Madison Sq. Backyard Sports activities Corp. (MSGS) Q2 2022 Earnings Name Transcript


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Madison Sq. Backyard Sports activities Corp. (MSGS 0.62%)
Q2 2022 Earnings Name
Feb 03, 2022, 10:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Good morning. Thanks for standing by, and welcome to the Madison Sq. Backyard Sports activities Corp. fiscal 2022 second quarter earnings convention name. [Operator instructions] I might now like to show the decision over to Ari Danes, investor relations.

Please go forward.

Ari DanesSenior Vice President, Investor Relations

Thanks, operator. Good morning, and welcome to MSG Sports activities fiscal 2022 second quarter earnings convention name. Our President and CEO Andy Lustgarten will start this morning’s name with an replace on the corporate’s operations. This can be adopted by a overview of our monetary outcomes with Victoria Mink, our EVP, chief monetary officer and treasurer.

After our ready remarks, we’ll open up the decision for questions. For those who wouldn’t have a replica of at present’s earnings launch, it’s obtainable within the buyers part of our company web site. Please be aware of the next. Immediately’s dialogue might include statements that represent forward-looking statements inside the which means of the Personal Securities Litigation Reform Act of 1995.

Buyers are cautioned that any such forward-looking statements aren’t ensures of future efficiency or outcomes and contain dangers and uncertainties and that precise outcomes, developments and occasions might differ materially from these within the forward-looking statements on account of varied elements. These embrace monetary group perceptions of the corporate and its enterprise, operations, monetary situation and the business during which it operates, in addition to the elements described within the firm’s filings with the Securities and Change Fee, together with the sections entitled Threat Elements and Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations contained therein. The corporate disclaims any obligation to replace any forward-looking statements that could be mentioned throughout this name. On Pages 4 and 5 of at present’s earnings launch, we offer consolidated statements of operations and a reconciliation of working revenue to adjusted working revenue, or AOI, a non-GAAP monetary measure.

And with that, I am going to now flip the decision over to Andy. 

Andy LustgartenPresident and Chief Government Officer

Good morning, and thanks for becoming a member of us. Once we spoke final quarter, we shared the constructive momentum we have been seeing throughout our enterprise, pushed by robust client and company demand. These constructive indicators are clearly mirrored in our fiscal second quarter monetary outcomes, which embrace revenues of $290 million and adjusted working revenue of $56 million. Even with the onset of the Omicron variant, which briefly slowed us down, we’re pleased with the strides we have now made in driving our enterprise again.

For our second quarter, I am happy to report that our per recreation revenues have been above pre-pandemic ranges. This consists of per recreation suite and sponsorship revenues, in addition to F&B and merchandise per caps that exceeded outcomes for the fiscal 2020 second quarter, whereas per recreation ticket income was according to the outcomes for that very same interval. And primarily based on our present trajectory, we anticipate whole revenues for this fiscal yr, each together with and excluding our progress in media rights to exceed our final full pre-pandemic yr, professional forma for the spin-off. The velocity with which our enterprise has returned and the demand and enthusiasm we’re seeing from our followers and companions reinforces our conviction that because the proprietor of two of essentially the most acknowledged skilled sports activities franchises, we’re uniquely positioned to drive long-term progress and worth creation for our shareholders.

Let’s now focus on intimately how our enterprise is performing. Our groups are greater than midway by means of the ’21/’22 NBA and NHL common seasons. And as we look forward to a number of extra months of thrilling competitors, we proceed to be happy with the response from our followers. On our final earnings name, we mentioned the energy we have been seeing in our seasoned tickets, which symbolize a major majority of tickets offered.

We additionally famous the pandemic’s lingering impression on particular person and group tickets, that are a minority of general ticket gross sales. All through a lot of the second quarter, we have been steadily closing the hole in particular person and group gross sales relative to pre-COVID ranges. Then towards the tip of December, the Omicron variant slowed a few of this constructive momentum, and in addition brought on a small dip in attendance, however indicators are pointing in the appropriate course once more because the impression on gross sales has leveled off and the share of ticket holders attending video games is already approaching pre-Omicron ranges. For these of you who’ve attended the Knicks or Rangers recreation this season, you’ve seen firsthand, the Backyard is rocking, which is a testomony to how great our followers have been.

