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The Madison Square Garden Company (NASDAQ:MSG)

Q4 2012 Earnings Call

August 24, 2012, 10:00 am ET

Executives

Ari Danes - VP, Investor Relations

Hank Ratner - President & CEO

Bob Pollichino - EVP & CFO

Mike Bair - President, MSG Media

Melissa Ormond - President, MSG Entertainment

Scott O'Neil - President, MSG Sports

Analysts

Bryan Goldberg - Bank of America Merrill Lynch

Ryan Fiftal - Morgan Stanley

Vasily Korsakov - Susquehanna Financial

Ben Mogil - Stifel Nicolaus

Robert Routh - Phoenix Partners Group

John Tinker - Maxim Research Group

Brett Harriss - Gabelli & Company

Martin Pyykkonen - Wedge Partners

David Joyce - ISI Group

Operator

Good morning. My name is Christie and I'll be your conference operator today. At this time, I would like to welcome everyone for The Madison Square Garden Company Fiscal 2012 fourth quarter and year-end 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, Christie. Good morning and welcome to The Madison Square Garden Company’s fiscal 2012 fourth quarter and year-end 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 the 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 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 five of today's earnings release, we provided 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. Our company delivered record adjusted operating cash flow for fiscal 2012, as we continue to benefit from the ongoing strength of our fully integrated Media, Entertainment and Sports business.

On a full-year basis, total company AOCF of approximately $283 million increased 36% versus the prior year driven by improved financial results in all three of our business segments. We delivered this level of AOCF for the year despite a shortened 66 game regular season for the New York Knicks, a prolonged affiliate dispute with Time Warner Cable and the off season shutdown of the Garden and The Theater at Madison Square Garden as part of the transformation project.

In our two and half year’s history as a public company, we have successfully executed against our business plan and meaningfully grown our business. And as we look out over the next several years, we have the opportunity to grow total company AOCF from fiscal 2012’s record level and continue to create long-term value for our shareholders. We will pursue this goal in fiscal 2013 by continuing to carefully balance near-term financial objectives with investing in our business to drive long-term growth.

With respect to our business segments; MSG Media AOCF increased 13% in fiscal 2012 as our Media segment continues to benefit from strong reoccurring affiliate revenue growth. Our regional sports networks are best in class and are benefiting from strong interest in the Knicks and the Rangers which we expect will continue for the 2012, 2013 regular seasons.

Fiscal 2013 will also be an exciting year for Fuse as the network prepares in the coming weeks to roll out its largest programming initiative to-date designed to increase viewership and drive revenue growth at Fuse.

The MSG Entertainment segment achieved positive AOCF on an annual basis for fiscal 2012 primarily driven by growth in the New York production of the Radio City Christmas Spectacular and by our initiatives related to the productions outside of New York holiday season.

At the end of fiscal 2012, we completed our acquisition of the Forum in Inglewood, California which establishes a significant West Coast presence for our company and provides us with iconic venues in each of the country’s two largest entertainment markets. We carefully evaluated our acquisition of the Forum including its renovation needs and believe the iconic venue presents a unique opportunity for our company from both the strategic and financial perspective.

Looking ahead, we continue to expect that over the long term MSG Entertainment will be a meaningful positive contributor to total company AOCF on an annual basis. We look to achieve this goal by continuing to focus on increasing venue utilization and capitalizing on the enduring popularity of the Radio City Christmas Spectacular franchise. In addition, we are pursuing opportunities to create new productions and we will continue to evaluate opportunities as they arise to selectively expand our venues in major markets.

Our MSG Sports segment significantly grew AOCF this past year, primarily due to the financial benefits resulting from the first phase of the Arena Transformation project and the strong performance of our professional sports franchises for the 2011-2012 seasons. The Rangers had one of the most successful regular seasons in the team history followed by an exciting player front to the Eastern Conference Finals.

The team’s nice performance was led by coach John Tortorella, Captain Ryan Callahan, Brad Richards, along with All Stars Henrik Lundqvist, Marian Gaborik and Dan Girardi. In June, Lundqvist was awarded the Vezina trophy as the NHL’s top goal tender which marked the first time since 1986 that a Ranger goalie has been honored with this prestigious award. The Rangers also made a key transaction during the off season acquiring five times All Stars Forward Rick Nash and we remain very optimistic about the team.

With respect to the Knicks this past May, we announced a contract extension with Knicks head coach Mike Woodson, who we believe, along with General Manager, Glen Grunwald will play a significant role in the future success of the team.

The Knicks have one of the leagues best front lines with Amare Stoudemire, Olympic Gold Medal winners Carmelo Anthony and Tyson Chandler, who was also named 2012 NBA Defensive Player of the Year.

Last month, the Knicks completed a number of important player transactions. The team signed 10-time All Star point guard, Jason Kidd, acquired point guard, Raymond Felton, and Center Marcus Camby and welcome back key players Steve Novak and J.R. Smith.

We remain committed to fielding competitive sport franchises and believe both the Knicks and Rangers have positioned themselves for success.

At the same time, strong consumer and corporate interest in our sports team and in the transformed Garden helped to ensure our continued success across key revenue categories including tickets, suites and marketing partnerships.

Turning to the transformation project. As you know, following the conclusion of the Rangers Playoff run, we began the second phase of the Garden Transformation.

