summers, in creating stunts and things like that to drive higher viewership. So I think we’re in good shape and the market is progressing as we thought it would.

Bryan Goldberg - Bank of America Merrill Lynch

Just one last one with regards to the programming. I mean in the absence just should there be fewer games, basketball games this season? What’s the current thinking on programming strategy shifts, what types of programming might go in there to fill the gap.

Mike Bair

Well as I had mentioned it before that we do have quite a volume of sporting events already particularly with the NHL and I think we will continue to broadcast these games as we have expanded that programming, we will use our library very aggressively as well. And again we have college and basketball as well as football coming up. So we’ve quite a bit of programming coming up that we are going to manage I think appropriately.

Operator

Your next question comes from Robert Routh of Phoenix Partners Group.

Robert Routh - Phoenix Partners Group

A few quick questions. First back to the LA Forum deal, I know you can’t give much clarity now because you are still going through the process, but is Live Nation in any way shape or form going to be involved in that with you? Is there anything strategically if they are not yet, they could be given your ownership of the Live Nation shares and their management of those type of venues given where it is or is that something that MSG is going to manage on their own?

Hank Ratner

Well when it comes to our entertainment business, you know Live Nation is a critical strategic partner of ours, whether it be from a content standpoint and putting entertainment in our buildings or our relationship with them as it relates to Ticketmaster. So Live Nation will be there with us because they are with us in every venue that we operate right now and we tremendously value that relationship not only as a 2% owner of the company, but just as a commercial partner and all that we go do.

Robert Routh - Phoenix Partners Group

Okay great, that makes a lot of sense and then a second question. And earlier back in 1997, you guys paid $650 million in cash for ITT Sheraton’s 50% of the Garden and you know back then it was just the Garden and Theatre, The Knicks and The Rangers. Ro that would valued at about $1.3 billion just for those assets and looking now at your stock pricing, the amount of money you guys have invested in building this thing, it doesn’t seem to make sense given the adjusted earning price value of the company, so I’m just curious if you guys have any sense as to how much you’ve invested in transforming the Garden like since a 100% of it was acquired by Cablevision, now MSG or if you don’t have a sense of that, how the market doesn’t seem to see the value that clearly is there just going back over 10 years and the cost basis then?

Hank Ratner

I’m not exactly sure of your questions other than to say to me we’ll talk about our business and we’ll talk about our strategy and we’ll leave it up to you to make those observations about our stock price and where it is or where it should be. I will leave it at that.

Robert Routh - Phoenix Partners Group

Just trying to get a sense to how much approximately you think has been in the Garden since it’s been acquired?

Hank Ratner

That’s something we could go check, but we wouldn’t have an answer right here.

Operator

Your next question comes David Joyce of Miller Tabak & Company.

David Joyce - Miller Tabak & Company

Thanks if I could just a few clarifications please. The first, is there a kind of a timeframe we could expect the Forum to close, might it be like in the December quarter? Secondly, if you could go over again the capital expenditures incurred in the second quarter versus what was paid?

Hank Ratner

No definitive timeframe on the Forum at this point in time. We’ve to work through the remainder of the deal as far.

Bob Pollichino

So just to make sure that everybody is kind of clear on what we’re reporting because we think it’s the most telling and the most informative information for everybody to understand, where we are with the project. So what we said was through June 30, the project to date we have incurred $341 million worth of capital expenditures.

We've also said that in the quarter we spent a $119 million on the project. So that is the total amount of work that has been done and completed. It doesn't reflect the amount of cash that we paid because the bills come in on a timing lag, we would be sort of misleading you as to the sort of the status where the project is. So in the quarter $119 million has been completed on the project and as far as cash I think, when you guys get the chance to see the K, there maybe bills in the range of about 80ish or maybe a little more million dollars that have not yet just been paid out in cash.

David Joyce - Miller Tabak & Company

And in terms of the hypothetical disruption to the Knicks season, what kind of make-good arrangements might you have if your other replacement programming and stunts aren't able to replicate what you promised on the audience delivery?

Hank Ratner

I think the question is audience delivery to sponsorship partners and advertisers relating to the Knicks product.

Mike Bair

You know at this point, I mean it’s not that a big topic of conversation at this time because it’s difficult to speculate on exactly what's going to happen, we clearly are in conversations with our advertisers. The fact is we do have a fair amount of programming that usually we do try and direct as much of the funding as we can, but those conversations are fairly typical with our advertisers and we will have them depending on how many games we have or don't have at that time.

David Joyce - Miller Tabak & Company

And finally I know the Beacon did well in number of events in the second quarter. How did Wang and Chicago stack up versus the prior year?

Mike Bair

Yeah, we will come back you on that David. Obviously the main drivers of the quarter were what we said about the Garden and Theater and Radio City offset by the Beacon.

Operator

Your next question comes from the John Tinker of Maxim.

John Tinker - Maxim

Do you still have the dispute with Dish Network, and where does that stand at the moment?

Hank Ratner

Fuse has been off of the Dish Network for about a year and MSG Network came off Dish about last October. We do have conversations with them from time to time and we clearing are willing to have them as an affiliate, but we were moving ahead without them this time and our business is doing just fine.

Bob Pollichino

And when you do look at the three month and six month numbers, Dish was in the prior year and they are not in the current periods.

Operator

Your next question comes from Ben Mogil of Stifel Nicolaus.

Ben Mogil - Stifel Nicolaus

I know that you obviously can't talk on specifics about the NBA strike, but I just wanted to get a sense that if the strike lasts for both quarters, i.e. for a whole season, do you anticipate you will have to give some rebates or have to give some rebates to the MSOs, given that you aren't broadcasting the number of NBA games that were likely in the contract?

Mike Bair

Well you know every affiliate agreement is different and they all have provisions that usually deal with this. So as the time comes along, we’ll deal with each individual affiliate based on what those provisions require us to do. But I think right now we are not going to speculate this early in the game.

Ben Mogil - Stifel Nicolaus

On the CapEx budget, are you still sort maintaining the same guidance you maintained last quarter?

Bob Pollichino

Are you referring to the transformation?

Ben Mogil - Stifel Nicolaus

Yes sorry yes Bob from the transformation?

Bob Pollichino

Every thing is the same, no change.

Ben Mogil - Stifel Nicolaus

And then last question sort of drilling down a little bit on the Forum, certainly Staples has always been a challenge for concert promoters because there's three home teams and there's a lot of games that are locked up for them. When you look at the Forum opportunity, do you anticipate taking events that weren't able to play Staples, they were playing the Gibson and Nokia and the Hollywood Bowl and smaller venues like that? Where do you sort of see the market opportunity for the Forum given that LA has a decent number of music venues already?

Hank Ratner

It is very much on what you said and then some. And look at the number of venues here in the New York market place for instance and go to Los Angeles and then go look as you talked about professional sports games at Staples. So I think just from there, there is a need in the market place and there is a void that we can help fill, I think then by also having the building there. I think it is going to create more opportunity than the opportunities that exist today. So we think it should be a great, great market place and again when you put it in tandem with Madison Square Garden and again you have it complemented by Fuse, we think the opportunities there are very significant for our company.

Operator

At this time there are no further questions I will now turn the call back to Ari Danes

for closing remarks.

Ari Danes

Thank you for joining us. Have a good day.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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Source: The Madison Square Garden Company Q2 2011 Results - Earnings Call Transcript
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