Their engagement has additionally translated into robust spending ranges inside the world. Within the second quarter, we noticed double-digit proportion will increase in F&B and merchandise per caps in comparison with pre-pandemic ranges. And as of early December, Knick’s jersey gross sales on the Backyard had already exceeded gross sales for every of your entire ’18, ’19 and ’19/’20 seasons. We’re additionally seeing that enthusiasm lengthen to company hospitality.

In the course of the quarter, common utilization of suites for Knicks and Rangers video games steadily improved, basically returning to full occupancy. And whereas it took a short lived step again on the finish of the quarter as a result of Omicron, common utilization ranges have been trending again up once more over the previous a number of weeks. By way of advertising and marketing partnerships, our deal momentum has continued. As you recognize, in November, we introduced our first partnership within the cellular sports activities gaming house with BetMGM, which was adopted quickly after by our partnership with Caesars Sportsbook.

Each agreements are expansive multiyear offers accomplished in partnership with MSG Leisure that span the breadth of our mixed portfolio and embrace deep integration with the Knicks and Rangers. With cellular sports activities gaming now stay in New York State, our companions have hit the bottom working and are already seeing the worth we offer in serving to to drive their enterprise, and we anticipate additional alternatives to extend our publicity to this sector. However cellular sports activities gaming is in the one progress class. We additionally just lately accomplished multiyear offers with two corporations in blockchain house, Coinbase and Socios and are actively pursuing new alternatives in different classes.

The leagues’ ongoing dedication to introduce new stock additionally gives further potential upside for our advertising and marketing partnerships. For example, the NBA just lately introduced the enlargement of its jersey patch program to now embrace participant warm-up shirts and jackets. That is on prime of the in-game Jersey patch, which was launched in 2017 and has solely continued to extend in worth as demonstrated by a number of current offers throughout the league in comparable cities. As well as, as you recognize, the NHL beforehand introduced the introduction of a jersey patch starting subsequent season, which we additionally consider will generate important curiosity from potential companions.

Earlier than I flip issues over to Victoria, I would prefer to briefly contact on one thing we have spoken about previously, and that is the substantial underlying worth of our two iconic franchises, the Knicks and the Rangers. Since we final spoke, there have been further transactions, which exhibit the continued demand that exists for skilled sports activities groups. They embrace a personal fairness agency reportedly rising its illiquid minority funding within the Golden State Warriors, at a valuation of above $5 billion and the bulk stake sale of the Pittsburgh Penguins, at a reported valuation of roughly $900 million. Nearer to dwelling, in December, Sportico revealed a rating of NBA workforce valuations, with the Knicks main the league at $6.1 billion in accordance with their record.

That very same month, Forbes up to date its NHL workforce valuations with the Rangers retaining the highest spot, whereas additionally changing into the publication’s first NHL franchise valued at $2 billion. As we identified previously, these estimated workforce valuations proceed to considerably exceed our present enterprise worth, additional highlighting the untapped worth of those property. In closing, with greater than half of the fiscal 2022 already behind us, we’re pleased with how our enterprise is performing. And primarily based on our present trajectory, our revenues for this yr are on tempo to exceed our professional forma outcomes from our final full pre-pandemic season.

On the heels of this momentum, we see a shiny future for our firm with substantial alternatives for progress. Our sponsorship enterprise has come roaring again as companions reengage with our property and types. And with further classes to focus on and helpful new stock being launched, we see an actual alternative to take this enterprise to file ranges sooner or later. On the media aspect, our native and nationwide rights charges present regular contractual progress, and we have now began to profit from the NHL’s new U.S.

media offers. And there’s even additional upside potential when the NBA’s nationwide rights come up for renewal in just a few years. We additionally will look to commercialize new digital alternatives as we pursue recent and revolutionary methods to have interaction with our followers, together with NFTs, the place we have now already made inroads with a number of Knicks and Rangers merchandise. And naturally, as our groups enhance their on-court and on-ice efficiency, almost each facet of our enterprise might see income acceleration.

