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Executives

Ari Danes – Vice President, Investor Relations

Hank J. Ratner – President and Chief Executive Officer

Robert M. Pollichino – Executive Vice President and Chief Financial Officer

Mike Bair – President, MSG Media

Melissa Ormond – President, MSG Entertainment

Scott O'Neil – President, MSG Sports

Analysts

Benjamin Swinburne – Morgan Stanley

Vasily Karasyov – Susquehanna Financial Group, LLLP

John Tinker – Maxim Group, LLC

Bryan Goldberg – Bank of America/Merrill Lynch

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

David Joyce – Miller Tabak Company

Robert Routh – Phoenix Partners Group, LLC

Martin Pyykkonen – Wedge Partners

Brett Harriss – MSG

Rich Tullo – Albert Fried & Company LLC

The Madison Square Garden Company (MSG) F3Q12 Earnings Call May 4, 2012 10:00 AM ET

Operator

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone the Madison Square Garden Company Fiscal 2012 Third Quarter 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) Thank you, I would now like to turn the call over to Ari Danes, Vice President of Investor Relations for the Madison Square Garden Company. Please go ahead sir.

Ari Danes

Thanks, Christi. Good morning and welcome to the Madison Square Garden Company's fiscal 2012 third quarter 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; Melissa Ormond, President, MSG Entertainment; and Scott O'Neil, President, MSG Sports.

Following a discussion of the company's financial results, we'll open the call for questions. If you do not have a copy of today's earnings release, it is available on the Investor's 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 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 four 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 J. Ratner

Thank you, Ari. Our company’s positive operating momentum continues in it‘s fiscal third quarter highlighted by an increasing total adjusted operating cash flow of 46%. Reflecting on our year-to-date performance despite a shortened 66 game regular season for the New York Knicks, a prolonged dispute with Time Warner Cable, and an off season shut down of the Madison Square Garden arena as part of the transformation project, we have generated over $200 million in total AOCF over the first nine months of our fiscal year of 23% year-over-year increase. Our ability to deliver this level of growth is a testament to the breadth and strength of our assets and brands and the value we provide to customers and partners.

Turning to our business segments, MSG Sports delivered its most profitable quarter in our 2-year history as a public company. The segment is realizing financial benefits as a result of the new products and amenities we are providing as part of the first phase of the arena transformation project.

With respect to our professional sports franchises, the New York Rangers recently completed one of the most successful regular seasons in the team's history finishing first in the Eastern Conference, led by coach John Tortorella and all stars Henrik Lundqvist, Marian Gaborik and Dan Girardi. The Rangers defeated the Ottawa Senators in the first round of the playoffs and are currently up two games to one against the Washington Capitals in the Eastern Conference Semifinals after Wednesday night’s triple overtime victory.

The New York Knicks advanced the NBA playoffs for the second consecutive year led by Carmelo Anthony, Amare Stoudemire, and the emergence of Jeremy Lin as well as Tyson Chandler who this week became the first Knick player in team’s history to be voted the NBA defensive player of the year. The Knicks are currently in round one of the playoffs against the Miami Heat with game four taking place at the garden on Sunday.

We also recently announced that Glen Grunwald has been named Executive Vice President and General Manager. Glenn and his staff have done a tremendous job acquiring key players such as Chandler Lynn, [Steven Elvik] are confident that Glen will continue to play a significant role in the future success of the next franchise.

Turning to our media business, despite the absence of revenues from Time Warner Cable for approximately half of the quarter, MSG media revenues and AOCF increased on a year-over-year basis reflection of the segments strong fundamentals of both the affiliate and advertising fronts. Our regional sports networks which have broadcasted over 700 live sporting events over the past 12 months continued to benefit from strong consumer interest in our content.

In fact, mix in ranger ratings increased meaningfully to the 2011, ‘12 regular seasons. We are also executing against our plan for Fuse and are moving forward with a significant rollout of original programming over the coming months. Design to increase viewership and drive advertising and affiliate fee revenue growth.

In terms of our MSG entertainment business while the segments are decreased in profitability for this quarter MSG Entertainment has significantly improved its AOCF over the first nine months of the fiscal year. Even with the off-season shut down of Madison Square Garden arena which is had a meaningfully negative impact on the segments results this fiscal year.

Looking ahead, we remain confident that MSG Entertainment will again be a positive contributor to overall company's AOCF on an annual basis. We also continue to focus on investing in our core assets to drive organic growth. This strategy is best exemplified by the arena transformation project. While the financial benefits of the first phase of the transformation where obscured last quarter by the delayed start for the NBA season, our third-quarter results in the MSG sports segment reflect these benefits as we saw transformation driven growth across tickets, suites, sponsorships, food, beverage and merchandise sales.

Growth across these strategies – growth across these categories is a reflection of the new amenities and products we are providing with a partially transformed arena continuing to receive great reviews from our customers, marketing partners and suite holders.

Construction work continues behind the scenes daily as we advance towards our next off-season shutdown, which will begin after the conclusion of the playoffs. As you know, last off-season in addition to transforming the lower bowl in the arena we were able to advance a portion of the plant upper-bowl work building out new open areas on the eighth and 10th floors, which provide fans with direct views into the arena bowl as well as new seating, concourses and exclusive food offerings.

