1

Company Analysis

Robert “Jake” Anderson PRT 503

The Madison Square Garden Company Analysis

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 2011-2013 Graph…………………………………………10

Assets and Liabilities Summary………………………………………………………………….11

Quarterly Assets and Liabilities 2013 Fiscal Year Graph……………………………….11

Assets and Liabilities 2011-2013 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

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 2010.

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.

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

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.

Values

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 1879. 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).

5

Timeline

1879 Madison Square Garden opens its doors.

1890 Madison Square Garden II opens.

1925 Madison Square Garden III opens.

1926 The Garden is granted an NHL franchise to operate the New York Rangers.

1932 Radio City Music Hall opens its doors.

1946 The Garden is granted an NBA franchise – the New York Knicks.

1968 Madison Square Garden IV opens between 31st and 33

rd Streets from

Seventh to Eighth Avenue.

1969 MSG Network launches as the first regional sports network.

1997 Radio City Music Hall becomes part of Madison Square Garden Inc.

2010 Madison Square Garden, Inc. becomes a stand-alone public company.

2010 Construction on the Transformation of the Madison Square Garden Arena

begins.

2011 Madison Square Garden, Inc. becomes The Madison Square Garden

Company.

2011 Phase I of the three-phase MSG Transformation is completed.

2012 Phase II of the three-phase MSG Transformation is completed.

2013 Phase III of the three-phase MSG Transformation is completed.

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 2013 10K

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 2010. 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.

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.

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.

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

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000

Q1 9/30/12 Q2 12/31/12 Q3 3/31/13 Q4 6/30/13

Revenue

Expenses (Before Taxes)

$204.2

$387.9 $412.4

$336.4

$165.0

$308.0

$346.4 $272.3

10

The graph below shows the total revenue and expenses for 2011 through 2013. 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 2010. The slow recovery of

the economy may have also kept revenues low.

Total Revenue and Expenses 2011-2013

*2011 reporting is on a 6 month period because MSGC changed the ending of their fiscal

year end from 12/31 to 6/30

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

2011 2012 2013

Revenue

Expenses (Before Taxes)

$1,340.8 $1,284.0

$564.2

$1,091.9 $1,104.1 $516.0

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

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Q1 9/30/12 Q2 12/31/12 Q3 3/31/13 Q4 6/30/13

Assets

Liabilities

$2,627,255

$1,284,576

$2,695,903

$1,298,838

$2,670,547

$1,233,687

$2,732,214

$1,253,279

12

Assets and Liabilities 2011-2013

*2011 reporting is on a 6 month period because MSGC changed the ending of their fiscal year

end from 12/31 to 6/30

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

2011 2012 2013

Assets

Liabilities

$2,732,214

$1,253,279

$2,524,684

$1,204,671

$2,280,256

$1,074,371

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 2012. As a result, MSGC’s current ratio dropped from year-end 2011 to year-end

2012. 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 509,418 415,811 512,173

Divided by = 1.24X = .81X = .94X

Current Liabilities 410,607 516,345 545,894

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

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 140,600 126,565 145,728

# of Days in Period 180 365 365

Divided by ÷ = 44.89 Days ÷ =35.96 Days ÷ =39.67 Days

Receivable Turnover 4.01 10.15 9.20

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 48,221 179,847 248,864

Divided by ÷ =.09% ÷ = .14% ÷ = .19%

Sales/Revenue 564,287 1,284,016 1,340,818

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.

16

Appendix

Income Statement Quarterly Data and Annual Data

17

Balance Sheet Quarterly Data and Annual Data

18

19

20

Cash Flow

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: http://globenewswire.com/news-

release/2012/11/02/502046/10010675/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

http://investor.msg.com/secfiling.cfm?filingID=1469372-13-9&CIK=1469372

The Madison Square Garden Company. (2013, ). Mission and values. Retrieved from The

Madison Square Garden Company website:

http://www.themadisonsquaregardencompany.com/our-company/mission-and-values.html

The Madison Square Garden Company. (2013, ). Our brands. Retrieved from The

Madison Square Garden Company website:

http://www.themadisonsquaregardencompany.com/our-brands.html

The Madison Square Garden Company. (2013, ). History. Retrieved from The Madison

Square Garden Company website: http://www.themadisonsquaregardencompany.com/our-

company/history.html

United States Department of Labor. (2013, November 13). Labor force statistics from the

current population survey. Retrieved from Databases, Tables & Calculators by Subject website:

http://data.bls.gov/timeseries/LNS14000000

Yahoo!. (2013, November 15). The madison square garden company. Retrieved from

Yahoo! Finance website: http://finance.yahoo.com/q?s=MSG&ql=1