Madison Square Garden Co.'s (MSG) CEO Thomas S. Smith on Q3 2014 Earnings - Call Transcript

The Madison Square Garden Co. (MSG) Q3 2014 Earnings Call Corrected Transcript: 02-May-2014


Corporate Participants

Ari Danes - Vice President-Investor Relations, The Madison Square Garden Co.

Thomas S. Smith - President & Chief Executive Officer, The Madison Square Garden Co.

Robert M. Pollichino - Chief Financial Officer & Executive Vice President, The Madison Square Garden Co.

Other Participants

Bryan Goldberg - Analyst, Bank of America Merrill Lynch

Ryan Fiftal - Analyst, Morgan Stanley & Co. LLC

David W. Miller - Analyst, Topeka Capital Markets

Amy Yong - Analyst, Macquarie Capital (USA), Inc.

Vasily D. Karasyov - Analyst, Sterne, Agee & Leach, Inc.

David C. Joyce - Analyst, International Strategy & Investment Group LLC

Ben Mogil - Analyst, Stifel Nicolaus Canada, Inc.

Michael Morris - Analyst, Guggenheim Securities LLC


Operator: Good morning. My name is Hope and I will be your Conference Operator today. At this time I would like to welcome everyone to The Madison Square Garden Company Fiscal Third-Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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, Vice President-Investor Relations

Thanks, Hope. Good morning and welcome to The Madison Square Garden Company's Fiscal 2014 Third-Quarter Earnings Conference Call. Our President and CEO, Tad Smith will begin this morning's call with a discussion of some of the Company's recent highlights.

This will be followed by a review of our financial results from Bob Pollichino, our EVP and Chief Financial Officer. We will then open up the call for questions. During this time, we will also have available other members of the management team. If you do not have a copy of today's earnings release, it is available on the Investors section of our website at the

Please take a note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the Company and its business, operations, financial condition and the industry in which it operates, and the factors described in the Company's filings with the Securities and Exchange Commission, including the sections entitled Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein.

The Company disclaims any obligation to update any forward-looking statements that may be discussed during this call. Let me point out that on Page 4 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow or AOCF to operating income.

I would now like to introduce Tad Smith, President and CEO of The Madison Square Garden Company.

Thomas S. Smith, President & Chief Executive Officer

Thank you, Ari. And good morning. I'm delighted to have joined the Company at such an important juncture in its history. MSG is a uniquely positioned Company with a diverse and complimentary set of media, entertainment and sports assets. As you know, we operate extremely attractive businesses in growing markets with great brands and a strong competitive position.

We also believe that our ownership of highly sought after live sports and entertainment content provides us with a strategic advantage, particularly in today's rapidly changing media and entertainment landscape. This fiscal year will bring a successful end to MSG's first chapter as a public company. The completion of a significant multiyear capital investment cycle has provided us with two world-class state-of-the-art arenas in the top two entertainment markets in the country and this will benefit our Company for years to come.

Going forward, our priority is to generate attractive long-term growth for our shareholders. First we remain committed to operational excellence and maximizing the growth and profitability of our current businesses.

This will include exploring incremental growth opportunities within our current asset portfolio, including those we can exploit by better harnessing technology. Second, we will continue to look externally for strategic opportunities, which enable us to add compelling assets and brands that resonate with our customers and partners and allow us to utilize our core competencies and assets to bring unique value.

In March, we completed one such transaction when we announced that we invested $22.5 million for a 50% stake in Tribeca Enterprises, the company that owns and operates the acclaimed Tribeca Film Festival. We also have the opportunity to increase our stake over time and consolidate Tribeca Enterprises in our financial statements.

For MSG, the joint venture augments our portfolio of premier New York City live entertainment brands, while also providing us with a high-profile entry into the festival business with a team that has created one of the most successful festivals in the world.

We will also explore joint sponsorship opportunities, which we believe provide a compelling opportunity to drive incremental growth at both companies. Tribeca now has access to our marketing and promotional expertise and platforms, along with our knowledge of ticketing and booking which we expect will increase both awareness and attendance for the festival along with other Tribeca events.

One early example of the types of opportunities we plan to develop took place last month as the Beacon Theatre served as a backdrop for the opening night of the Tribeca Film Festival, which featured the world-premiere of a documentary with the legendary hip-hop artist Nas followed by his live performance. By the way, it was fantastic.

We believe this transaction will benefit our Company and our shareholders and look forward to supporting Tribeca's vision going forward. Separately, after exploring strategic alternatives for Fuse, in April we entered into an agreement to sell the network to CTV Media.

Fuse will operate alongside CTV Media's other network, new NUVOtv, a premier entertainment network developed in collaboration with superstar Jennifer Lopez, who serves as the network's Chief Creative Officer.

Under the terms of the deal, we will receive $226 million, as well as a 15% stake in the combined Company with the equity component subject to potential reduction based on certain performance metrics.

We currently expect the transaction to close in our fiscal 2015 first quarter and look forward to the continued success of the network. Another significant company initiative is our new large scale theatrical production designed for Radio City Music Hall. As we are sure you've heard, we made the decision to postpone this year's limited run engagement until 2015 after concluding that additional work was needed to ensure we deliver the unforgettable experience our customers have come to expect from us.