So we’re excited in regards to the path forward for our enterprise and stay assured in our potential to generate long-term worth for our shareholders. With that, I am going to now flip the decision over to Victoria.

Victoria MinkChief Monetary Officer and Treasurer

Thanks, Andy. And good morning, everybody. I wish to begin by reviewing our fiscal 2022 second quarter monetary efficiency after which present an replace on our steadiness sheet, together with our current debt refinancing. Outcomes for the fiscal second quarter mirror preseason play, in addition to the beginning of the ’21/’22 common seasons for the Knicks and Rangers.

I would remind you that the fiscal 2021 second quarter mirrored the impression of the COVID-19 pandemic, together with delayed begins to the 2021 season and fan attendance restrictions on the Backyard, which have an effect on the year-over-year comparability of outcomes. Within the prior interval, the Knicks performed 4 dwelling video games with out followers, whereas the Rangers performed none. This compares to 35 whole pre and common season dwelling video games with out capability restrictions within the current-year interval. In consequence, whole revenues for the quarter have been $289.6 million as in comparison with $28.8 million within the prior-year interval, with important will increase in each main income line.

Specifically, nationwide and native media rights charges represented $112.3 million of income this quarter, which displays a return to regular ranges of native media rights charges, anticipating full seasons for each groups, contractual escalators on the NBA’s nationwide media offers, in addition to the impression of the NHL’s new U.S. media rights offers, which started this season. For the steadiness of our income, the bulk was ticket associated, which was according to pre-pandemic ranges on a per-game foundation, in addition to suites and sponsorship, which, as Andy talked about earlier, are above pre-pandemic ranges. This quarter’s sponsorship outcomes additionally mirror our new partnerships in sports activities betting, a class which we anticipate to be a major contributor for the remainder of the fiscal yr, with further progress as we look forward to fiscal 2023.

Adjusted working revenue elevated $74.7 million to $55.7 million as in comparison with the prior-year interval. This enchancment was because of the improve in revenues partially offset by a rise in direct working bills and to a lesser extent, larger SG&A bills. the rise in direct working bills primarily mirror the impression of the COVID-19 pandemic within the prior-year quarter, together with the delayed begin to the 2021 NBA and NHL seasons. This included will increase in workforce personnel compensation, different workforce working bills and enviornment license charges.

The rise in SG&A bills was primarily as a result of larger advertising and marketing prices, in addition to charges associated to the businesses sponsorship illustration agreements and companies settlement with MSG Leisure. Now turning to our steadiness sheet. In December, we enhanced our monetary flexibility by refinancing the Knicks and Rangers senior secured revolving credit score amenities at decrease rates of interest. Each amenities, which have been beforehand set to mature in November 2023, have been expanded for an additional three years to December 2026.

Moreover, the Knicks’ $75 million unsecured revolving credit score facility which was additionally set to mature in November 2023, was extinguished. This refinancing demonstrates each the standard of our property and the boldness within the long-term outlook for each our groups and leagues. On the finish of the quarter, we had $360 million of whole debt excellent comprised of $330 million beneath the Knicks and Rangers senior secured revolving credit score amenities and $30 million superior from the NHL. This debt steadiness displays a $25 million compensation on the Rangers senior secured revolving credit score facility through the interval.

Turning to our liquidity. As of December 31, we had $249.8 million of liquidity comprised of $54.8 million of unrestricted money and money equivalents, and $195 million in borrowing capability beneath the workforce’s revolving credit score amenities. Our quarter finish money steadiness of $54.8 million represented a web improve of $21.2 million, in comparison with our September 30 steadiness of $33.6 million. I might additionally add that this week, we paid down an extra $25 million on the Rangers revolver from money readily available and money circulation from operations, which displays our confidence within the trajectory of our enterprise given the momentum we’re seeing for the rest of fiscal 2022 and past.

With that, I’ll now flip the decision again over to Ari. 

Ari DanesSenior Vice President, Investor Relations

Thanks, Victoria. Operator, we might now prefer to open the decision for questions. 