This off-season we will transform the rest of the upper-bowl including more comfortable seating with significantly improved side lines that put fans up to 10 feet closer to the action. We also plan to debut the new eighth floor garden concourse, which will be up to triple the current size in some areas and will feature new retail and concession options including exclusive food offerings from our MSG signature collection featuring some of New York’s top chefs. In addition, we plan to open 58 Madison Level Suites, which will be as close as 23 rows up from the playing surface bringing suite holders much closer to the action.

We also plan to debut the Madison Club, which will be an all-inclusive, membership-only, premium-seating club with high-end food offerings that will be available to businesses and individuals looking to entertain at our events. Madison Square Garden has played host to some of the most iconic moments in sports, entertainment and politics, and with the next phase of the transformation we will begin to share our 132 year old history with our fans.

In the fall, we will unveil as part of the 6th Floor Madison Concourse, a visual retrospective that brings to life one moment in garden history from every day of the year, called memorable moments every day. The retrospective will wrap around the entire circumference of the Concourse creating a visual calendar of the garden’s rich history.

In addition, the 20 top defining moments in garden history will be commemorated on both the Madison Concourse and 8th Floor Garden Concourse through special exhibits that will feature photos, memorabilia, and additional artifacts. The first 10 moments will be unveiled this fall on the Madison Concourse and the remaining exhibits on the Garden Concourse will debut in fall of 2013.

The Transformation project remains on schedule and we do not expect total Transformation project construction costs to differ materially, higher or lower than the previously disclosed $930 million inclusive of various reserves for contingencies.

I’ll now turn the call over to Bob Pollichino, to take you through the specifics of our financial results.

Robert M. Pollichino

Thank you, Hank. Total company revenues for the third quarter were $400.5 million, a 21% increase versus the prior-year period, while consolidated AOCF was $80.2 million, a 46% increase versus the prior-year quarter. Operating income of $53.3 million was up 75% as compared to the prior-year quarter, primarily due to the increase in AOCF.

Turning to the third quarter results of our business segment. Our MSG Media segment generated $166.2 million in revenues, an increase of $18.6 million or 13% as compared to the prior-year quarter. Affiliate fee revenue increased $10.4 million versus the prior-year period, primarily attributable to higher affiliation rates, significantly offset by the impact of our networks not being carried for approximately half of the quarter by Time Warner Cable, net of recognizing revenue for prior periods from that affiliate. During the quarter a new multi-year agreement for carriage of our networks was reached with Time Warner Cable.

Advertising revenue increased $4.3 million versus the prior-year period, primarily due to growth at MSG Networks. Other revenues increased $3.9 million versus the prior-year period primarily due to a new programming licensing agreement for which revenue will be recognized until the agreements expiration in April 2013 and is not expected to be recurring thereafter. MSG Media segment AOCF of $65.3 million was up 4% versus the prior year period due to the increase in revenues largely offset by higher SG&A and direct operating expenses.

The increase in SG&A expense was primarily due to higher marketing costs mainly associated with increased affiliate marketing efforts and to a lesser extent marketing of programming initiatives. The increase in direct operating expenses was primarily due to higher programming costs and fuse as we strategically invest to grow the business. Looking ahead, we expect increased fuse programming and marketing cost to continue consistent with our long-term strategy to increase fuse viewership and drive revenue growth.

Our MSG Entertainment segment generated $34.3 million in revenues at 20% decrease versus the prior year period. The revenue decrease was primarily attributable for lower event related revenues at the garden as our ability to schedule events was impacted by the uncertainty surrounding the NBA work stoppage, and the increased number of New York Knicks and Ranger home games versus the prior-year quarter. We also experienced lower event related revenues at our other used due to fewer events.

This overall decrease was partially offset by higher revenues from the Radio City Christmas Spectacular franchise primarily due to scheduled performances of the New York production in January 2012 versus no performances in the prior-year period.

MSG Entertainment’s AOCF loss of $12.8 million increased by $6 million versus the prior-year period. The increase was due to lower event related results at our venues. Our MSG Sport segment generated $216.1 million in revenue, a 37% increase versus the prior year period. The increase in revenues was primarily attributable to the financial benefits of the first phase of the Arena Transformation project and, to a lesser extent, a higher percentage of New York Knicks-related revenues being recognized during the quarter versus the prior year period as a result of the compressed NBA season.

The overall revenue increase was due to growth in virtually every category. Included higher professional sports team ticket-related revenue, league distributions, food, beverage and merchandise sales, suite rental fee revenue, event-related revenues from other live sporting events and sponsorship and signage revenues.

MSG Sports AOCF of $29.3 million was up $25.8 million from the prior year period, due to the increase in revenues partially offset by higher direct operating expenses. The increase in direct operating expenses was primarily due to an increase in net NBA and NHL revenue sharing expense, as well as increases in team compensation and other team operating expenses mainly due to a higher percentage of New York Knicks related expenses being recognized this quarter as compared to the prior year period also as a result of the compressed NBA season.

Please note that with respect to fiscal 2013, the NBA work return to its regular November through April, 82 game schedule for the 2012, 2013 regular season versus the more compressed 66 game regular season this year. This normalized season will be consistent with our prior reporting and will result in a higher percentage of Knicks-related 2012-13 season revenues and expenses being recognized in next year’s fiscal second quarter, and the lower percentage in the fiscal third and fourth quarters versus this year, impacting year-over-year comparisons on a quarterly basis.