We are confident that the final production will be a spectacular one-of-a-kind show and continue to expect it to become a key franchise for our Company. One of the biggest announcements this past quarter was that Phil Jackson, one of the most admired and successful basketball minds in the NBA has been named President of the New York Knicks. With an extraordinary history of success that includes 13 NBA Championships, we believe Phil is the ideal Executive to lead the Knicks as we work towards the team achieving both short and long term success.

I will now give a brief update on other events at our business segments, starting with MSG Media. Our regional sports networks, MSG and MSG+, which provide a strong financial foundation for our overall Company, continue to be recognized for their commitment to programming excellence.

Recently MSG Media was awarded 16 New York Emmy Awards, including 14 for MSG network; the most of any single network or station. MSG Media has now won a total of 216 Emmys in its history, including an impressive 99 for MSG network over the past seven years, beating every single network or station in the region during that period.

On the ratings front, regular season ratings with the Rangers were higher as compared to the last full regular season, while Knicks ratings were lower versus last year, reflecting the team's record this season. Still, we are committed to getting the Knicks back on the path to success and expect ratings to respond accordingly in the seasons ahead.

In addition to serving as the inclusive local broadcast home to the New York Liberty, New York Islanders, New Jersey Devils and Buffalo Sabres, we also recently announced an extension of our agreement with major league soccer's New York Red Bulls, ensuring that MSG Networks will continue as the team's regional television home. The Red Bull's franchise has been a great partner for 18 years and we are proud to continue that relationship.

Turning to MSG Entertainment, our portfolio of venues continues to play host to an exciting and diverse array of artists and events. On January 15th, we celebrated the return of the fabulous Forum with the first of six concerts by the legendary Eagles. This past quarter, the Forum also welcomed Justin Timberlake, Alejandra Guzman, Imagine Dragons, Paul Simon and Sting, TobyMac and Kings Of Leon, as well as the Dalai Lama.

We continue to be very pleased with the enthusiastic response from artists, music fans, marketing partners and promoters and are encouraged by the level of interest for potential events at the Forum in fiscal 2013.

This includes our recent announcement that the popular MTV Video Music Awards will be broadcast live from the Forum on Sunday, August 24. We are excited that the VMA's will have the distinction of being the first major award show ever to take place at the fabulous Forum in it's over 45 year history, with this announcement serving as yet another example of how the music and entertainment industry is embracing the reinvention of the venue.

Back in New York at the world's most famous arena, our new relationship with Billy Joel has gotten off to an excellent start with the first four shows playing to sold out crowds. We are looking forward to the upcoming eight announced shows, which run through December 18 and all - are all continuing to sell out.

The Garden also hosted multi-night performances by Justin Timberlake and Paul Simon & Sting, along with the Westminster Kennel Club Dog Show, while at the theater at Madison Square Garden highlights this past quarter included Robin Thicke, Ellie Goulding for two sold-out shows and family favorite Sesame Street Live for a multi-show run.

Other highlights during the quarter included the Allman Brothers band for 10 sold-out shows at the Beacon, as well as comedian Chelsea Handler, who now played two shows each at the theatre at Madison Square Garden, the Chicago Theatre, and the Wang Theatre.

Looking forward, fourth quarter highlights will include Billy Joel's continued run, as well as Lady Gaga and Armin Van Buuren at the Garden. Armin Van Buuren will also play the Forum where other highlights include Chelsea Handler and the Backstreet Boys with Avril Lavigne. Highly anticipated events at Radio City Music Hall, include a multi-night engagement with comedian Dave Chappelle with all five performances already sold out.

We are also pleased that NBC's popular show, America's Got Talent will return to Radio City Music Hall this upcoming season with live episodes airing from the hall twice a week starting in late July. Early audition rounds for America's Got Talent were held in April at the theater at Madison Square Garden, as was family favorite Disney Live, both for multi-show engagements.

And at the Beacon, notable events include multi-show engagements with Cold Play, Eddie Izzard, and Ringo Starr, as well as several special events including the MTV and Fox upfronts.

Turning to MSG Sports; with respect to the Rangers, the team had a successful regular season finishing second in the Metropolitan division and fifth overall in the Eastern Conference. The Rangers have now made the playoffs eight of the last nine years, making them one of only four teams to have realized that achievement. The team begins its second round playoff series against the Pittsburgh Penguins tonight after defeating the Philadelphia Flyers in an exciting seven game first round series.

As you heard on previous earnings calls, the 2013-2014 season marks the fourth consecutive year Knicks season tickets have been sold out and the seventh straight year Rangers season tickets have been sold out, with the teams playing to at or near capacity crowds at the Garden all year. These results reflect the continued popularity of our teams and strong consumer interest in visiting the transformed Madison Square Garden Arena.

For the 2014-2015 season, we have announced that we are not raising prices for Knicks tickets. With respect to the Rangers, season ticket prices have increased by an average of 3%. And while it is still early in the process, we are pleased with the current pace of season ticket renewals for both teams.

We also announced in March that we've acquired the right to own and operate an NBA development league team that will play in White Plains, New York, beginning this November. The team will be the NBA D League's 18th team and the exclusive affiliate of the Knicks. This opportunity allows us to develop players closer to our training facility and to provide high level affordable basketball entertainment to a community that has embraced the Knicks for generations.