Questions & Solutions:

Operator

[Operator instructions] Your first query comes from the road of David Karnovsky with J.P. Morgan. 

David KarnovskyJ.P. Morgan — Analyst

Hello, thanks for the questions. Andy, as we have a look at your share worth because you final reported in November, it is underperformed towards a few of these constructive catalysts you talked about just like the Forbes worth or the Penguin sale. So I imply, once you see this disconnect, what are some instruments that you’ve got, both capital allocation or in any other case which might be in your management and will doubtlessly assist slim that hole to asset worth? 

Andy LustgartenPresident and Chief Government Officer

Thanks, David. So earlier than I flip over to Victoria, who will speak a bit of bit extra about capital allocation. I believe, we should always simply take a step again. And as you talked about, we agree.

We predict our inventory worth doesn’t appropriately mirror the worth of our property. The pandemic has clearly been a tough working surroundings for each enterprise, however particularly tough for stay leisure. However I am actually pleased with how rapidly we bounce again to pre-pandemic ranges. So — however as we noticed with Omicron, it got here in a short time, and we do assume we’re largely by means of, if not completely by means of it.

We do not know what is going on to come back across the nook subsequent. So we do want to take care of our monetary flexibility to deal with it. However I do really feel actually good in regards to the enterprise. Our sponsorship enterprise has come again and is already at file ranges, and we consider we will proceed to drive it to additional ranges sooner or later.

Our media rights charges proceed to develop, and we predict there’s future upside in renewals. And because the workforce efficiency accelerates, each on-ice and on-court, we predict there’s different methods to develop throughout each space of our enterprise. In order our working enterprise continues to carry out, we predict that our shareholders will come together with that as properly. However to your level, there’s capital allocation selections, and Victoria will you’re taking it? 

Victoria MinkChief Monetary Officer and Treasurer

Yeah, certain. Good morning, David. Sure, so by way of capital allocation, you may recall that we spoke in the previous few quarters, about how paying down debt is our nearer-term focus. And that is what we have been doing, lowering our revolver borrowings.

We spoke about $25 million on the Rangers facility within the quarter, in addition to an extra $25 million that we have paid down simply this week. And as a part of our current refinancing, we lowered our borrowing prices, we freed up some restricted money. We prolonged our maturities, and we additionally extinguished the Knicks $75 million unsecured revolver, which displays the rising energy of our liquidity place. And whereas Omicron is a reminder that we should be prudent and keep flexibility till the pandemic meaningfully recedes.

Now as Andy mentioned, we really feel actually good in regards to the trajectory of our enterprise. And over time, we’ll consider all choices for using our free money circulation. 

David KarnovskyJ.P. Morgan — Analyst

OK. After which, I do know it is a methods off, Andy, however you probably did point out renewals. The NHL is heading into the latter a part of a 12-year cope with Rogers in Canada. And I might admire any high-level ideas you’ve on the panorama for rights in that market and whether or not you assume the lead might equally be positioned for a rise like they realized within the U.S.? Thanks.

Andy LustgartenPresident and Chief Government Officer

Pleasure, David. So we mentioned it, I am going to say it once more. I like being a rights holder, a premium media rights holder. I believe, there’s — sports activities is essentially the most premium of media property, and we predict that there is at all times gonna be a requirement for it.

Clearly, in Canada, the NHL is essentially the most premium of sports activities property and have accomplished very properly in that market for a very long time. And I look ahead to what the — the NHL and the league workplace is gonna have the ability to do when the rights expire. Now it is a few years out. I believe, it is ’25, ’26 earlier than it expires.

So it is a bit of out. However I believe, that proudly owning such premium rights in a premium market will ship worth for us. 

David KarnovskyJ.P. Morgan — Analyst

Thanks.

Ari DanesSenior Vice President, Investor Relations

Thanks, David. Operator, we’ll take the subsequent query.

Operator

Your subsequent query is from Brandon Ross with LightShed Companions.