Our construction costs incurred for the transformation project for our third quarter were approximately $39 million, while project-to-date costs incurred through March 31 were approximately $691 million. Total net cash and cash equivalents as of March 31 was $181.1 million, down approximately $40 million from December 31. As we prepare for the second phase of the transformation, we continue to 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.

This $375 million revolver remains undrawn with a borrowing availability as of March 31, at approximately $368 million as they were approximately $7 million in letters of credit outstanding.

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

Mike Bair

Thanks Bob. Turning first to MSG Networks. We are pleased to report that our continued commitment to excellence in programming resulted in 16 New York Emmy Awards in 2012 for MSG Networks. This year’s success delivery of local broadcast with regional cable network has won more Emmy’s than MSG in the last five years. Driven by compelling story lines, a strong encore and ionized performances, ratings for the New York Knicks and New York Rangers increased meaningfully for 2011-12 regular seasons.

New York Knicks ratings for 2011-12 regular season on MSG Network increased by over 80% on a total household basis, this ratings game files 100% rate increase for the 2010-11 season. The New York Rangers strong on-ice performance contributed to a 36% increase, average household ratings for Rangers telecasts versus last season. Ratings for the Rangers first-round playoff series against the Ottawa Senators were also strong, with game seven of the series posting the highest ratings. For Rangers telecasts, since game seven of the 1994 Stanley Cup Finals.

With respect to advertising revenues, we’re able to drive strong growth during the third quarter at MSG Networks primarily due to an increased advertising rates and sell through for both mix and Rangers telecasts, as well as additional mix games on the network versus the prior year period. We also believe the significant increase in 2011-12 regular season ratings positions us well for further growth next season. We also continue to deliver a rich lineup of additional original programming on MSG Networks.

With recent highlights including the February debut of the “The Garden Transformed: Year One”. This original series takes a behind-the-scenes look at the first of three transformation phases, and set return or the second and third phases of the project. In addition, our three time New York Emmy award-winning baseball series, “The Lineup,” shows the background (inaudible) we trade in March, featuring The Best and Worst trades and free-agent signing and (inaudible) history.

Turning to Fuse, we continue to execute against our plan to expand our original programming lineup on the Fuse’s Linear Network. Our Fuse Presents" concert series returns on May 8 Florence & the Machine live from Radio City Music Hall, which follows recent Fuse Presents concerts including Linkin Park, Red Hot Chili Peppers, Maroon 5 and the Jingle Ball Concert at the garden. In June, we will debut a new original series titled [Pup] which explores the story behind within an artist for band was catapulted to (inaudible). This fall Billy on the Street, our unique music and pop culture quiz show hosted by comedian Billy Eichner returns for the second season.

In the months ahead, we plan to debut a variety of additional original programming on Fuse, all rooted in music including both unscripted and scripted shows with the goal of increasing network fusion to drive advertising and affiliate revenue growth. We are also advancing Fuse’s multi-platform strategy to reach music audiences across digital platforms and leverage that engagement to drive increased viewership of Fuse’s Linear Network. As an example, at the Grammy Awards in February, we launched a Fuse digital channel on YouTube, which to date has already experienced over 6 million views as music bands have logged on to watch exclusive Fuse content including live performances by the artists they love.

Over the last two months fans have logged on as we live stream the Shady 2.0 Showcase from the South by Southwest music festival, which featured some of today's hottest up and coming hip-hop artists, as well as live streams of Grammy winning recording artist Melanie Fiona and The Wanted, directed from the Fuse studio, and Death Cab for Cutie from the Chicago Theater. And as you know in mid-February, we reached an important multi-year agreement with Time Warner Cable for carriage of MSG, MSG Plus, and Fuse.

I’ll now turn the call over to Melissa Ormond to provide highlights from our MSG Entertainment segments.

Melissa Ormond

Thanks Mike. During our fiscal third quarter, we hosted a diverse mix of high-profile artists and events including the black keys and the Westminster Kennel Club dog show, (inaudible) Radio City Music Hall, Lenny Kravitz at the Chicago Theatre and the annual residency by The Allman Brothers Band for a 10-show at the Beacon Theater. While many of the music industries have been asked that our venues during our fiscal third quarter, our results were impacted by the lack of booking availability at the Garden and the timing of artist tours.

That said, our fiscal year-to-date result to MSG Entertainment reflect an improvement in AOCF of approximately $10 million versus the prior year period. In addition, current fiscal fourth quarter activity has been strong. Although, please note that like last year at the Garden has been unavailable for events other than Knicks and Rangers both came since late April, while the theater at Madison Square Garden has been closed since late April. Those venues will remain unavailable until we reopened after the second phase of a Transformation project.

In terms of this fiscal fourth quarter, we have continue to advance our multi-night strategy including hosting Bruce Springsteen and Cirque du Soleil, Michael Jackson the Immortal World Tour for three nights at the Garden in early April. In terms of driving multi-marker performances at our venue, a New York City, Chicago and Boston, in April we hosted further the banter that by four by members of the Grateful Dead for eight nights at the Beacon Theatre and two nights at Wang Theatre, and Death Cab for Cutie at the Beacon, Wang and Chicago Theatres, including one night in Chicago that, as Mike Bair just mentioned, was also streamed live on Fuse’s YouTube channel.

Our upcoming schedule includes the 65th Annual Tony awards for the second consecutive year at the Beacon Theatre in June, and Florence and the Machine at Radio City Music Hall next week as part of our Fuse Presents concert series.

