# Sphere Entertainment Co. (SPHR) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from Sphere Entertainment Co.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1795250/000179525022000013/msg-20220630.htm Accession: 0001795250-22-000013 Filing date: 2022-08-19 Report date: 2022-06-30 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/SPHR/ All MD&A years: /company/SPHR/mda/ Previous year: /company/SPHR/mda/fy2021/ (FY 2021) Next year: /company/SPHR/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted. This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this MD&A, there are statements concerning the future operating and future financial performance of Madison Square Garden Entertainment Corp. and its direct and indirect subsidiaries (collectively, “we,” “us,” “our,” “MSG Entertainment,” or the “Company”), including the impact of the COVID-19 pandemic and COVID-19 variants on our future operations, the timing and costs of new venue construction and the development of related content, our plans to pursue additional debt financing, our expansion plan for Tao Group Hospitality, and the status of the non-carriage of our networks by Comcast Corporation (“Comcast”). Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to: •our ability to effectively manage any impacts of the COVID-19 pandemic (including COVID-19 variants) as well as renewed actions taken in response by governmental authorities or certain professional sports leagues, including ensuring compliance with rules and regulations imposed upon our venues, to the extent applicable; •the effect of any postponements or cancellations by third-parties or the Company as a result of the COVID-19 pandemic due to operational challenges and other health and safety concerns (such as the partial cancellation of the 2021 production of the Christmas Spectacular); •the extent to which attendance at our venues may be impacted by government actions, continuing health concerns by potential attendees and reduced tourism; •the impact on the payments we receive under the Arena License Agreements as a result of government-mandated capacity restrictions, league restrictions and/or social-distancing or vaccination requirements, if any, at games of the Knicks of the NBA and the Rangers of the NHL; •the level of our expenses and our operational cash burn rate, including our corporate expenses; •our ability to successfully design, construct, finance and operate new entertainment venues in Las Vegas and other markets, and the investments, costs and timing associated with those efforts, including the impact of the temporary suspension of construction and inflation and any other construction delays and/or cost overruns; •the level of our revenues, which depends in part on the popularity of the Christmas Spectacular, the sports teams whose games are played at The Garden and broadcast on our networks, the appeal of our Tao Group Hospitality branded locations, and other events which are presented in our venues or broadcast on our networks; •the demand for MSG Networks programming among Distributors and the subscribers thereto, and our ability to enter into and renew affiliation agreements with Distributors, or to do so on favorable terms, as well as the impact of consolidation among Distributors; •our ability to develop and successfully execute MSG Networks’ strategy for a direct-to-consumer offering; •the ability of our Distributors to maintain, or minimize declines in, subscriber levels; •the impact of subscribers selecting Distributors’ packages that do not include our networks or Distributors that do not carry our networks at all; •the security of our MSG Networks program signal and electronic data; •the on-ice and on-court performance of the professional sports teams whose games we broadcast on our networks and host in our venues; •the level of our capital expenditures and other investments; •general economic conditions, especially in the New York City, Las Vegas, Chicago and London metropolitan areas where we have (or plan to have) significant business activities; •the demand for sponsorship arrangements and advertising and viewer ratings for our networks; 50 •competition, for example, from other venues and other sports and entertainment and nightlife options and other regional sports and entertainment networks, including the construction of new competing venues; •the relocation or insolvency of professional sports teams with which we have a media rights agreement; •our ability to maintain, obtain or produce content, together with the cost of such content; •MSG Networks’ ability to renew or replace our media rights agreements with professional sports teams; •changes in laws, guidelines, bulletins, directives, policies and agreements, and regulations under which we operate; •any economic, social or political actions, such as boycotts, protests, work stoppages or campaigns by labor organizations, including the unions representing players and officials of the NBA and NHL, or other work stoppage due to COVID-19 or otherwise; •seasonal fluctuations and other variations in our operating results and cash flow from period to period; •the successful development of new live productions or attractions, enhancements or changes to existing productions and the investments associated with such development, enhancements, or changes, as well as investment in personnel, content and technology for MSG Sphere; •business, reputational and litigation risk if there is a cyber or other security incident resulting in loss, disclosure or misappropriation of stored personal information, disruption of our MSG Networks business or disclosure of confidential information or other breaches of our information security; •activities or other developments (such as pandemics, including the COVID-19 pandemic) that discourage or may discourage congregation at prominent places of public assembly, including our venues; •the continued popularity and success of Tao Group Hospitality dining and nightlife venues, as well as its existing brands, and the ability to successfully open and operate new entertainment dining and nightlife branded locations; •the ability of BCE to profitably operate its future festivals and to attract attendees and performers to its future festivals; •the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions; •our ability to successfully integrate acquisitions, new venues or new businesses into our operations; •the operating and financial performance of our strategic acquisitions and investments, including those we do not control; •our internal control environment, remediation of the material weakness, and our ability to identify any future material weaknesses; •the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured, including litigation or other claims against companies we invest in or acquire, including those related to the Merger with MSG Networks Inc.; •the impact of governmental regulations or laws, changes in how those regulations and laws are interpreted, as well as the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses; •the impact of any government plans to redesign New York City’s Pennsylvania Station; •the impact of sports league rules, regulations and/or agreements and changes thereto; •the substantial amount of debt incurred, the ability of our subsidiaries to make payments on, or repay or refinance, such debt under their respective credit facilities and our ability to obtain additional financing, to the extent required; •financial community perceptions of our business, operations, financial condition and the industries in which we operate; •the ability of our investees and others to repay loans and advances we have extended to them; •the tax-free treatment of the Entertainment Distribution (as defined below); •our ability to achieve the intended benefits of the Entertainment Distribution; •the performance by MSG Sports of its obligations under various agreements with the