Brandon RossLightShed Companions — Analyst

Hey, Andy, you talked about further sports activities betting alternatives to come back within the ready remarks past the MGM and Caesars offers that you just introduced. I used to be questioning if you happen to might measurement that chance for us, even when it is relative to the offers that you just already signed and inform us perhaps what stock remains to be obtainable to be offered.

Andy LustgartenPresident and Chief Government Officer

So thanks, Brandon. I at all times need to begin once I discuss sports activities betting. To start with, I have been saying this for a very long time, and I consider it. Sports activities betting is fabulous for fan engagement, and we’ll see this throughout many features of our enterprise.

In order a part of the sponsorship income that we’re producing from it, that is nice for us. Now let’s flip to the sponsorship. So in New York, we have all seen the launch. It has been huge right here.

I believe, it is the most important launch of any market that anybody that has gone into and that is in one of the restrictive authorized programs, frameworks round sports activities betting with the very best tax charge. So what does that inform me? There’s upside right here. We have hit the bottom working that MGM and Caesars have been nice companions. And are very enthusiastic about what we have been in a position to do with their enterprise.

Now what we have seen is there’s a variety of — they love to achieve our followers, proper? And so, how will we attain our followers greatest? And I believe, that is the way in which we take into consideration any partnership. We prefer to preserve it premium. We’ll preserve it restricted. So we have now two companions now.

Each companions and anybody else we might ever speak to or we have been speaking to, are very centered on how will we attain our followers that by means of on-ice, on-court, signage, digital property, digital, by means of our social platforms, official workforce designations, hospitality has been a really huge a part of it, being the fastened base for his or her on-line gaming gamers, and our database of our followers. So whereas we’re not gonna be confide in each associate, we do assume there’s house to doubtlessly add one other on the proper time, who’s going to have the identical imaginative and prescient for us and the way we consider that we should always drive this enterprise. 

Brandon RossLightShed Companions — Analyst

Nice. After which, past sports activities betting, are there new classes of sponsorship we ought to be eager about or areas which might be underpenetrated the place there might be some bigger alternatives to actually develop sponsorship from right here? 

Andy LustgartenPresident and Chief Government Officer

Certain. So I believe, we should always begin from the place — it has been — as we come out of the pandemic, one of many issues I actually wish to applaud the leagues is absolutely working with the groups to seek out new stock, new kinds of stock to ship in order that we’re capable of finding companions. And I can not downplay the importance of premium stock. Each time we’re in a position to supply one thing like a Jersey patch, we’re in a position to not solely drive the income from the patch, however from a complete holistic partnership.

And what we discovered particularly when the NBA launched its patch is a complete host of latest companions got here into the house that did not exist and did not spend. Right here in New York, Sq. Area has been an incredible associate. Anthony is a superb chief, and so they’ve been an excellent associate of ours, and we anticipate to proceed to develop our relationship. The NHL is opening up Jersey patch, only in the near past opened up the Helman patch.

The NBA is opening up further methods to make use of a patch on warmup right here. So each time when these sort of classes — these sort of stock open, we’re in a position to drive and develop new classes. Do not let me misunderstand — do not let me misguide you right here, although, there are classes that we have to proceed to drive and develop right here. We’re — I believe, assist insurance coverage health, dwelling enchancment.

These are all classes which have upside for. And if you happen to would have requested me two or three years in the past about the entire blockchain house that it is superb how briskly that modified, and we have already got two nice companions on this house. And we anticipate as blockchain continues to develop, there will be new alternatives there. So we really feel actually good about persevering with to have the ability to drive our sponsorship enterprise.

There’s loads to do right here. We’ve nice property, and we’re within the biggest metropolis. So thanks. 

Brandon RossLightShed Companions — Analyst

Thanks.

Operator

Your subsequent query is from Curry Baker with Guggenheim Securities.

Curry BakerGuggenheim Companions — Analyst

Hey, good morning. Thanks for the query. Andy, larger stage, are you able to assist us take into consideration the monetary impression of constructing it to the playoffs? How ought to we take into consideration dwelling playoff video games translating into incremental AOI, in addition to long-term worth creation? And final half, is there any distinction to think about between a Knicks versus Rangers playoff recreation? 