We are also excited to welcome back to the Garden, the New York Liberty, who because of the transformation have played their home games at the Prudential Center for the last three seasons. The Liberty enters its second season under Head Coach and General Manager, Bill Laimbeer, and in mid-April acquired superstar center Tina Charles, who in 2010 was the top WNBA Draft Pick and Rookie of the Year before being named League MVP and taking home Olympic Gold in 2012. We look forward to an exciting season with the team's May 17 home opener against the Chicago Sky.

Meanwhile, MSG Sports continued to host a variety of very memorable sporting events in our fiscal third quarter, including the East Regional Finals of the NCAA Division I Men's Basketball Championship, which returned to MSG and New York City for the first time in more than 50 years. During this exciting two-day event, UConn beat Iowa State and Michigan State before going on to become NCAA National Champions.

We look forward with the newly transformed Garden to continuing to attract these types of marquee events. Other events this quarter included the Big East Tournament, which returned to the Garden for its 32nd consecutive year; the BNP Paribas Showdown for the seventh consecutive year at the Garden, which featured 2013 Wimbledon Champion, Andy Murray, Grand Slam Champion Novak Djokovic, tennis legends John and Patrick McEnroe and, of course, the Bryan Brothers; and Men's Freestyle Wrestling World Cup, a two-day event, which marked the first sporting event held at the reinvented Forum.

Looking ahead, highlights in our fourth quarter include the NFL Draft, which takes place at Radio City Music Hall next week - in fact, I think, load-in starts tomorrow; the return of boxing to the Forum as four-division world champion, Juan Manuel Marquez battles former Jr. Welterweight world champion Mike Alvarado in a highly anticipated match that will be televised live on HBO; and a night of Championship Boxing at the world's most famous arena, as three-division world champion Miguel Cotto challenges WBC middleweight champion Sergio Martinez.

Before turning the call over to Bob, I want to address two items. First, we are aware that some members of the investment community may prefer we return capital to shareholders. Our objective here is to increase the value of our Company's assets for its shareholders over the long term.

When MSG was spun off from Cablevision four years ago, for example, we eschewed dividends and share repurchases and instead invested our capital into the Garden's transformation, a project that has been a clear success and one that the stock market rewarded. So, for the time being and only for the time being, our priority is to find new opportunities that enhance our Company's growth and asset value over the long term.

Second, I'd like to take a moment on behalf of the entire Company to thank Hank Ratner, who has played a terrific leadership role in driving the Company's significant growth since its spin-off from Cablevision and in spearheading the Company's key strategic initiatives, including the historic transformation of the Garden. Hank has played and continues to play an integral role in helping to set corporate direction and drive the overall advancement of the Company and he is a special and valued advisor to me. So thank you to Hank.

We are excited for our Company's next chapter, which will include continuing to strengthen our position as one of the country's leading media, entertainment and sports companies. I also look forward to getting to know the investment community and plan to meet with many of you in the coming months.

With that I will turn the call over to my colleague, Bob

Robert M. Pollichino, Chief Financial Officer & Executive Vice President

Thank you, Ted. For our fiscal third quarter, we generated total revenues of $459 million, up 11% and consolidated AOCF of $65.7 million, down 28% both as compared to the prior year third quarter. Third quarter reported results were impacted by certain items of note. This includes executive management transition cost, which are included in unallocated corporate expenses on an AOCF basis.

In addition, MSG Entertainment results, which I will discuss in more detail shortly, reflect increased direct operating expenses related to our new large-scale theatrical production. Excluding the impact of these items, fiscal 2014 third quarter total company AOCF would have been approximately $88 million.

In terms of our business segment results, as compared to the prior year third quarter, MSG Media generated $190.8 million in revenue, an increase of $6.2 million or 3%. Affiliation fee revenue increased $10 million, primarily due to higher affiliation rates, partially offset by the impact of a small decrease in MSG network subscribers versus the prior year quarter.

Advertising revenue increased slightly, primarily due to higher sales generated from the telecast of NHL games and to a lesser extent original programming on MSG Networks, partially offset by lower Knicks related advertising sales. Other revenues decreased $4.1 million, primarily due to the expiration in April 2013 of a short-term programming licensing agreement.

Third quarter AOCF of $92 million decreased 4%, primarily due to an increase in direct operating expenses, largely offset by the increase in revenue. The increase in direct operating expenses, primarily reflects a return to normal levels of rights fee expenses due to the return to a full NHL regular season schedule for all four NHL teams carried on MSG Networks.

With respect to our fourth quarter, please note that we expect MSG Media advertising revenue to be impacted by fewer playoff telecasts as well as fewer regular season telecasts versus the prior year quarter.

Specifically, we telecast five Rangers first-round playoff games this fourth quarter versus a combined 15 Knicks, Rangers, and Islanders first-round playoff games last year. In addition, we telecast 25 regular season games of the Knicks, Rangers, Islanders and Devils this fourth quarter, versus a combined 40 regular season games last year.

Our MSG Entertainment segment, generated $52.8 million in revenues, an increase of 49%, mainly a result of higher event related revenues at the Garden due to an increase in the number of events, primarily more MSG Entertainment promoted events, plus entertainment related revenues at the Forum which reopened on January 15, 2014 and higher event related sponsorship and signage and suite rental fee revenues, driven by both the transformation and the Forum. This was partially offset by lower event related revenues at Radio City Music Hall, which was unavailable for events for the majority of the quarter.