Similar to last season, we have approximately 1,000 construction workers at the Garden on a daily basis with work taking place around the clock. We are on schedule and look forward to unveiling the transformed upper [bowling] arena on November 1, for the Ranger's home opener against the Dallas Stars, followed by the Knicks' home opener on November 2, against the Miami Heat.

When we reopen, fans will experience more comfortable upper bowl seating with significantly improved sight lines that will put them up to 10 feet closer to the action.

We also plan to debut the new 8th floor Garden Concourse, which will be up to triple its previous 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 our 58 Madison Level Suites, which will be as close as 23 rows up from a playing surface bringing suite holders much closer to the action. 21 of the 58 Madison Level Suites will be open at the beginning of the 2012-2013 seasons while the remaining suites will be open between the start of the seasons and January of 2013.

We're also planning for the upcoming debut of the Madison Club and all-inclusive members-only premium-seating club with high-end food offerings that is available to businesses and individuals looking to entertain at our events.

We'll also unveil as part of the 6th floor concourse, a visual retrospective that brings to life one moment in Garden history for every day of the year. The retrospective will wrap around the entire circumference of the Concourse creating a visual calendar of the Garden’s rich history.

Further, the top 20 defining moments in Garden history will be commemorated on both the Madison and the Garden Concourses 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 the fall of 2013.

We've incurred total transformation related construction costs of approximately $717 million through June 30. We do not expect total transformation project construction costs to differ materially, higher or lower from the previously disclosed $980 million, inclusive of various reserves for contingencies.

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

Bob Pollichino

Thank you, Hank. As Hank stated, our company delivered strong growth for fiscal 2012 including record AOCF. Specifically total company revenues were $1.3 billion, an 8% increase versus the prior year. Consolidated AOCF was $283.2 million, a 36% increase versus the prior year while operating income of a $177.5 million was up 44% versus the prior year.

Our fiscal fourth quarter, we generated $332.9 million in total company revenues, an increase of 42% versus the prior-year period. Consolidated AOCF of $77.8 million and operating income of $49.9 million increased 90% and 245% respectively versus the prior year quarter.

Now turning to the fourth quarter results of our business segments. Our MSG Media segment generated a $167 million in revenue, an increase $27.4 million or 20% as compared to the prior year quarter.

Affiliate fee revenue increased $19.5 million versus the prior-year quarter, primarily attributable to higher affiliation rates. Advertising revenue increased $3.7 million versus the prior year quarter primarily due to an increase in the number of playoff telecast, higher advertising rates for Knicks regular season home games and to a lesser extent an increase in the number of regular season Knicks telecast due to the timing of the compressed NBA season.

Other revenues increased $4.3 million versus the prior-year quarter, primarily due to the programming licensing agreement we discussed last quarter and revenue will be recognized through the agreement's expiration in April of 2013 and is not expected to be recurring there after.

MSG Media segment AOCF of $65.9 million was up 13% versus the prior-year quarter due to the increase in revenues largely offset by higher direct operating expenses and to a lesser extent higher SG&A expenses. The increase in direct operating expenses was primarily due to higher programming cost at Fuse as we continue to strategically invest to grow the business.

With respect to fiscal 2013, MSG Media has a solid foundation for ongoing affiliate fee and advertising revenue growth, a reflection of strong consumer interests in our content. In addition please note that MSG's Media segment results for fiscal 2013 will reflect higher right fee expense as the Knicks return to a full regular season schedule as well as increased fees programming costs consistent with our long-term strategy to increase Fuse viewership.

Further we currently expect Media segment operating expense increases to be weighted towards the first half of fiscal 2013.

Our MSG entertainment segment generated $50.8 million in revenues, a 41% increase versus the prior-year quarter. The revenue increase was primarily attributable to higher event related revenues at the Garden, Radio City Music Hall and the Beacon Theatre due to an increase in overall number of events including promoted event as well as higher suite rental fees, sponsorships and signage revenues.

MSG Entertainment’s AOCF loss of $5.3 million improved by $6.6 million versus the prior year quarter. This was primarily due to higher overall revenues partially offset by an increase in direct operating expenses and to a lesser extent an increase in SG&A expenses. The increase in direct operating expenses was primarily due to an increase in event related operating expenses at our New York venues, again due to an increase in the overall number of events, including promoted events.

With respect to fiscal 2013, please note that MSG Entertainment segment results will reflect operating expenses related to the recently purchased Forum, including cost associated with preparing for the opening of the venue, while we will provide more details on the Forum’s renovation schedule in the coming months, the Forum will not be open for events in fiscal 2013.

Entertainment segment results in fiscal 2013 will also reflect incremental business development expenses as we look to grow this business longer-term. Specifically, we are investing in our productions business, including a large scale theatrical production for Radio City Musical and in broadening the scope of our existing brand. We will also continue to explore opportunities as they arise to selectively expand our portfolio venues in major markets.

Our MSG Sports segment generated $131.2 million in revenue, a 74% increase versus the prior quarter. The increase in revenues was primarily attributable to an increase in the aggregate number of Rangers and Knicks home play off games versus the prior year quarter, the financial benefits of the first phase of the Arena Transformation project and, to a lesser extent the higher percentage of Knicks-related revenues being recognized during the quarter versus the prior year period as a result of the timing of the compressed NBA season.

The overall revenue increase included higher play-off related revenues, professional sports team ticket-related revenue, suite rental fee revenue, sponsorship and signage revenues and food, beverage and merchandise revenues.