In addition after appearing as the opening act for Big Time Rush at Radio City in March, the UK’s hottest new boy band One Direction is scheduled to have live two shows in May at the Beacon Theatre and one show at the Garden in December, which is an example of how our portfolio avenues from our small and mid size theaters to The Madison Square Garden Arena are integral to the progression of artists careers.

We’re also continuing our successful partnership with Cirque du Soleil. In addition to recently hosting that show based on Michael Jackson, Cirque du Soleil’s large scale acrobatic production Zarkana returns to Radio City Music Hall next month and will run until early September. With Zarkana moving to Las Vegas this fall, we’re exploring other opportunities with Cirque du Soleil for Radio City Music Hall for the summer of 2013.

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

Scott O'Neil

Thanks Melissa. The Knicks and Rangers continue their exciting seasons with both teams playing to at or near capacity crowds every game at the Garden. We’ve seen significant growth in overall fan interest this season as evidenced by increases in ratings on MSG Networks, traffic on our Web properties, per caps on merchandise and attendance.

We also continue to be leaders in leveraging social media to build the [intraocular] fan base. We’ve experienced strong success with our Rangers and Knicks apps for the iPhone, iPad and Android with the combines over 350,000 downloads for Knicks app, being the number one team app in the NBA.

In addition we had significantly grown Knicks and Rangers Facebook community over 3 million combine and the teams Twitter following growth of [400,000] combine. In March we announced a season ticket prices for the 2012-13 Knicks and Rangers seasons will increase by an average of 4.9% and 9.5% respectively. These price increases followed the 49% and 23% average season ticket price increases this past season for the Knicks and Rangers. Price increases for next season are primarily focused on our upper bowl seats and reflect the new amenities we plan to provide as part of the second phase of the transformation.

As Hank discussed this will include new and more comfortable seating, improved sidelines and a new and expanded 8th floor Garden Concourse, with new first class food and beverage options including exclusive food offerings and MSG signature Collection.

With the upcoming season ticket holder renewal deadlines of May 11 for the Rangers and May 18 for the Knicks, we are pleased with the current strong pace of Rangers and Knicks season ticket renewals.

On the marketing partnership front, we have recently established new partnerships with Unilever, Blackberry, Tissot, (inaudible). The emergence of Jeremy Lin also created additional sponsored opportunities including a partnerships with Thailand based companies Acer and Maxis and a court side marketing campaign with Coca-Cola that include signage in Mandarin.

In addition our marketing partners have activated around our teams at the highest levels yet the season bring MSG and our partners unprecedented visibility in the New York market and nationally. High-profile partner activation this season includes the Chase Blue Carpet, the Delta Instagram promotion, Coca-Cola's Rangers Youth Street Hockey program, Anheuser-Busch (inaudible) and FootLocker’s Hottest Month Ever promotion. And with respect to transform Garden, we continue to maintain a pipeline of potential marketing partnerships and expect to have a more to announce in a coming months.

Our 58 Madison Level Suites, are expected to come on line for the 2012-13 Knicks and Rangers seasons.

Over 85% of these suites are now under contract or have agreements that are being finalized up 10 percentage points since our last call. And with nearly six months to go, we continue to successfully work towards achieving a full sellout by the time these suites come online.

In addition, we are pleased with the early sales progress for Madison Club and are in the market with two and four seat packages for all Knicks, Rangers and college basketball games.

MSG Sports also continues to host a variety of premiere and memorable sporting events. Recent highlights include for the fifth consecutive year, the BNP Paribas Tennis Showdown at the garden and as part of our strategy to expand our business outside of our venues the Montreal rendezvous tennis event at the Bell Centre in Montreal. In addition, we hosted the Big East tournament at the garden for the 30th consecutive year and most recently the NFL Draft, which has held at Radio City Music Hall last week.

I’ll now turn the call back over to Ari Danes.

Ari Danes

Thanks, Scott. Christi, can we open the call for questions?

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from Ben Swinburne of Morgan Stanley.

Benjamin Swinburne – Morgan Stanley

Thank you, good morning. I just have one question. I was wondering Bob, if you could help us think about how much of the revenue growth in the sports segment Bob or Scott came from the extra games. I know it's difficult to so to speak too specific, but obviously it was a very strong result. You had a compressed schedule, but clearly the renovation, transformation impact is significant. So anyway to help us think about breaking those two that would be very helpful, thank you.

Robert M. Pollichino

Well, Ben I’m not sure, I can break them out, but I can help you. I think about the whole complicated situation that we ended up with, so the AOCF growth this quarter was really due to the significant increase in revenues.

And as you said, those revenues were primarily attributable to the benefits for the transformation. And really to a lesser extent, the higher percentage of mix related revenues that was recognized in the quarter, because of the compression as the season. Then when you think about the revenues, the revenue increase was partially offset by higher direct operating expenses, and that was really due to an increase in net NBA and NHL revenue sharing expense, as well as the other team compensation and operating costs. Again its team operating costs were due to the compressed schedule.

But the way I tried to think through it all is, when you look at the segment on a full fiscal year basis, which kind of normalizes for the noise of the quarter, and then normalizes the time issues. I think what you’re going to see when this fiscal year is complete in really solid MSG’s Sports revenue and ALCS growth, despite the impact of the off-season shutdown of the Garden for the transformation and this shortened 66 game regular season.