Third quarter AOCF loss of $20.2 million increased $7.1 million, due to an increase in direct operating expenses and to a lesser extent an increase in selling, general and administrative expenses, largely offset by the increase in revenue. The increase in direct operating expenses includes a $9.5 million increase related to the Company's new large scale theatrical production.

Excluding the $9.5 million increase in expenses, MSG Entertainment AOCF would have improved by $2.4 million versus the prior year third quarter. With respect to our fourth quarter, please consider that Radio City Music Hall will again be dark for a significant portion of the quarter, given the postponement of our new theatrical production. Our MSG Sports segment generated $233.7 million in revenues in the third quarter, an increase of 12%.

The increase in revenues is primarily due to higher event related revenues from other live sporting events, professional sports team regular-season ticket related revenue, sponsorship and signage revenues, inter segment broadcast rights fees and suite rental fee revenue. Third quarter AOCF of $9.8 million decreased by $1.8 million due to an increase in direct operating expenses and to a lesser extent higher selling, general and administrative expenses, largely offset by the increase in revenues.

The increase in direct operating expenses was primarily due to higher net provisions for NBA luxury tax and NBA and NHL revenue sharing expense, team personnel compensation expense and other team operating costs. With respect to our fourth quarter at MSG Sports, please keep in mind that the outcome of the playoffs will have a significant impact on year-over-year comparisons.

The Rangers began the second round of the play-offs tonight and have played four home play-off games so far. As a reminder, the Knicks and Rangers played a combined 11 home play-off games in the fourth quarter of fiscal 2013, which generated approximately $47 million in play-off related revenues and $16.4 million in direct contribution for our Sports segment.

Also in our fourth quarter, we expect to incur higher team personnel compensation expense, additional team management expenses and higher other team operating cost as well as higher net provisions for NBA luxury tax and NBA and NHL revenue sharing expense. With respect to the transformation and the reinvention of the Forum, as we close out these projects, we continue to expect total transformation related construction costs not to exceed $1.50 billion and total acquisition and renovation cost of the Forum to be approximately $120 million, net of certain tax credits and expected loan forgiveness. As of March 31, total net cash and cash equivalents was $76.5 million. In addition, our $375 million revolver remained undrawn with borrowing availability unchanged at $368 million, as remains approximately $7 million in letters of credit outstanding.

I will now turn the call back over to Ari.

Ari Danes, Vice President-Investor Relations

Thanks, Bob. Hope, can we open up the call for questions?


Operator: Certainly. [Operator Instructions] Your first question comes from the line of Bryan Goldberg with Bank of America Merrill Lynch.

<Q - Bryan Goldberg - Bank of America Merrill Lynch>: Hi. Thanks. I've got two questions. First, for Tad, you've been at the Company for a few months now and given the focus on generating long-term growth for shareholders, was curious to hear your observation so far on most compelling organic or internal opportunities to drive growth. And then, how are you thinking about external sources of growth? It seems most of the levers the Company has tapped so far have been in the entertainment space. So I guess, do you envision future external opportunities skewing there and how does sports and media opportunities stack up in this regard? And then I've got a follow-up.

<A - Tad Smith - The Madison Square Garden Co.>: Okay. Thank you. First of all, I've only been here - this is actually I think my eight week anniversary day, if I'm not mistaken. So I will dive into to some of the organic opportunity as you said. But you have to understand that this is a lighter touch than you would get farther down in a subsequent call.

But with that, I think you can look at the organic opportunities in several areas and these are merely observations. Observation number one, I think there are opportunities for us to harness technology more effectively and that can be in a range of different ways. But one specific area that comes to mind is in data and analytics. Understanding in the marketplace how to use data in a high-quality way to target it more effectively, it seems to me a robust area of growth.

Secondly, I would say that understanding areas where we can differentiate our product in the marketplace vis-a-vis other competition, focusing on the customer relentlessly, understanding that there is in effect a heterogeneous demand curve for our services and tailoring exactly the right service to each one of those segments. But by the way, part and parcel of that is understanding the nature of this segment is in my mind an area.

And by the way that opens up yet another area, when you think about how we fight, and that can be not just the list price, which I think is what everyone focuses on, but how do we think about pricing and sponsorships, pricing and marketing? How do we tailor the pricing curve precisely to the demand curve? And that is yet another area.

I think another area also as I step back and think - reflect on it, it comes from the national transition that an organization has from the prior era, where we were focused on funding the very large scale transformation of the Forum; two, an area where we can begin to very gently get the organization's mindset around looking for organic growth opportunities.

With an overall goal of maximizing cash flow, you have one mindset. When you have another goal which says, cash flow is critically important, but we also now have a little bit of room to start exploring and actually thinking about organic growth opportunities. That's an interesting and exciting mindset. And you can achieve that and yet maintain the fiscal discipline. And so I think that is yet another area of where I see organic growth.

With particular respect to inorganic or sort of external growth, strategic growth, if you will, yes, I think there is a lot of opportunity in the entertainment segment but I absolutely would not rule out sports or frankly any other segment. One of the things we've started doing two weeks ago, is we put a team on looking at both the internal and external strategic opportunities for the Company. That work is underway and it's a little early to say more about that, but certainly nothing is off the table. You had a follow-up, I believe, as well.