Andy LustgartenPresident and Chief Government Officer

Thanks, Curry. So let me begin. We might be thrilled, each groups, both workforce for a playoff run. It is an excellent expertise for our followers.

It is an excellent expertise. It is nice for New York Metropolis. And I believe, the followers have actually been embraced each groups to this point this yr. A playoff run is completely different than an everyday season.

So once you take an element, what does it imply to be — what drives our enterprise, proper? The 2 greatest value elements of our enterprise are already paid for in fastened. That is participant salaries and our enviornment lease. In order that’s fastened, and there is not any incremental value for that. So largely, the incremental income that comes from a playoff, drops to the underside line.

After I say largely, there are incremental gate taxes. There’s income sharing. There’s some bonuses we have now to pay, however the lion’s share of it drops down. Now let me take that again even additional.

When you concentrate on premium occasions, premium video games, so comparable to when the Lakers got here right here versus the Knick’s or Henrik’s retirement night time, we’re in a position to drive considerably premium revenues for these kinds of video games. And I would anticipate the playoffs, we might see related kinds of revenues. And as if we’re so fortunate to have a number of rounds, every spherical would drive additional income. So a long term can be very helpful for our enterprise for this for now.

However we should always even park that for one sec as a result of present revenues are just one a part of it. Properly, when we have now a long term or perhaps a run, it has knock-on results for a number of years. It helps drive ticket renewals. It helps drive pricing, it helps us drive renewals for sponsorship, suites.

And in the long run, it should even have an effect on media rights. So each time, we have now lengthy playoff runs and we be ok with using our groups and the place they are going, we predict that there is potential to drive our enterprise and proceed to drive the enterprise. 

Curry BakerGuggenheim Companions — Analyst

Thanks for the reply. Admire it.

Operator

Your subsequent query is from Paul Golding with Macquarie Capital.

Paul GoldingMacquarie Financial institution — Analyst

Thanks a lot. Andy, I used to be questioning if you happen to might assist us perceive the potential income alternative or relationship alternative from the NFT partnerships and the way you see that evolving? I believe, we have seen friends like at crypto.com enviornment take time to put money into NFTs for these franchises. So I simply needed to get a view on that after which a fast follow-up. Thanks.

Andy LustgartenPresident and Chief Government Officer

Certain. Thanks, Paul. So NFT is like different collectibles as entities and in reality, is a digital collectible, do fall beneath — there are specific rights the groups have and there are specific rights the leagues have. And so, collectively, that makes up the entire ecosystem.

So I truly take into consideration NFT a bit of bit at a step up, and I like the instance you had, crypto.com enviornment, proper? So we have got two nice companions already that we introduced in, Socios and Coinbase. We predict there are different methods to play within the house as properly, particularly as blockchain it continues to develop. However going again to NFTs, we do have sure rights. The Knicks launched a restricted NFT launch over — on the finish of final season and over the summer time.

We just lately launched Henrik, NFT round his retirement night time. What’s nice, not solely the income that that generates, but in addition simply the fan engagement and the continued fan engagement and talent to talk with our followers and listen to and watch what they do with the NFTs. And so, there’s loads of advantages right here each at blockchain modifications because the leagues who’ve accomplished an incredible job, particularly the NBA and NHL with Dapper Labs and Topshop, like there’s loads of income that they are being generated that flows by means of as a collective income. And so, we predict it is a rising enterprise, and there is some ways for us to play out. 

Paul GoldingMacquarie Financial institution — Analyst

Nice. And does that come by means of on the sponsorship aspect? Or will we see that simply in rights, only a completely different type of proper? How ought to we take into consideration that hitting the P&L? 

Andy LustgartenPresident and Chief Government Officer

So there will be some — after we launch NFTs, you may see one thing and hit our merchandise. To date, the 2 partnerships we have now are far more within the sponsorship and hospitality aspect of the world, which is mostly the way in which we take into consideration our companions, proper? There’s a element of viewers of signage and knowledge retired followers, it is at all times the hospitality. So we predict there’s methods to proceed to drive this enterprise.