Company related to the Entertainment Distribution and ongoing commercial arrangements, including the Arena License Agreements; and 51 •the additional factors described under “Part I — Item 1A. Risk Factors” included in this Annual Report on Form 10-K. We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws. Introduction This MD&A is provided as a supplement to, and should be read in conjunction with, the audited consolidated and combined financial statements and footnotes thereto included in Item 8 of this Annual Report on Form 10-K to help provide an understanding of our financial condition, changes in financial condition and results of operations. Up to April 17, 2020, the Company operated and reported financial information as one reportable segment. Following the Entertainment Distribution on April 17, 2020 and the Merger with MSG Networks Inc. on July 9, 2021, the Company has three reportable segments (Entertainment, MSG Networks, and Tao Group Hospitality). See Note 22, Segment Information to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of the Company’s segment reporting. Our MD&A is organized as follows: Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends. Results of Operations. This section provides an analysis of our results of operations for Fiscal Years 2022 and 2021 on both a (i) consolidated and combined basis and (ii) segment basis. Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, as well as an analysis of our cash flows for Fiscal Years 2022 and 2021. The discussion of our financial condition and liquidity includes summaries of our primary sources of liquidity, our contractual obligations and off balance sheet arrangements that existed at June 30, 2022. Seasonality of Our Business. This section discusses the seasonal performance of our Entertainment and MSG Networks segments. Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section cross-references a discussion of accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are discussed in the notes to our consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K. Business Overview MSG Entertainment is a leader in live experiences comprised of iconic venues, marquee entertainment brands, regional sports and entertainment networks, popular dining and nightlife offerings, and a premier music festival. Utilizing the Company’s powerful brands and live entertainment expertise, the Company delivers unique experiences that set the standard for excellence and innovation while forging deep connections with diverse and passionate audiences. We manage our business through three reportable segments: The Entertainment segment includes the Company’s portfolio of venues: The Garden, Hulu Theater, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. In addition, the Company is constructing a state-of-the-art venue, MSG Sphere at The Venetian in Las Vegas, and plans to build a second MSG Sphere in London, pending necessary approvals. The Entertainment segment also includes the original production, the Christmas Spectacular, as well as BCE, the entertainment production company that owns and operates the Boston Calling Music Festival. This segment also includes our bookings business, which features a variety of live entertainment and sports experiences. The MSG Networks segment is comprised of the Company’s regional sports and entertainment networks, MSG Network and MSG+, a companion streaming app, MSG GO, and other digital properties. MSG Networks serves the New York Designated Market Area, as well as other portions of New York, New Jersey, Connecticut and Pennsylvania and features a wide range of sports content, including exclusive live local games and other programming of the Knicks of the NBA and the Rangers, the Islanders, the Devils and the Sabres of the NHL, as well as significant coverage of the Giants and the Bills of the NFL. 52 The Tao Group Hospitality segment features the Company’s controlling interest in TAO Group Holdings LLC (“Tao Group Hospitality”), a hospitality group with globally-recognized entertainment dining and nightlife brands including: Tao, Marquee, Lavo, Beauty & Essex, Cathédrale, Hakkasan and Omnia. Tao Group Hospitality operates over 70 entertainment dining and nightlife branded locations within 60 venues in over 20 markets across five continents. Merger with MSG Networks Inc. On July 9, 2021, the Company completed its Merger with MSG Networks Inc., a Delaware corporation, in which MSG Networks Inc. became a wholly-owned subsidiary of the Company. Pursuant to the Merger, each share of Class A common stock of MSG Networks Inc. (“MSGN Class A Common Stock”) and each share of Class B common stock of MSG Networks Inc. (“MSGN Class B Common Stock”) issued and outstanding immediately prior to the Merger was converted into the right to receive 0.172 share of Class A Common Stock and 0.172 share of Class B Common Stock, respectively. The Company issued 7,476 shares of Class A Common Stock and 2,337 shares of Class B Common Stock on July 9, 2021 to holders of MSGN Class A Common Stock and MSGN Class B Common Stock, respectively. See Note 24, Accounting for Entertainment Distribution and Merger Transactions to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for information on how the Merger transaction has been accounted for. Impact of the COVID-19 Pandemic on Our Business The Company’s operations and operating results have been materially impacted by the COVID-19 pandemic (including COVID-19 variants) and actions taken in response by governmental authorities and certain professional sports leagues during Fiscal Years 2020, 2021 and 2022. For the majority of Fiscal Year 2021, substantially all operations of the Entertainment business were suspended, MSG Networks aired substantially fewer games and Tao Group Hospitality was operating at significantly reduced capacity and demand. Fiscal Year 2022 was also impacted by the pandemic, with fewer ticketed events at our venues in the first half of the fiscal year as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19) due to the lead-time required to book touring acts and artists, and an increase in COVID-19 cases due to a new variant, which resulted in a number of events at our performance, entertainment dining and nightlife venues being cancelled or postponed in the second and third quarters. As a result of government-mandated assembly limitations and closures, all of our performance venues were closed beginning in March 2020. Use of The Garden resumed for Knicks and Rangers home games without fans in December 2020 and January 2021, respectively, and was available at 10% seating capacity from February through May 2021 with certain safety protocols and social distancing. Beginning in May 2021, all of our New York performance venues were permitted to host guests at full capacity, subject to certain restrictions, and effective June 2021, The Chicago Theatre was permitted to host events without restrictions. Guests of our Chicago and New York venues were also subject to certain vaccination requirements until February and March 2022, respectively. As a result, our performance venues no longer require guests to provide proof of COVID-19 vaccination before entering (although specific performers may require enhanced protocols). For Fiscal Year 2021, the majority of ticketed events at our venues were postponed or cancelled. For Fiscal Year 2022 and as of the date of this filing, live events have been permitted to be held at all of our performance venues and we are continuing to host and book new events. As a result of an increase in cases of a COVID-19 variant, select bookings were postponed or cancelled at our performance venues in the second and third quarters of Fiscal Year 2022. Variants of COVID-19 that arise in the future may result in additional postponements or cancellations of bookings at our performance venues. The impact of the COVID-19 pandemic on our operations also included (i) the