Company Analysis. Robert Jake Anderson PRT 503. The Madison Square Garden Company Analysis

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1 Company Analysis Robert Jake Anderson PRT 503 The Madison Square Garden Company Analysis 1

2 Table of Contents Executive Summary.3 Company Profile..4 Mission Statement...4 Objectives 4 Values..4 History of the Madison Square Garden Company..4 Timeline...5 Economic Issues..6 Sports Business...6 Entertainment Business...6 Media Business...7 All three segments 7 Revenue and Expenditure Summary 8 Revenues..8 Expenditures 8 Quarterly Revenues and Expenses 2013 Fiscal Year Graph...9 Total Revenue and Expenses Graph 10 Assets and Liabilities Summary.11 Quarterly Assets and Liabilities 2013 Fiscal Year Graph.11 Assets and Liabilities Graph 12 Financial Analysis and Ratios 13 Current Ratio..13 Total Debt/Debt to Worth Ratio...13 Receivable Turnover and Days Sales/Receivables...14 Profit Margin..14 Future Trends.15 Appendix 16 Income Statement Quarterly Data and Annual Data..16 Balance Sheet Quarterly Data and Annual Data 17 Cash Flow.. 20 References..21 2

3 Executive Summary The Madison Square Garden Company (MSGC) used its brand power to generate substantial revenue from three (3) sources; Media (50%), Sports (31%) and Entertainment (19%). MSGC s revenues increased during the period covered in this report despite the economic downturn as well as the NBA and NHL work stoppages. Expenses during this same period increased due to renovations to Madison Square Garden Arena which began in Dependency on the economy is MSGC s most potential weakness. A strength of MSGC is its strong cash position. During the past economic downturn, MSGC choose to invest in itself using company generated funds (Cash and Cash Equivalents) to finance state-of-the-art improvements to The World s Most Famous Arena. Another strength of the company is its intangible assets. To some companies, heavy intangible assets are a weakness. In MSGC s case, its name recognition is actually a strength because of The Rockettes Radio City Music Spectacular, New York Knicks and New York Rangers. Another major strength of the company is its history and its location in New York City. The company s aversion to debt had only minor effects on its financial position over the three (3) periods covered in this report. Their cash position is improving. More importantly, MSGC is not burdened with debt or interest carrying expenses. Both revenue growth and the collection of those revenues are healthy. Profitability continues to grow for this sports, media & entertainment icon. 3

4 Company Profile Mission Statement To be the most respected sports, media and entertainment company in the world by combining the strength of our brands with the talent, character and diversity of our people. We create exceptional experiences for our customers while delivering superior business performance (The Madison Square Garden Company, 2013). Objectives Values Build iconic brands that set the standard for excellence and innovation. Forge deep connections with diverse and passionate audiences. Deliver exceptional experiences that endure for generations. Integrity. Passion. Collaboration. Innovation. Excellence. Leadership. Respect. Responsibility. History of the Madison Square Garden Company MSGC is an entertainment and promotion company located in New York, NY. It has been known by this name since 2011 when Madison Square Garden, Inc. became The Madison Square Garden Company. MSGC s business grew from the venue, Madison Square Garden which opened in This venue has been called, The World s Most Famous Arena and is one of the many brands of the company. There are three business segments that, together, make MSGC. These segments are sports, entertainment and media and include brands such as the New York Knicks, the New York Rangers, MSG Networks, Fuse, Madison Square Garden, Radio City Music Hall, and The Rockettes (The Madison Square Garden Company, 2013). 4

Timeline 1879 Madison Square Garden opens its doors. 1890 Madison Square Garden II opens. 1925 Madison Square Garden III opens.

5 Timeline 1879 Madison Square Garden opens its doors Madison Square Garden II opens Madison Square Garden III opens The Garden is granted an NHL franchise to operate the New York Rangers Radio City Music Hall opens its doors The Garden is granted an NBA franchise the New York Knicks Madison Square Garden IV opens between 31 st and 33 rd Streets from Seventh to Eighth Avenue MSG Network launches as the first regional sports network Radio City Music Hall becomes part of Madison Square Garden Inc Madison Square Garden, Inc. becomes a stand-alone public company Construction on the Transformation of the Madison Square Garden Arena begins Madison Square Garden, Inc. becomes The Madison Square Garden Company Phase I of the three-phase MSG Transformation is completed Phase II of the three-phase MSG Transformation is completed Phase III of the three-phase MSG Transformation is completed. 5