Paul GoldingMacquarie Financial institution — Analyst

Nice. Thanks. And only a fast housekeeping one. By way of the MGM and Caesars partnerships, you have been stay — the state’s been stay for just a few weeks now.

Ought to we take into consideration the cadence as being proportional by way of what we might see going ahead as — by way of late stage in F2Q and now you’ve extra runway, and it ought to be proportional income represented or do you see acceleration now that you just’re form of extra underway? How ought to we take into consideration the cadence of layering that in? 

Andy LustgartenPresident and Chief Government Officer

So let me simply add one factor, after which Victoria might leap in after me. However bear in mind, after we did announce our offers to finish the deal. Caesars was in early November. That MGM was in late November.

So there’s solely gonna be a chunk of that on this yr. In fact, because the time goes on and most of our partnerships, we see step-ups within the yr. This was a partial yr. Add something? 

Victoria MinkChief Monetary Officer and Treasurer

No, Andy, I believe, you lined it completely, proper? We’ve a restricted quantity recorded on this quarter. We’ll anticipate will increase as we’re performing by means of a full-quarter interval after which into the longer term.

Andy LustgartenPresident and Chief Government Officer

And I am going to add, I do assume there’s room to proceed to develop this class. And if we have been — and I discussed as properly, we do have essentially the most — one of the restrictive gaming legal guidelines right here in New York State. There’s been dialogue of Kiosks, there’s been dialogue of different modifications that might drive that change in — modifications in tax code, these issues will impression our enterprise, however we do really feel excellent at the place we’re proper now, and we do assume there’s additional upside. 

Paul GoldingMacquarie Financial institution — Analyst

Thanks a lot.

Operator

Your subsequent query is from David Joyce with Barclays.

David JoyceBarclays — Analyst

Thanks. A few questions, please. First, on eager about the sustainability of the per cap spending progress. You’ve got, clearly, talked about some new areas like NFTs, perhaps that is lumped into the merchandising aspect.

However what else do you assume you are able to do on meals and beverage and merch to assist maintain this progress and perhaps even broaden it some extra? I imply, what is the technique there? And what’s your outlook on some sustainability versus this pent-up demand of individuals popping out of COVID? After which, secondly, on sports activities betting in that space, might we take into consideration our income stream associated to the info in your IP that is provided finally to the sports activities books, which means is that a part of your media rights already? Or is that some incremental upside from right here? Thanks.

Andy LustgartenPresident and Chief Government Officer

My pleasure. Thanks. So let’s begin your first query on the sustainability of our per cap. So one factor we have seen not simply right here however throughout the entire business is as folks have come again, as they arrive again to stay leisure, for — they’ve come again spending for issues that they care about.

That is positively been a theme that we see. And we consider our followers actually care about our enterprise. They’re tremendous passionate, and so they care. So what that does is it drives our enterprise, drives our merchandise.

Our merchandise ranges are above. We have already damaged our pre-pandemic full season merchandise from earlier than the pandemic for a full complete yr. The spending has continued for each recreation we have had to this point. We hadn’t seen — we have seen no step again on any recreation.

And we consider that that is going to proceed. However the actual query is then how will we proceed to develop it. So we have been centered on bringing in new recent concepts, new recent manufacturers. For instance, we have now an excellent partnership with Kith, who designs one in every of our Knicks jerseys and is — can be releasing — and releases a launch round it.

Manufacturers like that assist us drive our enterprise, assist us keep related, assist us keep related to our followers. And we have got quite a few different concepts like that. We’re at all times centered with how do we alter and enhance the client expertise right here within the venue, attempt to be revolutionary with how do folks pay, the place is the appropriate place to place stand? We’re at all times altering areas the place individuals are in a position to choose up and purchase items. So that you need to make — we’re very cautious about not making ourselves over business contained in the venue being and doing it on the proper premium place, however we do it to drive fan expertise as a result of we discover followers have an excellent expertise.

They need to spend. They need to be with us and so they need to be right here. By way of your second query on knowledge IP. So I believe, I am going to break up it a bit of bit, I obtained to tweeze it aside from what you are asking.