partial cancellation of the 2021 production of the Christmas Spectacular, (ii) the cancellation of the 2020 production of the Christmas Spectacular, and (iii) the cancellation of both the 2020 and 2021 Boston Calling Music Festival. The Company’s long-term Arena License Agreements with MSG Sports require the Knicks and Rangers to play their home games at The Garden. As discussed above, capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements for Fiscal Year 2021. On July 1, 2021, the Knicks and Rangers began paying the full amounts provided for under their respective Arena License Agreements. The Knicks and the Rangers each completed their 2021-2022 82-game regular seasons, with the Rangers advancing to the playoffs. As a result of the COVID-19 pandemic and league and government actions relating thereto, MSG Networks aired substantially fewer NBA and NHL telecasts during Fiscal Year 2021, as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19), and consequently experienced a decrease in revenues, including a material decrease in advertising revenue. The absence of live sports games also resulted in a decrease in certain MSG Networks expenses, including rights fees, variable production expenses, and advertising sales commissions. MSG Networks resumed airing full regular season telecast schedules in Fiscal Year 2022 for its five professional teams across both the NBA and NHL, and as a result, its advertising revenue and certain operating expenses, including rights fees expense, reflect the same. 53 Disruptions caused by the COVID-19 pandemic had a significant and negative impact on Tao Group Hospitality’s operations and financial performance for Fiscal Year 2021. Due to government actions taken in response to the COVID-19 pandemic, virtually all of Tao Group Hospitality’s venues were closed for approximately three months starting in March 2020. Additionally, three venues were permanently closed. Throughout Fiscal Year 2021, Tao Group Hospitality conducted limited operations at certain venues, subject to significant regulatory requirements, including capacity limits, curfews and social distancing requirements for outdoor and indoor dining. During Fiscal Year 2022, Tao Group Hospitality’s operations were also impacted by an increase in COVID-19 cases due to a new variant, which resulted in reduced operating schedules and reduced demand from guests, including corporate and private event cancellations and postponements in the second and third quarters. As of the date of this filing, Tao Group Hospitality is operating without capacity restrictions in all markets. It is unclear to what extent ongoing COVID-19 concerns, including with respect to new variants, could result in new government or league-mandated capacity restrictions or vaccination/mask requirements or impact the use of and/or demand for our performance, entertainment dining and nightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations. For more information about the risks to the Company as a result of the COVID-19 pandemic and its impact on our operating results, see “Part I — Item 1A. Risk Factors — General Risk Factors — Our Operations and Operating Results Have Been, and May in the Future be, Materially Impacted by the COVID-19 Pandemic and Actions Taken in Response by Governmental Authorities and Certain Professional Sports Leagues.” Description of Our Segments Entertainment Our Entertainment segment, which represented approximately 38% of our consolidated revenues for Fiscal Year 2022, is one of the country’s leaders in live entertainment. Entertainment produces, presents and hosts live entertainment events, including (i) concerts, (ii) other live events such as family shows, performing arts events and special events and (iii) sports events, in our diverse collection of venues. The scope of our collection of venues enables us to showcase acts that cover a wide spectrum of genres and popular appeal. Although we primarily license our venues to third-party promoters for a fee, we also promote or co-promote shows. If we serve as promoters or co-promoters of a show, we have economic risk relating to the event. Our Entertainment segment also creates, produces and/or presents live productions that are performed in the Company’s venues. This includes the Christmas Spectacular, which has been performed at Radio City Music Hall for 88 years. The Company also owns a controlling interest in BCE, the entertainment production company that owns and operates the Boston Calling Music Festival. Revenue Sources — Entertainment The Company’s Entertainment segment earns revenue from several primary sources: ticket sales to our audiences for live events that we produce or promote/co-promote, license fees for our venues paid by third-party promoters or licensees in connection with events that we do not produce or promote/co-promote, facility and ticketing fees, concessions, sponsorships and signage, suite license fees at The Garden, merchandising and tours at certain of our venues. The amount of revenue and expense recorded by the Company for a given event depends to a significant extent on whether the Company is promoting or co-promoting the event or is licensing a venue to a third-party or MSG Sports. See “Venue License Fees” below for further discussion of our venue licensing arrangements with MSG Sports. Ticket Sales and Suite Licenses For our productions and for entertainment events in our venues that we promote, we recognize revenues from the sale of tickets to our audiences. We sell tickets to the public through our box office, via our websites and ticketing agencies and through group sales. The amount of revenue we earn from ticket sales depends on the number of shows and the mix of events that we promote, the capacity of the venue used, the extent to which we can sell to fully utilize the capacity, and our ticket prices. The Garden has 21 Event Level suites, 58 Lexus Level suites, 18 Infosys Level suites, the Caesars Sportsbook Lounge (formerly the Madison Club), Suite Sixteen and The Loft. Suite licenses at The Garden are generally sold to corporate customers with the majority being multi-year licenses. The Company licenses Suite Sixteen to Tao Group Hospitality in exchange for license fee payments. 54 Under standard suite licenses, the licensees pay an annual license fee, which varies depending on the location of the suite. The license fee includes, for each seat in the suite, tickets for events at The Garden for which tickets are sold to the general public, subject to certain exceptions. In addition, suite holders separately pay for food and beverage service in their suites at The Garden. Revenues from the sale of suite licenses are shared between the Company and MSG Sports. Revenues for the Company’s suite license arrangements are recorded on a gross basis, as the Company is the principal in such transactions and controls the related goods or services until transfer to the customer. MSG Sports’ share of the Company’s suite license revenue is recognized in the consolidated and combined statements of operations as a component of direct operating expenses. The revenue sharing expense recognized by the Company for MSG Sports’ share of suite license revenue at The Garden is based on a 67.5% allocation to MSG Sports pursuant to the Arena License Agreements. Venue License Fees For entertainment events held at our venues that we do not produce, promote or co-promote, we typically earn revenue from venue license fees charged to the third-party promoter or producer of the event. The amount of license fees we charge varies by venue, as well as by the size of the production and the number of days utilized, among other factors. Our fees typically include both the cost of renting space in our venues and costs for providing event staff, such as front-of-house and back-of-house staff, including stagehands, electricians, laborers, box office staff, ushers and security as well