<Q - Bryan Goldberg - Bank of America Merrill Lynch>: Yeah. Thank you. That was helpful. My follow-up is on your disclosure around the softer sub-trends at the RSNs and I believe this was called out during last earnings call as well. So is there any additional color you can share on the drivers of this? Is this a share shift to a distributor that doesn't carry the networks or is there a broader pay-TV subscription issue in the New York market area? I guess, any color you could provide would be great.

<A - Tad Smith - The Madison Square Garden Co.>: Well, let me start by saying, I am very confident in the underlying strength of our networks and in sports and the power of the sports in our networks. And so when I look at the business; admittedly from eight weeks, when I look at it and certainly our people here are very confident about it as well. With particular respect to the subscribers, you might imagine that we had a look at it, knowing this would be my first earnings call, and one of the things that was very interesting is that if you just look at our affiliate subscribers over the last 12 months, there has been no material change in the subs of those affiliates that we do business with. So you might then infer, well then how did we have a very modest, by the way, a very modest subscriber loss and we believe that that is largely a result of new tiering.

But when you step back from the new tiering, we note also that our affiliate revenue grew sharply in the quarter. We are very confident in the structure of our business in the marketplace and we think that we have a number of protections in regard to that going forward and will continue to seek and develop more as we go through affiliate agreements. So that is an area that we are very focused on. We're not concerned about it and we are very much excited about the future overall of our networks and the sports bundle that we have.

<Q - Bryan Goldberg - Bank of America Merrill Lynch>: Thank you very much.

Operator: Your next question comes from the line of Ryan Fiftal with Morgan Stanley.

<Q - Ryan Fiftal - Morgan Stanley & Co. LLC>: Thank you. Two questions if I may. The first is a follow-up on capital allocation. So, I guess, aside from any specific opportunities, maybe it would help if you could share some of your thoughts on your philosophy behind M&A, the kind of strategic or financial thresholds or frameworks you bring when you're considering M&A opportunities?

<A - Tad Smith - The Madison Square Garden Co.>: You mean generically?

<Q - Ryan Fiftal - Morgan Stanley & Co. LLC>: Yes.

<A - Tad Smith - The Madison Square Garden Co.>: Sure. I think with M&A generally, you want to look at whether it is first and independently of anything we might bring, an attractive business. Does it have robust returns? Does it have a strong competitive position? Is the market large, attractive and growing? Do we anticipate sort of either regulatory consumer demand or technological discontinuities to somehow impair the business going forward? And if we conclude at the end of that, that it is an attractive business, we then want to look at whether we are the classic natural owners of it. Is there some set of capabilities, competencies, skills where we can enhance the value of the business with us? And then from that, would that economic rent that we create exceed our cost of capital and then can we have some acquisition that is a reasonable deal that would have overall a return on investment that exceeds our cost of capital for the shareholders. That's the general framework we intend to use and I would say beyond that, there's really not much else to say.

<Q - Ryan Fiftal - Morgan Stanley & Co. LLC>: That is pretty comprehensive. Thank you. And then just a second question following on the Fuse side. First, can you help just simply size the impact to your results when you pull that business out of your financials? And then maybe a little more broadly, thinking back to the strategy at the time of the spin. Fuse was really considered to be a strategic asset that linked your live entertainment cable networks businesses. So I was wondering if you could talk about how the Company's view on that, maybe evolved, that led to the sale?

<A - Bob Pollichino - The Madison Square Garden Co.>: Hi, this is Bob. Let me give you a little bit of the landscape of what you're going to be seeing with Fuse. So first thing that you should be aware of is that for a variety of reasons, Fuse does not qualify for discontinued operations accounting and so our prior periods, when you're going to be looking at our financials will not be recast to reflect the results excluding Fuse. And going forward, Fuse will simply at the conclusion of the transaction, will just not be reflected in our financial results. And of course we expect that to occur within the first quarter of 2015.

So thinking about the economics, we're thrilled with what we were able to accomplish with Fuse and as you know, we have a sale in place. But when you look at the financial results prospectively, you will not see any material impact on AOCF on a total company basis as a result of Fuse no longer being with us.

<A - Tad Smith - The Madison Square Garden Co.>: With particular respect to the strategy part of your question, I would say it's important to see when you look at Fuse, we built a really phenomenal asset in the distribution of Fuse and to a great extent that asset as was apparent from the sale, had a substantial value to other parties.

And when we looked at the landscape, we thought it made the most sense for our shareholders and the future prospects of Fuse to give that asset to another entity that could take better advantage of the distribution that we created than we could and yet, at the same time retain a minority stake. So we effectively have option value on the future growth for our shareholders to be created there and we think that made the most sense and we're very excited about it.

<Q - Ryan Fiftal - Morgan Stanley & Co. LLC>: And did you retain any opportunity to put content that's generated by your live entertainment business onto that network, kind of acting as a producer?

<A - Tad Smith - The Madison Square Garden Co.>: Well, we can produce content for anyone. Not necessarily just Fuse.

<Q - Ryan Fiftal - Morgan Stanley & Co. LLC>: Okay. Fair enough. Thank you.

Operator: Your next question comes from the line of David Miller with Topeka Capital Market.