MSG Sports AOCF of $19.8 million was up $21.1 million from the prior year quarter due to higher revenues partially offset by direct operating expense increase and to a lesser extent an increase in SG&A expense. The increase in direct operating expenses was primarily due to an increase in play-off related costs and to a lesser extent an increase in team personnel compensation costs and other team operating costs and net NBA and NHL revenue sharing expense partially offset by a decrease in provisions for certain team personnel transaction.

With respect to fiscal 2013 MSG Sports segment results will benefit from the second phase of the Transformation project and a full 82 game schedule for the Knicks for the 2012-‘13 regular season versus the shortened 66 game schedule for the 2011-‘12 regular season. This normalized season will result in a higher percentage of Knicks related 2012-‘13 season revenues and expenses being recognized in the fiscal 2013 second quarter and a lower percentage in the fiscal third and fourth quarters versus 2012 impacting year-over-year comparisons on a quarterly basis.

Please also note that the Garden’s seating capacity excluding suites will be reduced by approximately 1,000 seats for Knicks and Rangers games and by a lesser amount for entertainment events in fiscal 2013 versus 2012. After the third phase of the Transformation project next year, the Arena seating capacity excluding suites will again be comparable to pre-Transformation project levels.

In addition to provide some context on changes in our suite capacity prior to the start of the Transformation project, our suite capacity was comprised of 18 suites on the Arena’s ninth floor and 71 suites on the tenth floor. After the first phase of the Transformation last year, we reopened the Garden with our 20 event level suites, 18 suites on the Arena’s ninth floor and 55 suites on the tenth floor.

Looking ahead by January 2013 we plan to have opened all 58 of our new Madison level suites in addition to our 20 event level suites. We also plan to have on line the Madison Club which is the equivalent size of 10 Madison level suites. To round out our suite inventory in fiscal 2013, we will also have 16 suites on the Arena’s ninth floor and 16 suites on the Arena’s 10th floor. Please note that the 10th floor suites will be primarily used this year by Madison level suite holders until their new suites become available.

After the third phase of the Transformation next year in addition to our event level suites Madison level suites and the Madison Club we will be back to 18 garden suites on the Arena’s ninth floor and we will no longer have any 10th floor suites.

With respect to MSG Sports segment operating expenses, we expect to incur substantially higher amount of NBA revenue sharing expense and player compensation cost in fiscal 2013 versus 2012 and we anticipate that the Knicks will be luxury tax payer for the 2012-‘13 season. The expected increase in NBA revenue sharing expense is primarily due to the return to a full regular season schedule for the Knicks, our expectation for continued Knicks related revenue growth and other factors. Our expectation for higher overall player compensation cost is due to the Knicks return to a full regular season schedule and our ongoing efforts to field competitive sports franchises.

Also as a reminder, the number of home play-off games in which our sports franchises play is a key driver of MSG Sports segment fourth quarter results. As you know, the Knicks and Rangers played a combined 13 home play-off games this past season, which resulted in approximately $17 million in direct contribution to MSG Sports during the quarter.

Lastly, we would note that the NHL’s collective bargaining agreement expires on September 15, 2012, and we're monitoring the situation closely. For the NHL, we cannot comment further on this matter. Turning to the Transformation project, construction costs incurred for the Garden Transformation during our fourth quarter were approximately $26 million while project-to-date costs incurred through June 30 were approximately $717 million, which represents a significant portion of total estimated transformation project construction costs.

Total net cash and cash equivalents as of June 30 was $206.5 million, up approximately $25 million from March 31. We continue to believe that we have sufficient liquidity to fund the transformation project and our other initiatives from our substantial level of cash on hand, cash flow from operation and if necessary our revolving credit facility.

The $375 million revolver remains undrawn with our borrowing availability unchanged as of June 30, at $368 million as there remain $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. During fiscal 2012 we continue to demonstrate why MSG and MSG Plus are best in class regional sports networks. The deep line up of contents including over 700 live professional and college sporting events, representing over 3100 hours of live original programming during the year.

Our continued commitment to excellence in programming resulted in 16 New York Emmy Awards in 2012 for MSG Networks. No other local broadcast or regional cable network has won more Emmys than MSG in the last five years. Compelling story lines and strong encore and on ice performances during the 20112012 regular seasons driven 81% increase in total household ratings for the Knicks and a 36% increase for the Rangers.

We also continue to develop programming that is designed to extend MSG demand and to create promotional and revenue opportunities for our company. Examples include shows that capitalize of the enthusiasm of our teams' fans such as Behind the Bench with John Tortorella and WFAN's popular Boomer & Carton show as well as critically acclaimed original programming such as The Garden Transformed: Year One beginning and the Line Up hosted by Fran Healy.

Looking ahead MSG Networks remains well positioned to benefit from strong interest in our live NBA and NHL professional sports content. We're looking forward to a return to a full regular season schedule for the Knicks and believe both the Knicks and Rangers are set to delivered exciting regular season campaigns for sports fans in our marketplace.

Turning to Fuse, key highlights during fiscal 2012 included a successful introduction of Funny or Die's Billy On The Street hosted by comedian Billy Eichner as well as the continuation of our partnerships with artist and telecast live concerts which this past year included Red Hot Chili Peppers, the Z100's JINGLE BALL, Florence + the Machine and The Wanted. We also continue to offer additional programming all rooted in music including Fuse’s Top 20 Countdown, all day artist takeovers and music related movies as well as comprehensive coverage of top music festivals including Bonnaroo, Lollapalooza and Van's Warped Tour.