I believe, a part of all of our offers to this point, we have talked about reaching our shoppers and thru many various sources, social, our database, however I believe what you are actually speaking about is statistics and IP round workers. So if that is the a part of the query, the official workers charges are lead rights and are in a position to grant them as a part of their lead offers. So we see the good thing about pickup of League IP as this enterprise grows however we do assume that at a workforce stage, integration in our media integration within the video games, digital signage are methods to proceed to drive the class.

David JoyceBarclays — Analyst

Good. Nice. Thanks very a lot.

Ari DanesSenior Vice President, Investor Relations

Thanks, David. Operator, we have now time for one final caller. 

Operator

Your final query comes from David Katz with Jefferies. 

David KatzJefferies — Analyst

Hello, everybody. Thanks for taking my query. I did need to return to the sports activities betting class as a result of it does appear as if there’s fairly just a few tributaries of ways in which the groups can earn off of it. And I simply marvel if you happen to might assist us sit down and pencil one thing.

That give us a quantity, however any instruments you may present us with to take a seat down and maybe assign some worth as a result of it’s occurring. It is occurring in New York, and it is occurring associated to you. And I suppose it might be useful to me and perhaps the group at giant.

Andy LustgartenPresident and Chief Government Officer

I believe, I needed to reply precisely. I imply, we do not share, clearly, the person particulars of any partnerships. What I can let you know is that we predict it is a very giant class and a really giant rising class potential to be our largest class, and we could be there already. So it is — that is huge, and we predict there’s a number of methods to proceed to develop it.

The best way we get away the precise break up between sponsorship and hospitality, that is a really — we do not consider — after we work with a associate, it is an built-in partnership. And as we have talked about, we predict it is about driving — serving to drive their enterprise, which permits us to drive our enterprise and permits us to maintain our companions for lengthy durations of time. There is a purpose why our companions come again and need to be with us as a result of we do not view them as simply sponsors. So we predict we’re gonna have the ability to assist our companions drive their enterprise.

And I believe, it is already proven within the outcomes from who’s — the place are the chief — who’re the leaders within the New York market and who’re our companions.

David KatzJefferies — Analyst

Fully perceive and admire the reply. If I can simply observe this up and recognizing that a few of this can be past the scope of MSGS, is there — now that it is authorized in New York, we have seen different venues embrace precise sports activities betting, kiosks or sports activities guide pipelines? If one thing like that which is able to happen with out asking you whether or not it should or will not, is that one thing that will be financially helpful for the groups as properly? Or is that only a venue extra of a venue situation? 

Andy LustgartenPresident and Chief Government Officer

It’s a hypothetical, so it is exhausting to present you a particular reply on it. There was loads of discuss kiosks coming to the market. What I am going to say is there’s — and if you happen to have a look at our lease settlement between MSG Sports activities, MSG Leisure, there’s sharing in many various types of income, fastened signage and completely different components of the enterprise. So I would not assume {that a} kiosk can be just for leisure, not just for sports activities.

There’s other ways to share. And we predict that there is methods — if there have been kiosks or different modifications within the business, modifications round micro betting modifications different guidelines that will allow us to additional drive the enterprise. There’s a number of methods to develop this enterprise for each, for the groups and for MSG Leisure. 

David KatzJefferies — Analyst

Good. I admire it. Thanks for taking my questions.

Operator

Thanks. I wish to flip the convention again over to Ari Danes for closing remarks. 

Ari DanesSenior Vice President, Investor Relations

Thanks, all, for becoming a member of us. We look ahead to talking with you on our subsequent earnings name. Have a very good day. 

Victoria MinkChief Monetary Officer and Treasurer

Goodbye.

Operator

[Operator signoff]

Period: 40 minutes

Name members:

Ari DanesSenior Vice President, Investor Relations

Andy LustgartenPresident and Chief Government Officer

Victoria MinkChief Monetary Officer and Treasurer

David KarnovskyJ.P. Morgan — Analyst

Brandon RossLightShed Companions — Analyst

Curry BakerGuggenheim Companions — Analyst

Paul GoldingMacquarie Financial institution — Analyst

David JoyceBarclays — Analyst

David KatzJefferies — Analyst

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