6 Economic Issues As a whole, MSGC faces the same economic issue that other entertainment companies face: the recession. The success of the business depends on the ability and willingness of consumers and businesses to purchase tickets, to spend on concessions and merchandise and the revenues of advertising and sponsorships. In October 2013, the unemployment rate was 7.3% (US Department of Labor, 2013). This is almost double the unemployment rate of October 2006 which was 4.7%. Because of this high unemployment rate, people may cut back on the amount of money they spend on entertainment and other leisure activities. The company s K annual report states that the performance of the segments and the company is, dependent, to a large extent, on general U.S. and global economic conditions, including capital market conditions, the impact of direct competition, our ability to manage our businesses effectively, the degree to which audiences and fans attend events hosted at our venues, and our relative strength in the marketplace, both with suppliers and customers. (The Madison Square Garden Company, 2013, pg. 47) The report goes on to state that the challenges facing both the U.S. and global economies may lead to lower attendance, lower demand for suite licenses, fewer sponsorships, fewer event bookings and lower television advertising revenues. Despite the poor state of the economy, MSGC has spent almost $1 billon to refurbish Madison Square Garden beginning in This refurbishment was used to, maintain the competitive positions of The Garden and other venues and update to state-of-the-art technologies (The Madison Square Garden Company, 2013, pg. 23). Each business segment operated by MSGC presents its own unique economic issues and risk factors that could affect success. There are also potential issues and risks that affect the company as a whole. Sports Business The performance and/or popularity of the sports franchises. Competition from other live sporting events, sporting events on TV, radio, the internet and mobile devices. Basketball and hockey player selection and salaries. Actions of the NBA and NHL as well as their respective player associations. Injuries to players. Entertainment Business Competition from other leisure activities including TV, radio, movies, sporting events, other live performances and the internet. Success of the Radio City Christmas Spectacular. The ability to attract concerts, family shows and other events. Development of new live productions and additions of new venues along with the knowledge that there is no guarantee of success for these productions and these venues. 6

7 Media Business Competition for viewers and advertisers with other networks, pay-per-view, video on demand, other content offered by cable providers, radio, movies, home video and the internet. Technology developments. Ability to adapt to new content distribution platforms. Changes in consumer behavior. Agreements with program distributors. Sale of advertising time and the factors that affect revenue. Ability to obtain programming and the appeal of that programming. All three segments Economic downturn and financial instability. Severe weather. Terrorist activity or the threat of it. Popularity and success of sports teams. Renovation of The Garden. May require financing to fund operations and capital expenditures. Risk of injuries and accidents at venues. 7

8 Revenue and Expenditure Summary Revenues There are multiple revenue sources that come from all three business segments of MSGC. In the 2013 fiscal year, the media segment accounted for almost 50% of the revenues for the company. The two main sources of revenues from the media segment are affiliation fees and advertising. Affiliation fees are revenues earned from distributors who carry programming for MSG media. Advertising revenues are earned through the sale of commercial time to advertisers during programming and through the sale of program sponsorship rights. Revenue sources from the entertainment segment accounted for 19% of the revenues for the 2013 fiscal year. Ticket sales is the main source of revenue and include tickets to the public through the box office, web sites, ticketing agencies, and group sales. Another source of revenue is the venue license fees that third-party promoters of events have to pay in order for them to hold an event at one of the venues owned by MSGC. These fees include cost of renting the venue and the cost of providing a number of staff including box office staff, ushers and security. Concession sales of food and beverage along with the sale of merchandise relating to the production taking place at a certain venue account for more revenue sources. The final source of revenue for the entertainment segment is through the sale of signage space and sponsorship rights. The final segment, sports, accounted for 31% of the revenues for the 2013 fiscal year. Like the entertainment segment, ticket sales accounts for the largest source of revenue for the sports segment. Along with ticket sales, live sporting events also generate revenue from suite licenses, venue licenses, and facility fees and charges. Revenue is also brought in from the sale of telecast rights for the home and away games of the sports teams owned by MSGC. The sale of concessions, merchandise and venue signage and sponsorships brings in money for the sports segment much the same way it brings in money for the entertainment department. Expenses For the media segment, there are three main expenses. MSGC must pay a fee to acquire the rights to carry other professional sports teams on their television networks. Rights must also be purchased to carry other sporting events, movies, concerts and specials. Another main expense include other direct programming costs which include, salaries to on-air personalities, producers, directors, technicians, writers and technical staff, as well as expenses associated with location costs and maintaining studios and transmission facilities (The Madison Square Garden Company, 2013, pg. 39). The final expense for the media segments are the costs incurred from marketing and advertising the business and programs through newspapers, TV, radio and online. Payment to the actors, dancers, singers, musicians and entertainers is the primary expense for the entertainment segment of MSGC. The costs of sets, lighting, display technologies, special effects and sound are also expenses that MSGC incurs. Payment to box office personnel, stagehands, ticket takers, ushers and security staff are also made when productions take place at a venue owned by MSGC. When a production leaves a venue owned by MSGC and tours the country, MSGC pays the costs associated with travel, equipment and fees and expenses for the use of third-party venues. The final expense for the entertainment segment is the cost of promoting productions and other events. 8