During fiscal 2012 we also advanced our strategy to reach music audiences across digital platforms with a key goal of driving increased viewership of Fuse’s linear network and increasing value for our affiliates. For example, our Fuse digital channel on YouTube is now experiencing approximately 1 million views a week as music fans have logged on to watch exclusive Fuse content including live performances by Swedish House Mafia, The Wanted, Death Cab for Cutie and most recently the Van's Warped Tour and Metallica’s first ever Orion Music + More Festival.

We also relaunched Fuse’s website at fuse.tv during fiscal 2012, the goal being the first place consumers turn online for news, information and commentary around the world of music. Through these digital platforms, we are building an effective way for us to directly promote viewership of Fuse’s linear network programming to a highly coveted youthful demographic who actively consumes music content.

As Hank stated, fiscal 2013 will be an exciting year for the linear Fuse network as we roll out new original programming that continues to build and uses commitment to bring viewers closer to exciting and unique music related stories. Last month we gave you Pot, a music documentary series which highlights the tipping point an artist reaches superstardom and as a result of our robust development pipeline, we are set to roll out several more original programs this fiscal year.

They include Off Beat, a mash up of the funniest and most outrageous music themed internet videos and viewer crazy clips, Warped Roadies, behind the scene look at the inner workings of the band's Warped Tour as it travels across the country with more than 60 bands to over 40 cities. And a new original series that follows an Italian American family as they try to launch the first family style run record label.

In addition of these new shows, Fuse is set to announce a major programming initiative during the first week of September. This initiative advances in network strategy to capture music fans to the creation of compelling content across Fuse's multiple platforms with the goal of increasing our network audience.

We look forward to sharing more in the coming weeks. I will now turn the call over to Melissa Ormond to provide highlights from our MSG entertainment segment.

Melissa Ormond

Thank you, Mike. As Hank mentioned, the entertainment segment's improved financial performance in fiscal 2012 primarily driven by the Radio City Christmas Spectacular Franchise which was seen by over 1.3 million customers in New York City and the three markets in which we presented the theatre version of the show last holiday season. The New York production of the show benefited from solid increases in both attendance and per caps last season primarily due to the significant enhancements made to the production which were designed to drive revenue growth over a multi-year period.

This upcoming holiday season we will celebrate the 85th anniversary of the Rockettes, which will be essential to our marketing message for this year’s production. Our marketing campaign kicked off with our annual Christmas and August events, which was held in front of Radio City Music Hall earlier this month. The event which received widespread press coverage, featured a (inaudible) of Rockettes costumes over the past 85 years as well as the performance by the Rockettes on 6th Avenue.

In the months ahead, you should expect to see innovative outdoor advertising in New York City, a broadcast TV special celebrating the Christmas Spectacular and the 85th year of the Rockettes and marketing partnerships with blue-chip brands designed to effectively and efficiently promote the show. We will also present the theater version of the show in four markets for the 2012 holiday season versus three markets last year. This includes a return to national grand old house for the 11th year, as well as engagements in St. Louis, Dallas and Chicago.

Turning to our bookings business, during fiscal 2012, we worked to maximize the utilization of our theaters while managing the Garden and the Theatre at Madison Square Garden to the impact of off-season shutdown and the uncertainty caused by the NBA work stoppage. The strength of our markets, venues and marketing expertise continue to be a key drop for artist this past year.

Most recently during our fiscal fourth quarter, we hosted a variety of artists and events including promoting (inaudible) for two sold up shows at the Garden, advanced further for an eight show run at the Beacon Theater and triple for two nights at Radio City Music Hall. In addition, we hosted Florence & the Machine at Radio City and Wanted at the Beacon Theater with both concerts telecast live on theaters as well as the 66th Annual Tony Awards for the second consecutive year at the Beacon.

Looking ahead, we remain focused on increasing venue utilization, including driving multi-night and multi-market engagements across our portfolio of venues. We have already booked a strong slate of acts at the Garden after the venue reopened in November, including Justin Bieber and comedian Kevin Hart both for two shows; Madonna, very sensation One Direction, Neil Young & Crazy Horse and (inaudible) in fact virtually everyday at the Arena is already committed through the end of calendar 2012.

Cirque du Soleil - Zarkana return to Radio City Music Hall this past year for its second and final year and runs until early September; with Zarkana moving to Las Vegas next year we will be booking concerts and other events at Radio City throughout the year.

The Beacon Theater is coming off of a very strong fiscal 2012 and in 2013 we will continue to focus on maximizing bookings to this venue, as well as the Chicago Theater, the Wang Theater and the Theater at Madison square garden. The latter of which has proven to be a successful destination for family shows.

As you know this past June, we completed our purchase of the Forum in Inglewood, California for $23.5 million. As Bob stated, the venue will not be open for events in fiscal 2013. We look forward to providing additional details on our renovation timeline in the coming months. We plan to return the Forum to a thriving destination for both artist and music fans. From a market perspective, we believe the venue will benefit from our company’s infrastructure and expertise creating the opportunity to expand the overall concert market in Los Angeles. As a result, we expect the Forum to generate solid AOCF and a positive return for our company.

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

Scott O'Neil

Thanks Melissa. Fiscal 2012 was a success in all key fronts as we grew the overall MSG Sports segment despite the impact of the NBA work stoppage. Our ability to grow this segment is a testament to robust consumer and corporate interest in our sport franchise and our transformation related offerings.