as production services such as staging, lighting and sound. In connection with the Entertainment Distribution, the Company entered into Arena License Agreements with MSG Sports that, among other things, require the Knicks and the Rangers to play their home games at The Garden in exchange for fixed annual license fees scheduled to be paid monthly over the term of the agreement. The Company accounts for these license fees as operating lease revenue given that the Company provides MSG Sports with the right to direct the use of and obtain substantially all of the economic benefit from The Garden during Knicks and Rangers home games. Operating lease revenue is recognized on a straight-line basis over the term, adjusted pursuant to the terms of the Arena License Agreements, which is comprised of non-consecutive periods of use when MSG Sports uses the Arena generally for their professional sports teams’ preseason and regular season home games. As such, operating lease revenue is recognized ratably as events occur. The Arena License Agreements allow for certain reductions in the license fees during periods when The Garden is not available for use due to a force majeure event. As a result of the government-mandated suspension of events at The Garden due to the impact of the COVID-19 pandemic, at the beginning of Fiscal Year 2021, The Garden was not available for use. Capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements for Fiscal Year 2021. On July 1, 2021, the Knicks and Rangers began paying the full amounts provided for under their respective Arena License Agreements. The Knicks and the Rangers each completed their 2021-2022 82-game regular seasons, with the Rangers advancing to the playoffs. Facility and Ticketing Fees For all public and ticketed events held in our venues aside from MSG Sports home games, we also earn additional revenues on substantially all tickets sold, whether we promote/co-promote the event or license the venue to a third party. These revenues are earned in the form of certain fees and assessments, including the facility fees we charge, and vary by venue. Concessions We sell food and beverages during substantially all events held at our venues. In addition to concession-style sales of food and beverages, which represent the majority of our concession revenues, we also generate revenue from catering for our suites at The Garden. Pursuant to the Arena License Agreements related to the use of The Garden by MSG Sports, the Company shares with MSG Sports revenues and related expenses associated with sales of food and beverages (including suite catering) during Knicks and Rangers games at The Garden. Revenue generated from in-venue food and beverage sales at MSG Sports’ events is recognized by the Company on a gross basis, with a corresponding revenue sharing expense for MSG Sports’ share of such sales recorded within direct operating expense. The Arena License Agreements require the Company to pay 50% of the net proceeds generated from in-venue food and beverage sales to MSG Sports. 55 Merchandise We earn revenues from the sale of merchandise related to our proprietary productions and other live entertainment events that take place at our venues. The majority of our merchandise revenues are generated through on-site sales during performances of our productions and other live events. We also generate revenues from the sales of our Christmas Spectacular merchandise, such as ornaments and apparel, through traditional retail channels. Revenues associated with Christmas Spectacular merchandise are generally recorded on gross basis (as principal). Typically, revenues from our merchandise sales at our non-proprietary events relate to sales of merchandise provided by the artist, the producer or promoter of the event and are generally subject to a revenue sharing arrangement, and are generally recorded on a net basis (as agent). Pursuant to the Arena License Agreements, the Company receives 30% of revenues, net of taxes and credit card fees, recorded on a net basis (agent), from the sale of MSG Sports teams merchandise sold at The Garden. Venue Signage and Sponsorship We earn revenues through the sale of signage space and sponsorship rights in connection with our venues, productions and other live entertainment events. Signage revenues generally involve the sale of advertising space at The Garden during entertainment events and otherwise in our venues. Sponsorship agreements may require us to use the name, logos and other trademarks of sponsors in our advertising and in promotions for our venues, productions and other live entertainment events. Sponsorship arrangements may be exclusive within a particular sponsorship category or non-exclusive and generally permit a sponsor to use the name, logos and other trademarks of our productions, events and venues in connection with their own advertising and in promotions in our venues or in the community. Prior to the Entertainment Distribution, for sponsorship agreements entered into by the Company or for arrangements that had performance obligations satisfied solely by the Company, revenue was generally recorded on a gross basis as the Company was the principal in such arrangements and controlled the related goods or services until transfer to the customer. MSG Sports’ share of the Company’s sponsorship and signage revenue was recognized in the consolidated and combined statements of operations as a component of direct operating expenses. The revenue sharing expense was specifically identified where possible, with the remainder allocated proportionally based upon revenue. Under the Arena License Agreements, the Company shares certain sponsorship and signage revenues with MSG Sports. Pursuant to these agreements, MSG Sports has the rights to sponsorship and signage revenue that is specific to Knicks and Rangers events. The Company and MSG Sports also entered into sponsorship sales representation agreements, under which the Company has the right and obligation to sell and service sponsorships for the sports teams of MSG Sports, in exchange for a commission. Advertising Sales (“Ad Sales”) Commission Subsidiaries of the Company, within the Entertainment and MSG Networks segments, are parties to an advertising sales representation agreement. Pursuant to the agreement, the Company has the exclusive right and obligation to sell advertising availabilities of MSG Networks. The Company is entitled to, and earns, commission revenue on such sales. The expense associated with advertising personnel is recognized in selling, general and administrative expenses. For Fiscal Year 2022 and Fiscal Year 2021, the Entertainment segment recognized $20,878 and $13,700 of revenues, respectively, under the advertising sales representation agreement with MSG Networks. These revenues are eliminated in consolidation in the Company’s consolidated and combined statements of operations. Expenses — Entertainment Our Entertainment segment’s principal expenses are payments made to performers of our productions, staging costs and day-of-event costs associated with events, and advertising costs. In addition, expenses in our Entertainment segment include costs associated with the ownership, lease, maintenance and operation of our venues, along with our corporate and other supporting functions. Depreciation expense on property and equipment related to the Company’s performing venues and offices is also included in the Entertainment segment’s results. Performer Payments Our proprietary productions are performed by talented actors, dancers, singers, musicians and entertainers. In order to attract and retain this talent, we are required to pay our performers an amount that is commensurate with both their abilities and the demand for their services from other entertainment companies. Our productions typically feature ensemble casts (such as the 56 Rockettes), where most of our performers are paid based on a standard “scale,” pursuant to collective bargaining agreements we negotiate with the performers’ unions. Certain performers, however, have individually negotiated contracts. Staging Costs Staging costs for our proprietary events as well as other events that we promote include the costs of sets, lighting, display technologies, special effects, sound and all of the other technical aspects involved in presenting a live entertainment event. These costs vary substantially depending on the nature of the particular show, but tend to be highest for large-scale theatrical productions, such as the Christmas Spectacular. For concerts we promote, the performer usually provides a fully-produced show. Along with performer salaries, the staging costs associated with a given production are an important factor in the determination of ticket prices. Day-of-Event Costs For days in which our Entertainment segment stages its productions, promotes an event or provides one of our venues to a third-party promoter under a license fee arrangement, the event is charged the variable costs associated with such event, including box office staff, stagehands, ticket takers, ushers, security, and other similar expenses. In situations where we provide our venues to a third-party promoter under a license fee arrangement, day-of-event costs are typically included in the license fees charged to the promoter. Under the Arena License Agreements related to the use of The Garden by MSG Sports, the Company is reimbursed for day-of-event costs (as defined under the Arena License Agreements). The Company records such reimbursements as reductions to direct operating expenses. Venue Usage The Company’s consolidated and combined financial statements include expenses associated with the ownership, maintenance and operation of The Garden, which the Company and MSG Sports use in their respective operations. Historically, the Company did not charge rent expense to MSG Sports for use of The Garden. However, for purposes of the Company’s combined financial statements, a portion of the historical depreciation expense as well as other non-event related venue operations costs are allocated to MSG Sports, in order to properly burden all business units comprising MSG Sports’ historical operations, related to use of The Garden. This allocation is based on event count and revenue, which the Company’s management believes is a reasonable allocation methodology. This allocation is reported as a reduction of direct operating expense in the consolidated and combined statements of operations. Revenue Sharing Expenses As discussed above, MSG Sports’ share of the Company’s suites licenses, venue signage and certain sponsorship and concessions revenue is reflected within direct operating expense as revenue sharing expenses. For periods prior to the Entertainment Distribution, such amounts were either specifically identified where possible, or allocated proportionally within the consolidated and combined financial statements. Marketing and Advertising Costs We incur significant costs promoting our productions and other events through various advertising campaigns, including advertising on outdoor platforms and in newspapers, on television and radio, and on social and digital platforms. In light of the intense competition for entertainment events, such expenditures are a necessity to drive interest in our productions and encourage members of the public to purchase tickets to our shows. MSG Networks Revenue Sources — MSG Networks The MSG Networks segment generates revenues principally from affiliation fees, as well as from the sale of advertising. For Fiscal Year 2022, this segment represented approximately 35% of our consolidated revenues. Affiliation Fee Revenue Affiliation fee revenue is earned from Distributors for the right to carry the Company’s networks. The fees we receive depend largely on the demand from subscribers for our programming. 57 Advertising Revenue The MSG Networks’ advertising revenue is largely derived from the sale of inventory in its live professional sports programming. As such, a disproportionate share of this revenue is earned in the second and third fiscal quarters. In certain advertising arrangements, the Company guarantees specific viewer ratings for its programming. MSG Networks has an advertising sales representation agreement with MSG Entertainment that provides for MSG Entertainment to act as MSG Networks’ advertising sales representative, which includes the exclusive right and obligation to sell certain advertising availabilities on behalf of MSG Networks for a commission. As this is an intercompany transaction, the commissions are eliminated in consolidation in the Company’s consolidated and combined statements of operations. Expenses — MSG Networks Direct operating expenses primarily include the cost of professional team rights acquired under media rights agreements to telecast various sporting events on our networks, and other direct programming and production-related costs of our networks. The Company entered into long-term media rights agreements with the Knicks and the Rangers, which provide the Company with the exclusive live media rights to the teams’ games in their local markets. In addition, the Company has multi-year media rights agreements with the Islanders, Devils and Sabres. The media rights acquired under these agreements to telecast various sporting events and other programming for exhibition on our networks are typically expensed on a straight-line basis over the applicable annual contract or license period. We negotiate directly with the teams to determine the fee and other provisions of the media rights agreements. Media rights fees for sports programming are influenced by, among other things, the size and demographics of the geographic area in which the programming is distributed, and the popularity and/or the competitiveness of a team. Other direct programming and production-related costs include, but are not limited to, the salaries of on-air personalities, producers, directors, technicians, writers and other creative staff, as well as expenses associated with location costs, remote facilities and maintaining studios, origination, and transmission services and facilities. Tao Group Hospitality Our Tao Group Hospitality segment, which represented approximately 28% of our consolidated revenues for Fiscal Year 2022, consists of our controlling interest in Tao Group Hospitality, including Hakkasan since the acquisition in April 2021, which strengthened the Company’s portfolio of widely-recognized entertainment dining and nightlife brands. Revenue Sources — Tao Group Hospitality Revenues earned from dining, nightlife and hospitality offerings through Tao Group Hospitality are recognized when food, beverages and/or services are provided to the customer as that is the point at which the related performance obligation is satisfied. In addition, management fee revenues which are earned in accordance with specific venue management agreements are recorded over the period in which the management services are performed, as that reflects the measure of progress toward satisfaction of the Company’s venue management performance obligations. Expenses — Tao Group Hospitality Entertainment Dining and Nightlife Offerings Costs The Tao Group Hospitality restaurants and nightlife and hospitality venues incur costs for providing food and beverage as well as banquet hosting services to customers. Dining and nightlife offering costs primarily include the following: •labor costs, consisting of restaurant management salaries, hourly staff payroll and other payroll-related items, including taxes and fringe benefits; •food and beverage costs; •operating costs, consisting of entertainment and performers, maintenance, utilities, bank and credit card charges, and any other restaurant-level expenses; and •occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, insurance premiums and taxes. 