And then you have to think more about next season, because next season we’re going to be returning back to the normalized November through April 82 Games schedule versus this years compressed 66 Games schedule, and as I tried to say in the script what that’s going to result in is more revenue and expense in our second fiscal quarter versus the third and fourth fiscal quarter with what we experienced this year so without the numbers those are those pieces and I think the overview of the sports segment.

Benjamin Swinburne – Morgan Stanley

That’s helpful. Thank you.

Operator

Thank you. Your next question comes from Vasily Karasyov of Susquehanna Financial.

Vasily Karasyov – Susquehanna Financial Group, LLLP

Thank you, good morning. I would like to come back to the media network segment and ask you to tell us what you think will happen to the margins on a full year basis in this fiscal year, and then the continued investment in Fuse, and then the increase, and (inaudible) revenues what are the swing factors when we think about margins next fiscal year?

Robert M. Pollichino

We took a look at this quarter and took a look at the margin that we experienced and the takeaway that we had is, if you normalize for a number of factors. So first, if you normalize for the fact that the networks weren’t carried by Time Warner for approximately half the quarter net of the revenues recognized for the prior periods, so that’s one anomaly. we had recognized revenues related to a new program and licensing agreement, which Mike talked to, it will expire in April of 2013. And then we had a third major anomaly, which related to affiliate marketing costs, those being driven by the affiliate dispute with Time Warner Cable. When we took out those three big sets of anomalies what we came up with is that the MSG media margins were really consistent with the prior year quarter. So that was the first thing that business without the anomalies was sort of consistent.

And then as we look ahead, we don’t provide specific guidance, but we are planning to strategically invest in Fuse programming and with the goal of increasing viewership and growing that overall business. And Mike alluded to the fact programming networks that really a very attractive business model they have big good scalability, that I think gives us the opportunity for margin expansion once you have successful programming. And that's really why we are investing in Fuse right now. We’re investing in Fuse to drive, build the viewership, drive revenue and ALCS course over the longer-term. So, the quarter was pretty consistent without the anomalies and nothing that we see negative, as we plan going forward.

Vasily Karasyov – Susquehanna Financial Group, LLLP

Thank you, and how long do you expect the investment in the programming at Fuse to continue. Will it carry into the next fiscal year?

Robert M. Pollichino

That's our current plan.

Vasily Karasyov – Susquehanna Financial Group, LLLP

Okay. Thank you very much.

Operator

Thank you. Our next question comes from John Tinker of Maxim Research.

John Tinker – Maxim Group, LLC

Hi, could you just discuss a little the process by which you sell advertising revenue for the networks? And I think, you have more of a spot sort of market, on the other hand a lot of the networks have an upfront market and how do you sort of tie into that particularly given the higher ratings with obviously people expecting more from you? Thanks.

James L. Dolan

Sure. In some ways there are some similarities to the national market, which stays in the upfront and then there is a scatter market afterwards. On a local basis for us, roughly 50% of the MSG networks advertising revenues are committed on a seasonal basis and that comes from a combination of these larger signature partnerships, which Scott's Group has been able to bring to the company as well as ongoing renewals and multi-year agreements with local advertisers, and then there is a small amount of direct response advertising event.

The remaining 50% is the spot market, and in that spot market that is really driven by demand for the product in a given trend of time. It’s also based on how much money is flowing into say, the New York market. And you can really leverage that based on your ratings the demand for our next rangers and other teams of Time, as well as how we manage our inventory pricing which we do vary, in a very disciplined way. So this year we’ve been actually able to capture real time some of the benefits of the way the teams have surge and the ratings. But where you will typically see the real benefit particularly on a spot basis will be in the following season. When we can use the base of this year’s performance to set new rates, as well as to drive this maximization of our inventory.

John Tinker – Maxim Group, LLC

Thanks.

Operator

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

Bryan Goldberg – Bank of America/Merrill Lynch

Hi, thanks. Just two quick ones on media, and then one on sports. With the noise in this course of affiliate growth number, can you help us think about a good underlying rate going forward excluding the Fuse drop and the Time Warner Cable black out? And I guess, if we look back to 2010 when you have the new (inaudible) flowing through the P&L I think affiliate if it gains where sort of in the mid to high teens of millions per quarter. Are we going back to that kind of run rate now or how should we think about that?

James L. Dolan

Want to take that Bob?

Robert M. Pollichino

Well, we really can’t really comment on our forward looking view of the affiliate revenue, but I think one of the takeaways in this quarter is that if you look at the incremental growth in a affiliate fee revenue which you’re seeing is, net net a $10.4 million increase in affiliate fee revenue growth. And that’s really net of one of – one of our larger affiliates I think we talked in previous periods about the percentage of their subscriber. So they were off the air for half the quarter. And so that that’s some thing I think you can sort of gauge out there.

And then the other thing that sort of we have to take out of that although we can’t tell you what that amount is, there is a retro payment that we got in the period for 2011 carriage of Fuse. So we were up, the key driver was Affiliate fee revenue. Our Affiliate license fees renew on sort of a regular and recurring basis, our rates I think – we feel are sort of consistent with what we’ve been doing. So I think there is enough in there for you to try to get it out.

Bryan Goldberg – Bank of America/Merrill Lynch

Okay. Thanks that’s helpful. Also in media this new content licensing arrangement that runs through April 2013. Is this going to – is the revenue associated with this. I mean is it fairly even or is it going to be lumpy I mean how should we think about that?