The Knicks and Rangers have among the strongest foundation in the NBA and NHL. This strength best reflected in the current ability of our season ticket holder base and in the attendance at our games with both teams having played at or near capacity crowds every game at the Garden during the 2011-‘12 seasons.

Looking ahead, we have seen a continuation of strong demand for season tickets which represent a majority of Knicks and Rangers ticket sold in any given year, specifically 2012-‘13 season ticket renewals are progressing very well and we are pleased to report that the Knicks and Rangers have renewed over 95% and over 90% of season tickets respectively.

As a reminder, season ticket prices for the 2012-‘13 Knicks and Rangers seasons are increasing by an average of 4.9% and 9.5% respectively. These price increases are primarily focused on upper bowl seats reelecting the new amenities we plan to provide as part of the second phase of the Transformation project.

Turning to our Transformation suites, this past year we debut our 20 sold out event level suites which included the best seats in the house and provide a world class experience that has set a new bar in Arena hospitality. We look forward to building on this track record with the roll out of our 58 Madison level suites for the upcoming NBA and NHL seasons. Over 90% of these suites are now under contract where agreements that are being finalized. We continue to work towards achieving sell out by the time these suites come on line.

In addition, as Hank stated the Madison Club is expected to come online in fiscal 2013. We are in the market with two and four seat multiyear packages for all Knicks, Rangers and (inaudible) games and are pleased with the current pace of sales.

During fiscal 2012, we continue to grow our sponsorship business despite the impact of the NBA work stoppage. For example, we announced the expansion of our marketing partnership with JP Morgan Chase which included the making Chase the Official Card of Madison Square Garden. We also continue to add new partnerships which this past year included Duracell Powermat, Unilever, BlackBerry, [TISO and Philips Sunoco]. In fiscal 2013, we are continuing to build on this momentum and have signed a new signature marketing partnership with respect to transform Garden which we expect to announce shortly.

MSG Sports also continues to host a variety premiere and memorable sporting events. We have extended our deals with the NIT assuring the performance will continue to take place in the Garden for next three years with the first event kicking off in November. Also in November, MSG will host tennis legend John McEnroe, Andrei Agassi, Pete Sampras and Pat Rafter as they compete in the NASDAQ Indexes Cup as part of the PowerShares Series Tour.

I will now turn the call back over to Ari Danes.

Ari Danes

Thanks Scott, and Christie can we open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from Bryan Goldberg of Bank of America Merrill Lynch

Bryan Goldberg - Bank of America Merrill Lynch

I have got two questions, one on media and other on capital allocation. With regards to media, the Fuse investments kicking in on the OpEx lines, could you just update us where we are with regards to the current investment cycle in the channel; what does the roadmap look like from here and how long should we expect this investment cycle to go on for and should we be measuring this in terms of quarters or is this a multiyear project?

Mike Bair

Well, look the business that we are in is creating content and building audiences overtime and the way the timeline works in building the pipeline which is what we have been doing in the past year and I mean you heard the specifics of the criteria to evaluate the best shows in the agreement like those, so we have green lit a handful and when you go into production which is what’s occurring now we are actually very excited about the shows that I mentioned in my remarks, that will be rolling out to the coming year and we expect that those will be successful.

Overtime for us, we think that our overall purchase programming is very disciplined and very prudent. At the same time, we don’t really make a bet on any one show. We do that, we can make sure in the event that it isn’t successful, we can pull back and if the show does happen to be successful, we can hammer down the gas and really push it.

So I feel very comfortable about our investment in growing the shows and we still believe that Fuse is a real significant growth opportunity for this company and that will come again from better content, larger audiences and being able to be more economic in a way that generates revenue from those advertisers and our affiliates.

Bryan Goldberg - Bank of America Merrill Lynch

Just one point of clarification. The higher OpEx in the quarter associated with Fuse, was that largely production driven or is that driven by the airing of programming?

Mike Bair

No, well, it's actually both, but it's mostly driven by the production cycle. What we do from an accounting perspective is that unless we’re acquiring rights, if we acquire rights, we can put them on the balance sheet and we can amortize them over the length of the term of the rights that we acquire. But with respect to our original productions and original programming, we expense it as incurred. So what you’re seeing in the quarter is that production cycle, even in advance of the shows coming on later this fiscal year.

Bryan Goldberg - Bank of America Merrill Lynch

Okay, and then on capital, allocation, you've got over 200 million of cash on the balance sheet, the summer transformation work, the end is almost in sight, you got a smaller workload on deck for next summer. So free cash flow generation looks set to grow nicely assuming everything goes okay with the NHL, CBA. Could you just update us how are you thinking about deploying cash to grow long-term as opposed to potentially returning some capital to shareholders, are these mutual exclusive strategies?

Hank Ratner

Not at all. I don't think they are mutually exclusive whatsoever. We still are in the position that we've been in since we become a public company and we're still in the midst of the transformation. I agree with you, we're a lot further long than we were when we began and we've accomplished a lot to date, but we're still not done. So we still need to be prudent and we still need to be mindful of the remaining cash to be spent on the transformation.

But you are right, that has a finite life and then at some point we'll be beyond that and that will change the liquidity profile of the company quite dramatically. We're really looking to be prudent, strategic and smart. We're looking to maximize shareholder value and we'll be looking at all options.

You know currently we look and we look to balance near-term economics with long-term growth and I think the balance is key and again being smart, not just looking at today, but we've got to look at the future and we think that's again the best thing in order to maximize shareholder value.