58 Other Expenses The Company’s selling, general and administrative expenses primarily consist of administrative costs, including compensation, professional fees, advertising sales commissions, as well as sales and marketing costs, including non-event related advertising expenses. Operating expenses in the Company’s Entertainment segment also include corporate overhead costs and venue operating expenses. Venue operating expenses include the non-event related costs of operating the Company’s performance venues, and include such costs as rent for the Company’s leased venues, real estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation expense on property and equipment related to The Garden and Hulu Theater is reported in the Entertainment segment. In addition, the Company incurs non-capitalizable content development and technology costs associated with the Company’s MSG Sphere initiative and these costs are reported in the Entertainment segment. Factors Affecting Operating Results In addition to the discussion under the section, “Impact of the COVID-19 Pandemic on Our Business” above, the operating results of our segments are largely dependent on our ability to attract concerts and other events to our venues, as well as customers to our entertainment and nightlife offerings, revenues under various agreements entered into with MSG Sports, the continuing popularity of the Christmas Spectacular at Radio City Music Hall, the affiliation agreements MSG Networks negotiates with Distributors, the number of subscribers of certain Distributors, and the advertising rates we charge advertisers. Certain of these factors in turn depend on the popularity and/or performance of the professional sports teams whose games we broadcast on our networks and host in our venues. Our Company’s future performance is dependent in part on general economic conditions and the effect of these conditions on our customers. Weak economic conditions may lead to lower demand for our entertainment and nightlife offerings and programming content, suite licenses and tickets to our live productions, concerts, family shows and other events, which would also negatively affect concession and merchandise sales, lower levels of sponsorship and venue signage and decrease advertising revenues. These conditions may also affect the number of concerts, family shows and other events that take place in the future. An economic downturn could adversely affect our business and results of operations. Due largely to our media rights agreements with our NBA and NHL teams and the generally recurring nature of our affiliation fee revenue, the MSG Networks segment has consistently produced operating profits for a number of years. Advertising revenues are less predictable and can vary based upon a number of factors, including general economic conditions and team performance. The Company continues to explore additional opportunities to expand our presence in the entertainment industry. Any new investment may not initially contribute to operating income, but is intended to become operationally profitable over time. Our results will also be affected by investments in, and the success of, new productions. Factors Affecting Comparability On April 27, 2021, Tao Group Hospitality acquired a controlling interest in Hakkasan, resulting in approximately two months of Fiscal Year 2021 operations compared to a full year of results in Fiscal Year 2022. On July 9, 2021, the Merger with MSG Networks Inc. was completed. The Merger has been accounted for as a transaction between entities under common control as the Company and MSG Networks Inc. were, prior to the Merger, each controlled by the Dolan Family Group (as defined herein). Upon the closing of the Merger, the net assets of MSG Networks Inc. were consolidated with those of the Company at their historical carrying amounts and the companies are presented on a consolidated basis for all historical periods. As a result, all prior period balances in these consolidated and combined financial statements (including share activities) were retrospectively adjusted as if MSG Entertainment and MSG Networks Inc. had been operating as one company. See Note 24, Accounting for Entertainment Distribution and Merger Transactions to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information regarding the Merger. Due to these factors and the impact of the COVID-19 pandemic discussed above, Fiscal Year 2022 results are not comparable to the prior year and are not indicative of future results. Purchase Accounting Adjustments In connection with the acquisitions completed in prior years, the Company recorded certain fair value adjustments related to acquired assets and liabilities in accordance with ASC Topic 805, Business Combinations. For the Company’s acquisitions, the Company recognized fair value adjustments primarily for (i) recognition of intangible assets such as trade names, venue 59 management contracts, favorable leases, and festival rights, (ii) step-up of property and equipment, (iii) step-up of inventory, (iv) unfavorable lease obligation, (v) goodwill, and (vi) internally-developed software. The aforementioned fair value adjustments, except for goodwill, are expensed as incremental non-cash expenses in the Company’s consolidated and combined statements of operations based on their estimated useful lives (“Purchase Accounting Adjustments”). With the exception of impairment of goodwill, the Company does not allocate any Purchase Accounting Adjustments to the reporting segments and reports any Purchase Accounting Adjustments as reconciliation items in reporting segment operating results. Note 22, Segment Information, to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information on the presentation of Purchase Accounting Adjustments. Investments in Nonconsolidated Affiliates In July 2018, the Company acquired a 30% interest in SACO, a global provider of high-performance LED video lighting and media solutions for a total consideration of $47,244. The Company is utilizing SACO as a preferred display technology provider for MSG Sphere and is benefiting from agreed upon commercial terms. In addition, the Company also has other investments in various entertainment, hospitality companies and related technology companies, accounted for under the equity method. See Note 9, Investments in Nonconsolidated Affiliates to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information. 60 Results of Operations Comparison of the Fiscal Year Ended June 30, 2022 versus the Fiscal Year Ended June 30, 2021 Consolidated Results of Operations The table below sets forth, for the periods presented, certain historical financial information.  [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2022","","2021","","Amount","","Percentage"],["Revenues","","$","1,724,618","","","$","814,213","","","$","910,405","","","112","%"],["Direct operating expenses","","1,009,245","","","434,783","","","574,462","","","132","%"],["Selling, general and administrative expenses","","681,796","","","424,355","","","257,441","","","61","%"],["Depreciation and amortization","","124,629","","","121,999","","","2,630","","","2","%"],["Impairment and other gains, net","","(3,045)","","","\u2014","","","(3,045)","","","NM"],["Restructuring charges","","14,690","","","21,299","","","(6,609)","","","(31)","%"],["Operating loss","","(102,697)","","","(188,223)","","","85,526","","","45","%"],["Other income (expense):"],["Loss in equity method investments","","(5,027)","","","(6,858)","","","1,831","","","27","%"],["Interest expense, net","","(22,945)","","","(17,201)","","","(5,744)","","","(33)","%"],["Loss on extinguishment of debt","","(35,815)","","","\u2014","","","(35,815)","","","NM"],["Other income (expense), net","","(49,448)","","","51,488","","","(100,936)","","","(196)","%"],["Loss from operations before income taxes","","(215,932)","","","(160,794)","","","(55,138)","","","(34)","%"],["Income tax benefit (expense)","","25,785","","","(5,725)","","","31,510","","","NM"],["Net loss","","(190,147)","","","(166,519)","","","(23,628)","","","(14)","%"],["Less: Net income (loss) attributable to redeemable noncontrolling interests","","7,739","","","(16,269)","","","24,008","","","148","%"],["Less: Net loss attributable to nonredeemable noncontrolling interests","","(3,491)","","","(2,099)","","","(1,392)","","","(66)","%"],["Net loss attributable to Madison Square Garden Entertainment Corp.