Hank J. Ratner

Well, I think you know first of all just to understand that was a one-time opportunity that we have for this year. And that really will flow through into the expiration of that deal which is April 2013 and again thereafter we do not expect it to recur. The nice thing about is especially our margin and they kind of drop (inaudible) line. And it was really for a mix of live college and other programming that we set an opportunity to work with. So and every year we do look for different opportunities like that.

Robert M. Pollichino

Yeah and as far as how it’s going to flow. I think you’re going to see very even recognition of that through April of 2013.

Bryan Goldberg – Bank of America/Merrill Lynch

Okay, great. And then on the sports side, outside the success you’re having with the Knicks and Rangers in the Garden’s transformation as you look out the next few years how are you thinking about growing the segment now and more specifically, how are you thinking about other sports team acquisition or bolt-ons and generally, what are like the most important criteria you look for before putting the capital work in that part of the business.

James L. Dolan

I think we’ve been very successful in building excellence, and I think the team that we’ve put together here we can match up against anybody in most any industry, and that provides a great opportunity for us to go on and take other products and services and to sort put our machine to work. So, when you go and look, if you’re in this particular market, we have a database, we have information about the customer. We know the customers whether they'd be fans who come in the buildings or companies that are looking to communicate with people for their own business purposes, and we have that reach. So, we constantly look at ways that we can go and grow, whether it'd be creating new franchises, whether they'd be in sports or otherwise in order to put this machine to use, which also has national reach as well, because given our placement in New York, our national brand really needs to really have a big play in New York and we can help provide that.

So, we go and look at things that we actually have strategic advantage to running, we really don't look at things that really don't flow and either make the assets we have better or we can make the assets that we are talking about better. And we look at our marketing power, our promotional power, our ability to sell and all those things when we go and view opportunities, which we look forward to going and doing as we go forward and continuing to grow the company not only through the operational excellence that we’re experiencing, but through opportunistic growth through transactions or growth on our own.

Bryan Goldberg – Bank of America/Merrill Lynch

Thanks a lot.

Operator

Thank you. Your next question comes Ben Mogil of Stifel Nicolaus.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Follow-up on one thing, Bryan was asking, is Fuse actually of Time Warner for the entire of 2011?

James L. Dolan

No. Fuse was not roughly off for about half of the month of December, and then for half of our third quarter, first quarter of this calendar year.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. Just sort of December through March effectively, right – December through February?

James L. Dolan

December through February, correct. half of December through middle of February.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. Can you talk a little bit about beyond sort of the media environment? Can you talk a little bit about in perspective of what you’re looking at and you’ve got it on the form?

Melissa Ormond

Yeah, sure. As you know, we have a definitive purchase agreement subjected to certain customary and other conditions that we have required (inaudible) finalized before the deal can close. Recently the Planning Commission in the Inglewood was recommended to the (inaudible) approve our plan. And we remain excited by this opportunity to revitalize the forms. As you can see, we’re taking our time to ensure the best results for the company.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Can you give any budget, any kind of CapEx there’s been that you can share with us...

Melissa Ormond

No, unfortunately it’s pre-matured.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay. And then lastly, just going back to the Carriage Agreement C, beginning at ’10 you locked up something with Cablevision, obviously Time Warner more recently. So, when you look at the – you’re one of the major carrier in the market for MSG and the Comcast. Can you give us a sense of when that deal comes up and when it was signed so that we can get a sense of the potential uplift there as well?

James L. Dolan

We don’t disclose our agreements with the details there. Obviously deals come up from time-to-time, we stager them and so we reduced our risk over the business, that’s a big deal, and I think that we got a lot of history of managing well.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay, and beside the Fuse retro payment in the – and you have the $10 million on the up year-over-year on affiliates, where there any other retro payments like the Time Warner go back for the MSG channels and pay you from Jan 1.

Robert M. Pollichino

No. I think as we stated earlier, we were not paid for the period in which the services MSG, MSG plus and Fuse where off the area and again, that was for half the quarter and for Fuse the first couple of – the last of weeks of December.

Benjamin Mogil – Stifel Nicolaus & Company, Inc.

Okay that’s great thank you.

Operator

Thank you. Your next question comes from the line of David Joyce of Miller Tabak Company.

David Joyce – Miller Tabak Company

Thank you. You did mention some new sponsorship deals, what are the some further incremental opportunities that you might have?

Scott O'Neil

This is Scott, David on the marketing partnership front because, the ones I’ve announced to frame it again you might not remember. We did a kind of a landmark deal with JPMorgan Chase, which was called our marquee partner. We’ve had several significant, signature partners which are in the next level, which go across in a multi-platform, multi-divisional partnerships, and then we have other kind of marketing partners that are much more specific that might cross over and say, your Rangers opportunity by some medium network and those are the ones that are announced. In terms of future availability there I think we’ve been very successful in having a lot more opportunity when the Transformation – has the Transformation unfold and assets come online. We have the significant amount of inventory remaining and we’re in the market pretty aggressively talking over a wide range of categories and we expect a good success coming soon.

David Joyce – Miller Tabak Company

All right and can you talk about past the profitability for Fuse. How we should think about perhaps in a new carriage deals that might be on the horizon and beyond the incremental programming expense and what (inaudible) investment you have right now, what with that programming seasonality look like over the course of the next year?