So there is an element of investing back into the business and then there is other uses of capital as people discuss whether they be dividends or stock buybacks. Everything will be something that will be looked at, they all can be done or they can not be done and we'll look when we get through and we pass through that tunnel, we'll be evaluating the environment and the circumstance and the opportunities and figure out what's in the best interest of the shareholders in the company and how we best can maximize value and we'll make our determinations based on that.

Operator

Your next question comes from Ben Swinburne of Morgan Stanley.

Ryan Fiftal - Morgan Stanley

This is Ryan Fiftal on for Ben. First I have a follow up question on Fusion, then a quick one on the sport side. So starting on Fuse as a follow up, could you give a little more color on how you are evaluating the success or failure of the programming. Specifically I am wondering when you go to make the decision next year to expand or contract the amount of content on Fuse, now what are the benchmarks you are looking for and how you are thinking about that decision?

Hank Ratner

Yeah sure, the first thing obviously is your audience, plus the size of the audience as well as the type of audience that you got. I think one of the advantages for Fuse is that we are the only media company that has a youthful audience, but at the same time is grounded in music. That makes us I think distinctive and gives us a slight premium in the advertising rates that we can charge. And again makes it a unique offering for our affiliates.

In addition to looking at the ratings that each show generates, we also look at the expense against that particular show, its ability to be syndicated overtime. We look at how much of that content can also then be put online. So there is series of those metrics that are both financial and also driving demand and awareness of the overall show.

And based on that, each show then will be renewed or not. But again as I said before, we are not living and dying by any one show. It’s really the volume of shows overtime and in fact in the first week of September, we will be announcing a new initiative and programming which will be multi platform that we think will not only be a first of its kind, but will be very economic to the business raise user’s awareness and generate an important audience.

Ryan Fiftal - Morgan Stanley

And then on the sport side, it was I guess put up a big beat on sports revenues, so can you help, give us a sense on sizing how much of the 55 million I think revenue growth was specifically tagged to the playoffs versus the compressed regular season versus relative size of some of the other drivers may be suite licensing versus your growth in sponsorship?

Scott O'Neil

Sure, sure you know, so as you said MSG sports AOCF growth this quarter was driven by the significant increase in revenue. You know that was driven by the increased number of home playoff games, also the benefit of the transformation and really the third thing to a lesser extent the higher percentage of Knicks related revenues being recognized in the quarter because the season was compressed.

So when you look at the $56 million of year-over-year increase in revenues, playoff related revenues were $36 million of the $56 million. Ticket related revenues increased $11.7 million and that's driven by the transformation related ticket price increase this past season.

Suites was $4.8 million of the increase and if you remember that is primarily driven by the addition of our 20 event level suites. And then thinking about the revenue and what fell to the bottom line, the revenue increase was partially offset by $29 million in direct operating expenses. Of that $29 million, $23 million was related to the playoffs and $5 million was related to increased SG&A marketing expense advertising and other G&A increases. So play offs were a key driver.

Operator

Thank you. Your next questions comes from Vasily Korsakov of Susquehanna Financial.

Vasily Korsakov - Susquehanna Financial

Bob, as you were going through the put and takes for fiscal 2013, can you give us an idea, would it be correct to say that costs will grow faster than revenue in fiscal 13?

Bob Pollichino

Are you asking the complete overall business?

Vasily Korsakov - Susquehanna Financial

Yes, on a total company basis.

Bob Pollichino

We still expect that the business is going to grow next year. So to answer your question, of course we are not going to outpace revenue growth.

Vasily Korsakov - Susquehanna Financial

And then you guys mentioned that the ratings improvement for the Rangers and Knicks, were you able to monetize all of it or is there, do you think there will be an extra kick to the revenue growth next year, more confident selling audiences into the game?

Hank Ratner

Well, we certainly were able to monetize some within this year. Much of our advertising of course this year is laid in earlier with the long-term sponsorships, but then we were able to capitalize on the spot market the way we are in the play-off. With that baseline, with our confidence, we do go in the forward each year as we attempt to maximize our rates and clearly this is one of the key things that we use in our discussion with our advertisers to maximize those rates.

Operator

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

Ben Mogil - Stifel Nicolaus

Just a few of them; from a CapEx perspective, I think you said you’ve spent $717 million; how much of that is actual cash and how much of that is sort of ways you’ve actually the cash hasn’t gone through for that yet?

Bob Pollichino

Roughly, $650 million of the $717 million is real cash. So as we use the term incurred you know, we make sure that all of the work that’s been done, whether it’s been paid or not is being recognized in the number that we’re reporting. So it’s about $67 million like of an accrual on the books, so $650 million real cash.

Ben Mogil - Stifel Nicolaus

So its kind of around $330 million left if you will of cash left to be spent is that kind of the right way that you are looking at it?

Bob Pollichino

Yeah.

Ben Mogil - Stifel Nicolaus

Any impact you are seeing yet from the Barclays Center in terms of concert competition, in terms of day competition; I mean I know you are close to some what there obviously just opening up so its not total apples to apples but any kind of color you can give us on the impact on them?

Melissa Ormond

You know we are really not being a significant impact to the business; we are not seeing a reduction in show count and in fact we anticipate that we will grow the bookings business for the Garden in fiscal 2013 and I think twice here the few artist have already been booked over the period between November 1st, and the end of this calendar year and as I said we're committed for virtually every day between now and the end of December.