\u2019s stockholders","","$","(194,395)","","","$","(148,151)","","","$","(46,244)","","","(31)","%"]] [[/GREPCENT_TABLE]] NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. The Company’s operating results were materially impacted during Fiscal Year 2021 by the COVID-19 pandemic and government actions taken in response. See “— Introduction — Business Overview — Impact of the COVID-19 Pandemic on Our Business” for more information. 61 The following is a summary of changes in our segments’ operating results for Fiscal Year 2022 as compared to Fiscal Year 2021, which are discussed below under “Business Segment Results”. [[GREPCENT_TABLE]] [["Changes attributable to","","Revenues","","Direct operating expenses","","SG&A","","Depreciation and amortization","","Impairment and other (gains) losses, net","","","","Restructuring charges","","Operating loss"],["Entertainment segment","","$","573,111","","","$","317,216","","","$","125,846","","","$","(2,965)","","","$","(245)","","","","","$","(7,061)","","","$","140,320"],["MSG Networks segment","","(39,355)","","","57,419","","","31,668","","","2,059","","","\u2014","","","","","452","","","(130,953)"],["Tao Group Hospitality segment","","384,781","","","198,050","","","106,957","","","17,066","","","(3,969)","","","","","\u2014","","","66,677"],["Purchase accounting adjustments","","\u2014","","","2,765","","","\u2014","","","(13,530)","","","1,169","","","","","\u2014","","","9,596"],["Inter-segment eliminations","","(8,132)","","","(988)","","","(7,030)","","","\u2014","","","\u2014","","","","","\u2014","","","(114)"],["","","$","910,405","","","$","574,462","","","$","257,441","","","$","2,630","","","$","(3,045)","","","","","$","(6,609)","","","$","85,526"]] [[/GREPCENT_TABLE]] Depreciation and amortization Depreciation and amortization for Fiscal Year 2022 increased $2,630, or 2%, to $124,629 as compared to Fiscal Year 2021 mostly due to an increase in depreciation and amortization related to the acquisition of Hakkasan in April 2021, offset partially by the absence of $14,280 of accelerated amortization expense for certain venue management contracts as a result of Tao Group Hospitality converting certain venue management contracts to operating leases during Fiscal Year 2021. Impairment and other gains, net Impairment and other gains, net of losses, were $3,045 for Fiscal Year 2022 as compared to nil for Fiscal Year 2021. The majority of this amount was related to net gains of $3,969 from the extinguishment of lease liabilities associated with four Hakkasan venues. Loss in equity method investments Loss in equity method investments for Fiscal Year 2022 decreased $1,831, or 27%, to $5,027 as compared to a loss of $6,858 in Fiscal Year 2021. The year-over-year decrease is primarily due to (i) net income of $983 for Fiscal Year 2022 compared to a net loss of $2,008 for Fiscal Year 2021 and (ii) a $2,991 increase mainly as a result of an impairment charge recorded by a Tao Group Hospitality investee in Fiscal Year 2021. No impairment charge was recorded in Fiscal Year 2022. This was partially offset by an increase of $1,385 in inter-entity profit eliminations recorded in connection with the capital expenditure purchases for MSG Sphere. Interest expense, net Interest expense, net for Fiscal Year 2022 was $22,945 as compared to $17,201 in Fiscal Year 2021, an increase of $5,744, or 33%. The increase in net interest expense in the current year was primarily due to an increase in interest expense of $18,787 on the National Properties facilities. The increase was partially offset by lower interest expense of $13,611 as a higher amount of interest costs related to MSG Sphere construction was capitalized in Fiscal Year 2022. The Company capitalized $48,507 of interest in Fiscal Year 2022 as compared to $34,890 in Fiscal Year 2021. Loss on extinguishment of debt For Fiscal Year 2022, the Company incurred a loss on extinguishment of debt of $35,815 in connection with the extinguishment of MSG National Properties’ prior term loan facility. Other income (expense), net For Fiscal Year 2022, net other expense was $49,448 as compared to net other income of $51,488 for Fiscal Year 2021, a decrease of $100,936. The decrease was primarily due to an increase in unrealized losses of $62,155 and $41,192 associated with the investments in DraftKings and Townsquare Media, respectively. Income taxes Income tax benefit for Fiscal Year 2022 of $25,785 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) tax expense of $12,759 related to nondeductible officers’ compensation, (ii) tax expense of $10,723 related to nondeductible transaction costs relating to the Merger, and (iii) increase in valuation allowance of $11,402, partially offset by state income tax benefit of $10,003 and a tax benefit relating to change in state apportionment of $4,199. 62 Income tax expense for Fiscal Year 2021 of $5,725 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) tax expense of $25,704 related to an increase in valuation allowance, (ii) tax expense of $9,646 related to nondeductible officers’ compensation, (iii) tax expense of $3,857 relating to noncontrolling interests and (iv) tax expense of $3,117 related to change in state apportionment, partially offset by state income tax benefit of $4,705. See Note 20 to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate. Adjusted operating income (loss) (“AOI”) The Company evaluates segment performance based on several factors, of which the key financial measure is operating income (loss) before the following adjustments, which is referred to as adjusted operating income (loss) (“AOI”), a non-GAAP financial measure: (i) adjustments to remove the impact of non-cash straight-line leasing revenue associated with the Arena License Agreements with MSG Sports, (ii) depreciation, amortization and impairments of property and equipment, goodwill and intangible assets, (iii) amortization for capitalized cloud computing arrangement costs, (iv) share-based compensation expense, (v) restructuring charges or credits, (vi) merger and acquisition-related costs, including litigation expenses, (vii) gains or losses on sales or dispositions of businesses and associated settlements, (viii) the impact of purchase accounting adjustments related to business acquisitions, and (ix) gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan (which was established in November 2021). See Note 22, Segment Information to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on the definition of AOI. The Company believes that given the length of the Arena License Agreements and resulting magnitude of the difference in leasing revenue recognized and cash revenue received, the exclusion of non-cash leasing revenue provides investors with a clearer picture of the Company's operating performance. The Company believes that the exclusion of share-based compensation expense or benefit allows investors to better track the performance of the various operating units of the Company’s business without regard to the settlement of an obligation that is not expected to be made in cash. The Company eliminates merger and acquisition-related costs because the Company does not consider such costs to be indicative of the ongoing operating performance of the Company as they result from an event that is of a non-recurring nature, thereby enhancing comparability. In addition, management believes