9 There are numerous expenses that the sports segment has to incur. The main expense MSGC sports incurs is player salaries, escrow system/revenue sharing and NBA luxury tax. Other team operating expenses include travel, equipment maintenance, player insurance and payment for staff who work sporting events. The sports segment also has to pay a portion of the expenses associated with the ownership, lease, maintenance and operation of certain venues (The Madison Square Garden Company, 2013, pg. 46). The graph below shows the revenues and expenses for the 2013 Fiscal Year for MSGC. For the first quarter, MSG Media earned the most revenue followed by MSG Sports and MSG Entertainment. In the second quarter, MSG Media again earned the most revenue followed by MSG Entertainment and MSG Sports. For the third quarter, MSG Sports lead the way in bringing in revenue followed by MSG Media and MSG Entertainment. MSG Media earned the most revenue for the fourth quarter of 2013 followed by MSG sports and MSG Entertainment. Quarterly Revenues and Expenses 2013 Fiscal Year $450,000,000 $400,000,000 $350,000,000 $387.9 $412.4 $336.4 $300,000,000 $250,000,000 $200,000,000 $204.2 $308.0 $346.4 $272.3 Revenue Expenses (Before Taxes) $150,000,000 $100,000,000 $165.0 $50,000,000 $0 Q1 9/30/12 Q2 12/31/12 Q3 3/31/13 Q4 6/30/13 9

10 The graph below shows the total revenue and expenses for 2011 through The revenues were lower than normal in the 2012 and 2013 fiscal years due to the NBA work stoppage and the NHL work stoppage shortening their respective seasons. Expenses increased due to renovations to Madison Square Garden Arena which began in The slow recovery of the economy may have also kept revenues low. Total Revenue and Expenses $1,600,000,000 $1,400,000,000 $1,284.0 $1,340.8 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $564.2 Revenue Expenses (Before Taxes) $400,000,000 $200,000,000 $516.0 $1,104.1 $1,091.9 $ *2011 reporting is on a 6 month period because MSGC changed the ending of their fiscal year end from 12/31 to 6/30 10

11 Assets and Liabilities Summary The graphs below shows the assets and liabilities for MSGC for the 2013 fiscal year and for the 2011 through 2013 fiscal years. Fifty four percent of the company s current assets are cash which means they have adequate liquidity (The Madison Square Garden Company, 2013, pg. F-2). The company also has a heavy intangible asset position and lives off of their reputation. In 2013, intangible assets and goodwill equaled $1,084,861. This is almost the same as the company s property and equipment assets, $1,135,180 (The Madison Square Garden Company, 2013, pg. F-2). The company has held this position for a while and they are able to put their cash back into the company, instead of incurring debt. Quarterly Assets and Liabilities 2013 Fiscal Year $3,000,000 $2,627,255 $2,695,903 $2,670,547 $2,732,214 $2,500,000 $2,000,000 $1,500,000 $1,284,576 $1,298,838 $1,233,687 Assets Liabilities $1,000,000 $1,253,279 $500,000 $0 Q1 9/30/12 Q2 12/31/12 Q3 3/31/13 Q4 6/30/13 11

12 Assets and Liabilities $3,000,000 $2,280,256 $2,524,684 $2,732,214 $2,500,000 $2,000,000 $1,500,000 Assets Liabilities $1,000,000 $500,000 $1,074,371 $1,204,671 $1,253,279 $ *2011 reporting is on a 6 month period because MSGC changed the ending of their fiscal year end from 12/31 to 6/30 12