Ben Mogil - Stifel Nicolaus

And then on the NHL you are obviously not going to talk with the CBA etcetera. But can you give us a sense from a perspective you know is this 50% is important or is impact for the NBA strike is 60% can you give us a sense relative to NBA strike on how impactful quarter would be say the NHL strike?

Hank Ratner

I wish I could, we are prohibited by the NHL from commenting; all comments need to come from the commissioner or commissioner’s office.

Ben Mogil - Stifel Nicolaus

And then last one in fiscal ‘13 how many subscribers or what percentage of subscribers are coming up for renewal on the carriage deals?

Mike Bair

Well, you know look we don't talk about the specifics of our deals that they come up from time to time. I think we feel very comfortable about our current affiliate agreements, our relationship there and we manage that process I think pretty effectively.

Operator

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

Robert Routh - Phoenix Partners Group

Two quick questions; first obviously a big topic short time ago is the LIN-Sanity situation; I was hoping can you give us any color as far as how you came to a decision to not reassign (inaudible) what the analysis was, what the process was and whether or not you see any impact as a result of that decision as far as merchandising ticket sales or anything else obviously it was hiked in the press certain away, but I am just curious was it a little over hyped and how did you come to that decision to not renew or reassign them?

Hank Ratner

As you heard, we are very happy with our team, we are happy with the players that we got the composition of the team, the depth of the team and we are very optimistic about the season. As you have heard from the other comments made, we have a 95% renewal rate on that season tickets that’s pretty unprecedented and I don’t think you will find that really at many other places. You heard about our suites, you heard about our sponsorships, you heard about announcements coming out, so our business is good, and I will leave at that.

Robert Routh - Phoenix Partners Group

So it doesn’t seem like it had much of an impact at least not yet. And second question obviously you purchased the Forum and mentioned that you are looking for other acquisitions in other areas geographically in the venue side. I am just curious given what you already have or what areas make sense to the Garden in terms of where you like to possibly have Forum type venue in MSG Entertainment segment what areas are attractive to you?

Hank Ratner

Well, it’s major markets, major markets with population centers, major markets that have demand for that type of entertainment and venue and you have seen by our moves into Chicago, into Boston and now Los Angeles, but it’s that type places where there is not much risk of not being successful.

Robert Routh - Phoenix Partners Group

Just one follow-up to that, given where the Forum is and your relationship of Live Nation, owning some stock in the company and what they are doing with -- you guys are doing with one of your business segments, can you give us any color as far as Live Nation have any involvement with you or is that something you are going to do all on your own in-house?

Melissa Ormond

Well, we have an important relationship with the Forum in New York and all our markets and we expect them to be familiar with the multiple events at the Forum, but the Forum will be an open venue and we will present shows by artist from the multitude of promoters and Live Nation does not have a direct interest in the Forum.

Robert Routh - Phoenix Partners Group

So they will be managed by Garden?

Melissa Ormond

Yeah, we will handle the same way as all the other buildings that we have.

Operator

Your next question comes from John Tinker of Maxim Research Group.

John Tinker - Maxim Research Group

Could you, de novo question, I still don’t think they should resign you; is there any hope of that and on a more positive note as your ratings really keep increasing on the networks, could you see expanding your reach in any way as the Knicks gain rather more national visibility? Thanks.

Mike Bair

Sure as it relates to expanding reach that we are limited by re-growth in terms of where we can actually take our gains and how we monetize and I think we do as good a job about that than anybody in the country in taking that as the most important market in the country. But despite from that we are always looking for growth opportunities for other content as you know as I have pointed out before some of the original programming that we create on MSG networks, we have syndicated that in some cases in other regional sports networks and we are always looking for those growth opportunities; Fuse, as I mentioned before is a national network and we continue to grow there.

Bob Pollichino

On DISH network, we have no reason to express optimism. You know, I'd never say never. But we’ve moved on with life without DISH Network being in our customer mix.

Hank Ratner

And having said that, we’re available on every other cable operator in the country.

John Tinker - Maxim Research Group

This is a slightly academic questions on the small brokerage firm but it may not be totally academic for some of the other people on the call. The pricing of the suites, you mentioned sort of some of the prices, the upper level, the other seat pricing going up. How long is the pricing fixed on the suites and how do you sort of determine when to raise that pricing?

Hank Ratner

You know, most of the deals are longer term. So 5, 7, 10 years with varying degrees of escalators. So you are probably, the first time we have the opportunity to take a look at the pricing would be the five years.

Operator

Thank you. Your next question comes from Brett Harriss of Gabelli & Company.

Brett Harriss - Gabelli & Company

Just to quickly go back to DISH, I mean is there any legal reason that a Cablevision DISH settlement didn’t include DISH carriage of your channel?

Hank Ratner

That’s a law suit that we are not a party to. So I am not sure how to go answer that.

Brett Harriss - Gabelli & Company

And then just quickly could you just remind us on the potential subscriber additions from DISH. I think we have it at 350,000 subs.

Scott O'Neil

You’re talking about related to the sports side?

Brett Harriss - Gabelli & Company

Yeah, on the sports side.

Scott O'Neil

Roughly, but I would just point that most of that is outside of the major you know New York Metropolitan DMA. So specifically from an advertiser perspective, it really is not that meaningful to us. And again we've not been on the air with DISH for almost a year at this point and as you can see our business is doing quite well.

Operator

Your next question comes from Martin Pyykkonen of Wedge Partners.