Scott O'Neil

Yeah, sure, I think we’ve said quite often that we really believe that Fuse is a big growth opportunity for the company. He’s got really attractive national scale opportunities and to benefit of being embedded in his company and that means it can be attached to the iconic venues that are must play for artists around the world and it also allows us to connecting with the deep relationship that MSG Entertainment has within the recent community as well.

But we also understand the importance of driving viewership of the linear channel because that is where you ultimately will be able to monetize that through advertising revenue and affiliate value. So we approach that very, very similar manner for the most successful networks out there, which we got slight operational programming, which is a combination of mostly of unscripted and scripted, but we will rollout very prudently over the next year or so.

Underneath that we’re still in the programming slate obviously with movies and network programming just like date of the network do. I think what’s fundamentals of the way we’re doing is that we make sure that as we put these program into the marketplace, we evaluated. We don’t get too far out in terms of our agreements, so that we bid too much at risk. We think that’s a very important to this model, as we’ve had success in managing our regional businesses that way, but another fundamentally important thing about Fuse is, we recognized in that most of the music community exists and lives, interacts online. And we build that digital strategy and allows us frankly, talked record of this people and every time create awareness and demand and drop them back into the video channel, which is the I think very effective and efficient way of marketing and driving viewership back to (inaudible) channel.

David Joyce – Miller Tabak Company

Great and just may be finally if you could comment on the new the food and merchandized opportunities and locations you have based on what you done at the transformation so far can you talk about how per capita spending has been trending?

Robert M. Pollichino

The food and merchandize has been part of the numbers that you’re announcing for the quarter in our segments, and they have been very well received. I mean people love to come here; people love to go and eat here. And that it is seen in our numbers and what we have done this year will be were replicated again next year as our sixth floor Madison Concourse opened with lot of these food offerings. Next season our eight floor Concourse will opened with lot of the same food offerings that has been so successful on the sixth floor servicing the upper bowl as well. So we are very delighted at the feedback from our customers has been great and Bob may be able to give you little…

Bob Pollichino

Yes, so we continually monitor how things are going and if you look at, the Knicks and Rangers, who have been the most active user of the building, you look at that on a year-to-date basis. We had solid increases in our fast food per caps and those increases have even exceeded our expectations that we had planned for, and the overall that just a fast food, the overall food and beverage revenue growth, it has also increased due to our VIP clubs and our Suites catering.

So overall the food and beverage profitability has been strong and again exceeded our expectations because we’ve had all of the criteria, fast food, VIP, Suites all have been growing nicely. The other thing that’s happening in the building with the new point of sales is merchandise per caps are up for both teams as well. So there is nothing that we are seeing that is not growing way, we expect it to grow or exceeding our expectations. I think we are pleased with what we are seeing.

David Joyce – Miller Tabak Company

All right. Thank you very much.

Operator

Thank you. Your next question comes from Robert Routh of Phoenix Partners.

Robert Routh – Phoenix Partners Group, LLC

Yeah, good morning, two quick questions, give me the state of the transformation, and obviously, what we do, obviously time and on budget. I was just curious we are looking at into the future, what you guys are thinking about the free cash flow the company is going to generate once that process is complete. So it looks like return of a lot of, other than debt. I was curious have you ever thought that far ahead and what should we be looking for modeling out once its been completed?

Robert M. Pollichino

Yeah, we spend a lot of time thinking about that and we look forward to that. But we're not prepared at this point to go and discuss it because we are still not there yet, but it's not something that again we don’t spend time thinking about and planning. And we are committed to looking at ways that we can smartly grow this company that we can strategically leverage off, what we have in this marketplace to go and create growth for the company beyond the inherent growth from the assets that we have today.

We also will look at other uses of the cash, whether they’d be stock buybacks or dividends. Nothing is off the table, all will be considered, but we really do look and say that we have really precious assets here that people are quite passionate about. It’s different than the normal business relationship. We’ve benefited by the fact that The Who's Who business world, really does business with us here at the Madison Square Garden Company, and we think that creates great opportunity for growth opportunities going forward. So we will continue to think about everything and when we get by that period we look forward to discussing the different choices with you all.

Robert Routh – Phoenix Partners Group, LLC

Okay, great and just one follow-p question. This quarter on the income statement you reported miscellaneous other income about $6.5 million in which was the same o the nine months (inaudible) is that?

James L. Dolan

You found it, so the miscellaneous income that you see its about $6.6 million and really its related to the recovery of certain claims in connection with a third party bankruptcy proceeding. So, we don’t want to say anything more than that.

Robert Routh – Phoenix Partners Group, LLC

Okay fair enough, thank you very much. Congratulations.

Operator

Thank you. Your next question comes from Martin Pyykkonen of Wedge Partners.

Martin Pyykkonen – Wedge Partners

Yes, thanks. Question on the sports segment, one specific one and then kind of a broader one. Couple things you mentioned, there was a difference in revenue share that it sounded like that the season that with the higher direct operating expense. What is that, I know it’s a revenue share agreement, but what was different or has been different this season?

James L. Dolan

So what you’re going to see in the queue is that our results for the quarter include projections for net NBA and NHL revenue share, and you’ll see that what reflected there is a $10 million increase for the quarter. And you also should know that we’re also going to disclose to you is that our estimate for the regular season, is going to be disclosed as $13.9 million. Now that $13.9 million for the regular season is based on preliminary weaken team revenue and expenses. It increased from what we reported in our last quarter, but it increased primarily due to higher projections for the next related revenues including higher, but that was one of the key drivers. One other things to be aware of is that the amounts made very significantly from the estimate and that’s going to be based on the actual operating results for the NBA and the teams for season and some other factors. And now we also expect that next May contributed significantly higher amount in future years, but it’s all speculative right now. I don't know if I've answered your question, but that’s what you’re going to get.