13 Financial Analysis and Ratios Current Ratios MSGC s cash position decreased from $313 million to $212 million from year-end 2011 to year-end As a result, MSGC s current ratio dropped from year-end 2011 to year-end This happened because MSGC utilized the cash they had on hand to pay for the renovations to Madison Square Garden Arena. Solvency improved from.81x at year-end 6/12 to.94x at year-end 6/13 due to an improved cash position. *All ratios are rounded *2011 reporting is on a 6 month period because MSGC changed the ending of their fiscal year end from 12/31 to 6/30 6/30/11(6mons.) 6/30/12 6/30/13 Current Assets 509, , ,173 Divided by = 1.24X =.81X =.94X Current Liabilities 410, , ,894 Total Debt/Debt to Worth Ratio MSGC is a risk-adverse company from a safety standpoint as is evidenced by its decision to use internal funds instead of debt for renovation expenses. Therefore its debt ratio reflects a healthy.84x at year-end 6/13 and a high of only.91x at year-end 6/12. 6/30/11(6mons.) 6/30/12 6/30/13 Total Liabilities 1,074,371 1,204,671 1,253,278 Divided by =.89X =.91X =.84X Net Worth 1,205,885 1,320,013 1,478,935 13

14 Receivable Turnover and Days Sales/Receivables MSGC s receivables are in a very healthy range of an acceptable 45 days (rounded up) as of 6/11 to a low of 36 days (rounded up). *Days in period is 180 for 2011 because the period was 6 months 6/30/11(6mons.) 6/30/12 6/30/13 Sales/ Revenue 564,287 1,284,016 1,340,818 Divided by =4.01X =10.15X =9.20X Accounts Receivable 140, , ,728 # of Days in Period Divided by = Days =35.96 Days =39.67 Days Receivable Turnover Profit Margin Profitability from sales is on a positive trend for MSGC over the last three (3) fiscal year ends. For the purpose of this report profit margins are calculated before taxes. 6/30/11(6mons.) 6/30/12 6/30/13 Net Profit Before Taxes 48, , ,864 Divided by =.09% =.14% =.19% Sales/Revenue 564,287 1,284,016 1,340,818 14

15 Future Trends Due to their favorable cash position MSGC can concentrate on revenue growth. The improvements to the Madison Square Garden Arena help keep the company competitive and have already helped earn back the funds the company spent on improvements. MSGC lives off its reputation. Increasing revenue is the key to the company s survival and the company is dependent on the economy. Another opportunity for revenue growth lies in the expansion of the Atlantic Coast Conference (ACC). If rumors are true, the ACC Basketball Tournament will one day be held at Madison Square Garden Arena. Even though the economy is recovering slowly, it is recovering and that is good for MSGC. MSGC s decision in 2010 to refurbish will pay dividends in the future. 15

16 Appendix Income Statement Quarterly Data and Annual Data 16

17 Balance Sheet Quarterly Data and Annual Data 17

18 18

19 19

20 Cash Flow 20

21 References NASDAQ OMX GlobeNewswire. (2012, November 2). The madison square garden company reports results for fiscal 2013 first quarter. Retrieved from NASDAQ OMX Media SuiteLearning & Support website: release/2012/11/02/502046/ /en/the-madison-square-garden-company-reports- Results-for-Fiscal-2013-First-Quarter.html The Madison Square Garden Company. (2013, August 21). Form 10-K. Retrieved from The Madison Square Garden Company. (2013, ). Mission and values. Retrieved from The Madison Square Garden Company website: The Madison Square Garden Company. (2013, ). Our brands. Retrieved from The Madison Square Garden Company website: The Madison Square Garden Company. (2013, ). History. Retrieved from The Madison Square Garden Company website: United States Department of Labor. (2013, November 13). Labor force statistics from the current population survey. Retrieved from Databases, Tables & Calculators by Subject website: Yahoo!. (2013, November 15). The madison square garden company. Retrieved from Yahoo! Finance website: 21

The Madison Square Garden Company Reports Results for the Fiscal 2013 Third Quarter

May 3, 2013 The Madison Square Garden Company Reports Results for the Fiscal 2013 Third Quarter Third quarter revenues of $412.4 million, a 3% increase compared to prior year quarter Third quarter AOCF