Martin Pyykkonen - Wedge Partners

Question on the Madison suites, you mention January that they would all be open, but I didn’t recall if you said beginning or end. Is it one of the other terms of start of the month or end of the month?

Hank Ratner

We're anticipating them to come on in the beginning of the month and not all of them. Some will be -- come on in the beginning of the year and it will phased in. As they ready we'll take them on and put the companies in that have purchased them.

Bob Pollichino

We know 58 being available by January.

Martin Pyykkonen - Wedge Partners

Okay. Then is that fairly linear, I know it's only two months we are talking about. Is it fairly linear that they open as the season gets going.

Hank Ratner

The current plan and I wouldn't be tied to specific date, is that, it is not fairly linear. Most come on when the building opens in early November and then the last.

Bob Pollichino

It's 21 when we open in November and then its grows from there all being open for business by sometime in January.

Hank Ratner

I believe the last 12 come on January so.

Martin Pyykkonen - Wedge Partners

Last 12 okay. And then the question on the sport side, I know the playoffs as you know you’ve said a few times, we're clearly in influence, 13 games this past season. I think if I remember you go back to the previous season is only three or four. So obviously just the volume of games was a big factor, but what I am trying to kind of pull out of this is the transformation work that you did with higher prices, obviously some levels suites were open as part of that, but to merchandise, your concession, how big of a pull was that if you were to say normalize the number of games year-over-year. I am just trying to get a sense for how much of it was actually coming from that, particularly the AOCF part of it?

Scott O'Neil

Hey Martin, again kind of to reiterate what Bob had said earlier to an earlier question, in terms of the revenue increase at for sports for the quarter which was 56 million, 36 millionish or so was the play offs, the remainder was primarily transformation driven between increases in ticket related revenues, suite revenue, sponsorship revenue and so on.

And then of course that revenue increase offset by again higher playoff related expenses, to a lesser extent player compensation, other team operating costs et cetera.

Martin Pyykkonen - Wedge Partners

Okay. Then one other thing on the forum, I know you don’t want to say a lot right now, but is it fair to characterize what are you going to put into it as being a relatively modest CapEx going forward obviously relative to the Garden transformation but even more specific if I remember when you announced this that the [Fuse] put 50 million into to get a forgivable loan from the city of Los Angeles for 18, but just trying to get a sense for, if nothing more than qualitative is it going to be modest and is it mostly along the lines of cosmetics and so forth as opposed to any major capital construction of the forum as we kind of know it.

Melissa Ormond

Well as you pointed out you certainly can't compare the transformation of the Garden to the renovation of the forum, so you are accurate in that certain point. There is a combination of capital expenditures some as maintenance capital as the building was built in the 1960s and requires a little bit of updating. But we are very focused on the improved customer experience and amenities, so there is definitely growth CapEx included in there as well.

The most important thing to note is that the size of the investment will be commensurate with the size of the opportunity.

Martin Pyykkonen - Wedge Partners

Okay and just when you do open that in fiscal 2014, should we thinking of this as mostly live concert events that are essentially the overflow that just can't be handled at the Staple Center and that sort of thing or is more to this in terms of your event and revenue opportunity than just live concerts?

Melissa Ormond

I think to look at the forum as a overflow opportunity is to really underestimate the status on the quality of the building and how loved it is by artists and frankly ticket buyers, concert goers. So there is certainly an element of the Staples booked calendar, but we feel like it will grow the LA concert market because people want that building to reopen. They want to play there again, they want to be part of that history and the focus of course will be concerts, but we will have a pretty good slate of family attractions we believe as well.

Martin Pyykkonen - Wedge Partners

And can I guess your expenses this year you've already said, but also your revenue when you do start to open, I'd assume will all be within the entertainment segment?

Melissa Ormond

Predominantly. I would say, yeah.

Operator

Thank you. Our final question will be coming from David Joyce of ISI Group.

David Joyce - ISI Group

Just a couple more bits of color if you could on the forum. What should we be expecting in terms of OpEx versus the CapEx split over the course of next year before revenue starts flowing and then also on the entertainment side, given you had some more promotions here in the quarter that add to revenue, but also expenses. What should we expect going forward, either seasonality wise or mix wise between promos and rentals for the entertainment business.

Bob Pollichino

Yeah I don’t think we are. So just talking about the operating expenses of the forum. So as we said we are not going to be opening in fiscal 2013, but as a result of preparing for the renovation and really the need to operate even the (inaudible) building. The type of expenses that you’re going to see flowing through next year, you know, are staffing for example, you know, general manager, security maintenance, that kind of staffing levels. But you know, we also have operating costs, utilities, insurance, real estate tax and in preparation for the opening, marketing and PR and you know, legal and professional fees.

So you know, it's not like operating the full building, but it's clearly we have to get prepared to open that building and be prepared for that opening in fiscal 2014.

Melissa Ormond

With regard to the mix of events on the concert side, I'll start by saying that we’re not seeking to increase the number of events that we either self promote or co-promote. You clearly see the impact of those promoted events in our revenue, but it should be noted that there is really no significant impact one way or the other to the bottom line.

Every deal is different and we do them for various reasons. We analyze each one and to make sure that it’s the right deal for the business and we’re not seeking to increase our risk position.

Operator

Thank you. I would now like to turn the call back over to Ari Danes for closing remarks.

Ari Danes

Thank you for joining us. Have a good day.

Operator

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

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