<Q - David Miller - Topeka Capital Markets>: Yeah. Hey, guys. I have a number of questions. First of all, Bob. The $9.5 million increase related to the "new large scale theatrical production," I assume that's Heart and Lights. And is the $9.5 million - is that an acceleration of the amortization schedule? Did you take an impairment charge or is the $9.5 million something else? And then have a follow-up.

<A - Bob Pollichino - The Madison Square Garden Co.>: There was no impairment charge on our Heart and Lights investment.

<Q - David Miller - Topeka Capital Markets>: Okay. And then, I think one of the reasons the stock's taken a hit here is because of just this MSG Sports line. Is just seems like every single year there is really very little follow through on AOCF. I just think the way you guys - it just seems like with the Knicks, costs keep going up. I'm not just talking payroll, but just costs in general, operating costs to run the team just keep going up all the time. And the story with the sports line was that, you had the Garden in place and sessions are firing, suite revenue was working, everything sold out and it's just there's never any follow through on that line, vis-a-vis margin expansion. I'm wondering if you can speak to that.

<A - Tad Smith - The Madison Square Garden Co.>: Listen with particular respect to our sports teams, they have a tremendous strategic position. There is enormous economic rent accruing to our shareholders from them. You can see it throughout the organization. As far as the other points you have, they weren't really a question other than to say I hear you and I understand what you're saying.

<Q - David Miller - Topeka Capital Markets>: Okay. And then related to that, Tad, if you could just speak to the overall strategic rationale of the Azoff-MSG joint ventured. I think I get it. I get the symbiosis there. I get the synergies there. But for the shareholders that are on this call, I think they look at that as kind of - sort of a murky deal that isn't talked about very much. So maybe if you could just kind of highlight the strategic rationale of that deal and how that fits into your portfolio, I'd really appreciate it? Thanks very much.

<A - Tad Smith - The Madison Square Garden Co.>: Sure. Well, I've actually spent a great deal of time with Irving in my first eight weeks and let me tell you, I'm very excited about the venture, strategically for us for a number of reasons. The venture, as you know and Irving has a tremendous opportunity and deep relationships with talent and also frankly a lot of experience in businesses, in and around the ones we operate, including the one we operate.

So from my perspective, someone like that in an entrepreneurial way can see potentially disruptive value creating opportunities in the businesses that we play in and by the way we have a vehicle where he can pursue them in ways that create substantial value for our shareholders. And that from my perspective is very exciting and has the potential to be significant rate of growth in the future and also value creation in the future. It doesn't mean necessarily that every single quarter will have something to talk about Irving but it also doesn't mean necessarily that our Azoff venture is doing anything other than creating great value for our shareholders and I'm very optimistic about it.

Operator: Your next question comes from the line of Amy Yong with Macquarie.

<Q - Amy Yong - Macquarie Capital (USA), Inc.>: Thanks. I have two questions. Tad, first you talked a lot about external growth but do you feel like any parts of your own portfolio is under monetized in anyway? I think you mentioned sponsorship and advertising. Any part of the business where you're focused on accelerating the growth organically over the next few quarters? And my second question is on Heart and Lights. Can you just quantify the near-term financial impact, given the postponement and what other investments are needed? Thanks.

<A - Tad Smith - The Madison Square Garden Co.>: I'll let - Bob, you take the second part of the question first on Heart and Lights.

<A - Bob Pollichino - The Madison Square Garden Co.>: I'm not sure I understood the question on Heart and Lights.

<Q - Amy Yong - Macquarie Capital (USA), Inc.>: Sure. Can you just talk about I guess the financial impact, given the postponement and how much more investments are needed as we think about it being pushed out into 2015?

<A - Bob Pollichino - The Madison Square Garden Co.>: Well the financial impact was reflected in the quarter, that's the $9.5 million that we spoke to. And I don't think we can yet speak to what we're going to do to tweak the shows. That's a project that's currently underway and I'm positive that will have some more investment. But as Tad said, it's tweaking around what we've already created.

<A - Tad Smith - The Madison Square Garden Co.>: Yeah. I'm sorry if I left you the impression that somehow I was not enthusiastically in favor of organic growth across each of our businesses. Let me just say, of course, yes I am.

And what I meant to say earlier was that, that should come from several different areas. First, a general mindset change, gentle mindset change from maximizing cash flow to seeking and taking advantage of organic growth opportunities throughout the organization in each and every business unit and that's an important thing. When management begins to focus on that, good things start to happen.

Secondly, I think concordant with that, each of the businesses, and I mean each of the divisions and the businesses within them can begin to think about a portfolio of innovation. Meaning when you start thinking about organic growth, you think about okay, I know what I can do to achieve growth this year. What am I going to have to do for next year? You begin thinking ahead about how you build up innovation after innovation after innovation.

And by the way technology, I think I mentioned earlier, has applications to grow our revenue in every single one of our businesses. Data and analytics has opportunities to improve our reach with customers, our understanding of the customer needs, our pricing for customers in every single one of our businesses.

We have at the moment underway a team that is looking at, not just pricing but finding new inventory where we can expand our sponsorship revenue, finding new opportunities to get revenue in the ad sales area in places other than just the game, how do we think about extending our revenue reach and growth in areas that are on shoulder periods of the game; every single element of this all the way through. Not to mention in the entertainment area, how do we think about targeting our marketing more effectively, how do we think about understanding what the price point is? How do we think about dynamic pricing of tickets?