Martin Pyykkonen – Wedge Partners

Okay, that's a good start. And I guess everything I’m trying to probably (inaudible) we've had a full quarter to March quarter, with both the Knicks and Rangers playing outside of the compressed season, which you know we know some how have to back out. Your AOCF margin was 13.5% first phase of the transformation is obviously contributed to that you’ve got another phase coming up. I know you’re not going want to put a number on this, but is it safe to say that 13.5% your sort of sustainable AOCF margin and sports when you get the transformation done is going to be higher than that in the quarters were the both teams are playing a full quarter? So in other words is that applicable in the summer, but as the teams are playing.

James L. Dolan

I really can’t comment on it, I’ve got – haven’t even thought about it in that fashion right now. So it’s hard for me to comment on it.

Martin Pyykkonen – Wedge Partners

Okay. And then just one quick entertainment one, the [project fee] that has been pretty good for the summer outlook, obviously you’re going to shutdown the Garden. Is it too early to know or you are looking ahead into next fall and winter, are you getting bookings at all in terms of the Garden before once you reopen that are meaningful or are we just too early on that?

Melissa Ormond

No. We’re looking to book post-Transformation, which will begin probably early November give or take. We have won the dog show, until we have won direction as earlier discussed until that, and quite a few other events that unfortunately can’t be announced at this time, because the artists haven’t announced them, but it looks like (inaudible).

Martin Pyykkonen – Wedge Partners

Okay. Thanks. Great quarter.

Hank J. Ratner

Thank you.

Operator

Thank you. Your next question comes from Brett Harriss of MSG.

Brett Harriss – MSG

Hi, guys. Did the new Time Warner Cable agreement have any TV Everywhere or Advanced Television components, and I guess going forward is that a opportunity to drive affiliate fees?

Hank J. Ratner

Yeah, why we don’t discuss the specifics of the agreements itself with respect to how we make content available online. We do not have a TV Everywhere product right now. But obviously we look at that model and the larger remodels and how we distribute our content. And we certainly will consider everything including streaming products on authenticated basis. But, again, we’re not rushing [probably] with that. So we really understand its full economic impact on our business and the rest of the business.

Brett Harriss – MSG

Okay. Thank you.

Ari Danes

Chris, we have time for one last caller.

Operator

Thank you. Our final question comes from Rich Tullo of Albert Fried & Company.

Rich Tullo – Albert Fried & Company LLC

Hey, guys. Thank you very much for taking my question. It’s greatly appreciated. Can you please provide some color on the work stoppage and the influence of entertainment revenue, and how we should be thinking about the third quarter of next as how it’s going to compare out, I mean do you think there’s going to be growth in entertainment and you’ve missed out on some growth this quarter?

Melissa Ormond

Well, the two single-digit impacts on entertainment, this quarter have been the shutdown, the impact of the shutdown and the compression of the Knicks and Rangers schedules in the quarter affected by the lockout as well transformation. it’s hard to know, it’s hard to project now going forward where the team schedules will net out for any quarter next year, only because of the date that the submission has just been made and the schedules haven’t been set. Hopefully, we always have enough time once the schedules are set in some more time to take the full advantage of the dates that we can’t book.

Rich Tullo – Albert Fried & Company LLC

Okay. And I wanted to just know question, I understand in April, some of the owners met in New York to discuss one of the topics was corporate sponsorships on actual NBA team jerseys, while I understand that this is 2014 event at the earliest. can you provide any color about that?

Scott O'Neil

This is Scott, not much other than the league is driving the process in the process of their research and analysis. And so unfortunately direct your questions to them.

Rich Tullo – Albert Fried & Company LLC

Okay, fair enough. And if can get a quick one in, what is the benefit of the luxury club as opposed to operating individual suites on that level.

Scott O'Neil

You mean the Madison Club, Rich?

Rich Tullo – Albert Fried & Company LLC

Yes, sir.

Scott O'Neil

Yeah. This is Scott again, we thought when you look at an arena, you want to make sure that you have different products for different constituents. And so all businesses have different needs. we think with our debt level suites that were sold in this upcoming season you really have Fortune 100 strong financial services groups. In the Madison Suite level, you have much more kind of a traditional suite by incorporate base and we want to make sure that there’s the smaller and more mid-sized businesses, have an opportunity entertainment, it’s a really active segment that entertains quite a bit at our games. So we think two to four suite like experience we thought it was perfect for this market.

Rich Tullo – Albert Fried & Company LLC

Those things sold in packages or for the whole season?

Scott O'Neil

They are being sold packaging Knicks, Rangers and College Basketball together.

Hank J. Ratner

It sounds like we have a perspective buyer here. So we should contact him as soon as the call is over...

Rich Tullo – Albert Fried & Company LLC

You actually go contact with the Fried along with the check book. So thank you very much.

Hank J. Ratner

Thank you.

Robert M. Pollichino

Thanks, Rich.

Operator

And with that, I will hand the call back over to Ari Danes for any closing remarks.

Ari Danes

Thank you for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

Operator

Thank you. This does conclude today’s conference call. You may now disconnect.

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