Every single bit of this to me is an area and in the sports arena, again, the same opportunities here lie. How do we think about exactly marketing more effectively? How do we add, fill up the Coliseum or fill up the Arena when the Liberty is there? How do we think about positioning differently? How do we think about making sure that we provide the most value-add that we can and create a differentiated experience for the Knicks? How do we think about making sure that every single suite is priced correctly for the Rangers? Every single one of these, we're going to be tackling and we already are.

<Q - Amy Yong - Macquarie Capital (USA), Inc.>: Great. Thank you.

Operator: Your next question comes from the line of Vasily Karasyov with Sterne, Agee.

<Q - Vasily Karasyov - Sterne, Agee & Leach, Inc.>: Thank you. Good morning. Tad, welcome to the community.

<A - Tad Smith - The Madison Square Garden Co.>: Thank you.

<Q - Vasily Karasyov - Sterne, Agee & Leach, Inc.>: So, two questions. One about CapEx remaining on the transformation project if I may and the other one I'll ask right away. So the sports segment has never been easy to model. Now we have more changes going on there. So if you guys could give us, talk at least about puts and takes in terms of costs and revenue over the next couple of years, what's going to happen with the management changes at the Knicks and so on, anything that we could sink our teeth into in terms of estimating costs and revenue, that would be great. Thank you.

<A - Tad Smith - The Madison Square Garden Co.>: Well, let me just say, the sports segment is a premier segment, not just at our Company, not just in the nation, but really in the world. It is an enviable asset with great businesses and great assets. We love it. And I don't know what else to say. And it has a bright future. Bob, do you want to comment on the specific question he asked about the cost?

<A - Bob Pollichino - The Madison Square Garden Co.>: Sure. So the two pieces. We - as I said before that with respect to the transformation, we still have an expectation of our cost not to exceed $1.50 billion. Through March 31 we've incurred approximately $1.28 billion and of the $1.28 billion we've paid actually in cash $991 million. So then with respect to the Forum, our expectation is that the total acquisition and renovation costs are approximately $120 million net of certain tax credits and loan forgiveness. Through March 31, with respect to the acquisition, renovation cost incurred is about $117 million, of which approximately $95 million has been paid in cash and that $95 million is inclusive of the acquisition cost, the cost to renovate, less the impact of the historic tax credit and the loan. That's where we stand right now.

Operator: Your next question comes from the line of David Joyce with ISIG.

<Q - David Joyce - International Strategy & Investment Group LLC>: Thank you. If you could please provide some update on the competitive landscape with the Barclays Center and secondly, how many events at Radio City Music Hall were there last year that we're comping against, while it's dark? Thank you.

<A - Tad Smith - The Madison Square Garden Co.>: Well, let me take the first part of your question. I don't have any comment on any particular competitor. But what I will say and you might find interesting is that we did an analysis from sort of November 1 of the most sort of 2013 to the end of April 2014, the one just completed, based upon publicly available data and we included in that all of the major arenas in the New York DMA and we looked at, based again on the publicly available data, how many concert nights were there and how many of them went to the Arena versus the rest of the crowd?

We also compared that to a five-year picture before the transformation and the results to me were very interesting. The first insight we had is that between November 1 of last year and the end of April this year, the number of concert nights at the Arena A, went up; but, B, and perhaps more interestingly to some of you on the call, that there was no material market share change in those concert nights at the Arena during that period in question.

Operator: Your next question comes from the line of Ben Mogil with Stifel.

<Q - Ben Mogil - Stifel Nicolaus Canada, Inc.>: Hi. Good morning and thanks for taking the question and Tad, welcome. So just sort of two questions, one for Tad and one for Bob. So Tad, you talked a lot about technology and getting to know the customer better and everything like that. Do you see a world where over time you just aggregate some of the intermediaries, like eventually you do ticketing yourself, you have two big ticketing venues, you want to know the customer better, do you just aggregate the intermediaries? And the same thing on the broadcast side? Like do you feel there's room, even looking within the MSOs for some kind of direct-to-consumer kind of offering?

<A - Tad Smith - The Madison Square Garden Co.>: I love both questions. I am tempted to say something but I'm just mindful. I've only been here eight weeks and on those - I love the questions though and they're very intriguing. So ask me again on a subsequent call.

<Q - Ben Mogil - Stifel Nicolaus Canada, Inc.>: Okay.

<A - Tad Smith - The Madison Square Garden Co.>: I know, they are just great questions and if I'd been here a year and half and really had sort of a robust look - because the key answers to those questions are all about data and how the entry barriers are changing, how the things are disintermediating and they are great questions. It's just a little early for me on the call.

<Q - Ben Mogil - Stifel Nicolaus Canada, Inc.>: Okay. Fair enough. And then I think Bob just for you, I want to understand a little bit better the $9.5 million sort of, not write-down but sort of $9.5 million charge if you will or cost around Heart and Lights. I mean, I'm kind of curious, given that the show didn't really open, I think it was at best in previews, why you weren't able to sort of keep capitalizing sort of everything other than the marketing expenses? And sort of the way that you do in film accounting, where you capitalize everything other than marketing, and keep capitalizing that until the show actually opens? Or is that sort of a sign that the show is going to be some - different enough from what it started off, being that you had to make these adjustments?

<A - Tad Smith - The Madison Square Garden Co.>: Well, it's actually Tad. And I'll answer that one for you. Bob is right here also. But you actually answered your own question, in part with your question. And what I mean by that is some of the expenses were not able to be capitalized according to Generally Accepted Accounting Principles and you mentioned one, marketing and some other operating costs.

So let me just speak to Heart and Lights for a minute. Heart and Lights, and frankly the Spring show to us is not only something that is critically important for our strategy. It's something and it's hard to sort of convey that when we're talking about the postponement. It's something that's deeply exciting to all of us for the Company. And what I mean by that is this, what happened with Heart and Lights is we were very excited about it, the marketing was beginning to build and we saw the first run through about two weeks before the show was scheduled to open.

By the way, you might ask why did we wait so late? The first run through was just contingent upon a fantastic marvelous sets. We had a lot of things coming together and so when we pulled it all together for the first run through, every time the Rockettes went up our hearts soared, the sets were fantastic and amazing and the technology was dazzling. However, the narrative just didn't - when you put it all together, the narrative just wasn't as good and experience as our customers have come to expect.

And so we made the decision, because this is not like opening a Broadway show or opening a movie where you do a run and then you close down and you move on. This is something that we anticipate being a perennial asset that our shareholders are excited about and that our customers are thrilled to attend every year, year-after-year. And so we made - we would have loved by the way to have simply opened it later. That was an option, except as I mentioned earlier in the call, we're thrilled to have the NFL draft this coming week inside Radio City. So we simply ran out of time. We couldn't postpone and then we said, okay well let's look at the rest of the summer? Was there another option? In fact well, to our shareholders' delight the Radio City is booked for the rest of the year. So we said we really had to make a decision and the decision was rather than open something where we know the Rockettes are fantastic, the set is dazzling, the technology is great everything about it excites us, but the narrative just isn't quite right, let's postpone, and that's what happened.

<A - Ari Danes - The Madison Square Garden Co.>: Hope, we have time for one last caller.

Operator: Thank you. Your final question comes from the line of Michael Morris with Guggenheim.

<Q - Mike Morris - Guggenheim Securities LLC>: Thanks. Good morning, guys. Tad, I'm trying to reconcile your comments about maximizing shareholder value with the fact that you guys aren't using any debt financing right now in a period of pretty much historic low interest rates. Seems to me that even conservatively, you have a lot of $1 billion of capacity there. So I guess my questions are pretty specific. One, are you philosophically opposed to using debt financing?

Two, do you think that your businesses don't lend themselves to debt financing or using that - using debt financing? Or three, you talk about investing in the business and I think that most of us are comfortable or supportive, but if you have, call it $1 billion of capacity, do you see $1 billion worth of investment opportunities out there that would preclude you from or maybe give you the opportunity later on to use your balance sheet? Thanks.

<A - Tad Smith - The Madison Square Garden Co.>: Well, I'm going to ignore the third part of your question if you don't mind. Let me address the first two. In short, I would say this. Whether - how a company - well, the precise optimal capital structure of a company, the weighted average cost of capital, the exact mix, both in the gearing of the business and what it can do in the cycles, the predictability of the revenue, the predictability of the cash flow - all of those things, combined with the relative level of leverage it can support is a very, very important conversation for any management and board to consider, and we do that here.

So it's not as if we have any sort of view or we don't understand optimal capital structure or we don't understand the weighted cost of capital or we don't understand any of that. We understand all of that fully well here. What I think I said and what we really mean is that, for the time being and for the time being only, we are focused on building the asset value and the long-term value of our Company. And should that change, we'll certainly let you know.

By the way, it may be interesting for you to hear that, as you know, our Chief Financial Officer, Bob Pollichino, has announced his retirement. And so as you might imagine, I'm interviewing a lot of CFO candidates. And when I ask them this question - what is your view on capital allocation, to a person, they all say something very important that resonates with me and, frankly, resonates with our Company, which is the most important thing to focus on first is what is the strategy and what are the growth opportunities for the Company looking forward. And then you look at the sources and uses of cash and then how to apply it thereafter. And that's exactly what we are doing, and that's exactly what you should infer from my comments.

<Q - Mike Morris - Guggenheim Securities LLC>: Okay. All right. And then, just operationally, we're seeing the start of some consolidation of distributors. Obviously, Time Warner Cable and Comcast are both customers of yours or - you work with both of them. Does their consolidation impact you in the near term with respect to your affiliate fees and affiliate fee potential? And how do you think about the longer-term opportunity or risk, given some potential for more consolidation of pay-TV space?

<A - Tad Smith - The Madison Square Garden Co.>: In the near-term, no, we have contracts that give us some comfort. And long-term, obviously, I will go back to what I said about the underlying strength of our sports assets and also the strength of our networks. We believe that our networks have a real must-have value and we are very confident that that will be sustained in the future.

Secondly I would say that if you look at the composition of the New York DMA, it's tends to be highly fragmented along the various MVPDs and moreover it's not obvious to us that a Comcast-Time Warner combination would materially change that. So we think our future is very bright.

Operator: There are no further questions at this time. I would now like to turn the call back over to Ari Danes.

Ari Danes, Vice President-Investor Relations

Thanks for joining us. We look forward to speaking with you on our year-end call in August. Have a good day.

Operator: Thank you. This does conclude today's conference call. You may now disconnect.


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