that the exclusion of gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan, which are included for the first time this period, provides investors with a clearer picture of the Company’s operating performance given that, in accordance with GAAP, gains and losses related to the remeasurement of liabilities under the Company’s Executive Deferred Compensation Plan are recognized in Operating (income) loss whereas gains and losses related to the remeasurement of the assets under the Company’s Executive Deferred Compensation Plan, which are equal to and therefore fully offset the gains and losses related to the remeasurement of liabilities, are recognized in Other income (expense), net, which is not reflected in Operating income (loss). The Company believes AOI is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated and combined basis. AOI and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and AOI measures as the most important indicators of its business performance, and evaluates management’s effectiveness with specific reference to these indicators. AOI should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. Since AOI is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to AOI. 63 The following is a reconciliation of operating loss to adjusted operating income: [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2022","","2021","","Amount","","Percentage"],["Operating loss","","$","(102,697)","","","$","(188,223)","","","$","85,526","","","45","%"],["Non-cash portion of arena license fees from MSG Sports","","(27,754)","","","(13,026)"],["Share-based compensation expense","","72,552","","","70,584"],["Depreciation and amortization (a)","","124,629","","","121,999"],["Restructuring charges","","14,690","","","21,299"],["Impairment and other gains, net","","(3,045)","","","\u2014"],["Merger and acquisition related costs, including litigation","","48,764","","","24,220"],["Amortization for capitalized cloud computing costs","","271","","","\u2014"],["Other purchase accounting adjustments","","6,099","","","3,334"],["Remeasurement of deferred compensation plan liabilities","","46","","","\u2014"],["Adjusted operating income","","$","133,555","","","$","40,187","","","$","93,368","","","NM"]] [[/GREPCENT_TABLE]] ________________ NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. (a)Depreciation and amortization included purchase accounting adjustments of $12,037 and $25,567 for Fiscal Years 2022 and 2021, respectively. The decrease in purchase accounting adjustments related depreciation and amortization for Fiscal Year 2022 is due to the absence of $14,280 of accelerated amortization expense for certain Tao Group Hospitality venue management contracts that were converted to operational that were previously under management contracts. Adjusted operating income for Fiscal Year 2022 increased $93,368 to $133,555 as compared to Fiscal Year 2021. The net increase was attributable to the following: [[GREPCENT_TABLE]] [["Decrease in adjusted operating loss of the Entertainment segment","$","120,396"],["Increase in adjusted operating income of the Tao Group Hospitality segment","78,746"],["Decrease in adjusted operating income of the MSG Networks segment","(105,660)"],["Inter-segment eliminations","(114)"],["","$","93,368"]] [[/GREPCENT_TABLE]] Net loss attributable to redeemable and nonredeemable noncontrolling interests For Fiscal Year 2022, the Company recorded net income attributable to redeemable noncontrolling interests of $7,739 and a net loss attributable to nonredeemable noncontrolling interests of $3,491 as compared to net loss attributable to redeemable noncontrolling interests of $16,269 and net loss attributable to nonredeemable noncontrolling interests of $2,099 for Fiscal Year 2021. These amounts represent the share of net income (loss) from the Company’s investments in Tao Group Hospitality and BCE that are not attributable to the Company. 64 Business Segment Results Entertainment The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating loss to adjusted operating loss for the Company’s Entertainment segment.  [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2022","","2021","","Amount","","Percentage"],["Revenues","","$","655,392","","","$","82,281","","","$","573,111","","","NM"],["Direct operating expenses","","420,305","","","103,089","","","317,216","","","NM"],["Selling, general and administrative expenses","","394,551","","","268,705","","","125,846","","","47","%"],["Depreciation and amortization","","77,177","","","80,142","","","(2,965)","","","(4)","%"],["Restructuring charges","","14,238","","","21,299","","","(7,061)","","","(33)","%"],["Impairment and other (gains) losses, net","","(245)","","","\u2014","","","(245)","","","NM"],["Operating loss","","$","(250,634)","","","$","(390,954)","","","$","140,320","","","36","%"],["Reconciliation to adjusted operating loss:"],["Non-cash portion of arena license fees from MSG Sports","","(27,754)","","","(13,026)"],["Share-based compensation","","47,813","","","47,633"],["Depreciation and amortization","","77,177","","","80,142"],["Restructuring charges","","14,238","","","21,299"],["Impairment and other (gains) losses, net","","(245)","","","\u2014"],["Merger and acquisition related costs","","20,834","","","16,080"],["Amortization for capitalized cloud computing costs","","95","","","\u2014"],["Remeasurement of deferred compensation plan liabilities","","46","","","\u2014"],["Adjusted operating loss","","$","(118,430)","","","$","(238,826)","","","$","120,396","","","50","%"]] [[/GREPCENT_TABLE]] ————— NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. Factors Affecting Results of Operations Impact of the COVID-19 Pandemic For Fiscal Years 2022 and 2021, the Entertainment segment operations and operating results were materially impacted by the COVID-19 pandemic and the actions taken in response by governmental authorities. As of this date, live events are permitted to be held at all of our performance venues without capacity restrictions and we are continuing to host and book new events. See “— Introduction — Business Overview — Impact of the COVID-19 Pandemic on Our Business” for more information. 65 Revenues Revenues increased $573,111 from $82,281 for Fiscal Year 2021 to $655,392 for Fiscal Year 2022. The net increase was attributable to the following:  [[GREPCENT_TABLE]] [["Increase in event-related revenues, as discussed below","$","239,574"],["Increase in revenues from signage, suite licenses, and sales of food, beverage and merchandise subject to revenue or profit sharing with MSG Sports pursuant to the Arena License Agreements","130,238"],["Increase in revenues from the shortened Christmas Spectacular 2021 holiday season run as compared to the cancellation of the 2020 production in the prior year as a result of the COVID-19 pandemic","55,454"],["Increase in arena license fees from MSG Sports pursuant to the Arena License Agreements, as discussed below","46,727"],["Increase in suite license fee revenues, due to the return of live events at the Company\u2019s venues during the current year as compared to limited live events held in the prior year due to the COVID-19 pandemic","34,904"],["Increase in venue-related signage and sponsorship revenues primarily due to the return of live events at the Company\u2019s venues during the current year as compared to limited live events held in the prior year due to the COVID-19 pandemic","29,940"],["Increase in revenues from the Boston Calling Music Festival as compared to the cancellation of the festival in Fiscal Year 2021 as a result of the COVID-19 pandemic","18,313"],["Increase in inter-segment revenues on advertising sales commission from MSG Networks, which are eliminated in consolidation","7,177"],["Increase in revenues from Sponsorship Sales and Service Representation Agreements with MSG Sports","3,987"],["Other net increases","6,797"],["","$","573,111"]] [[/GREPCENT_TABLE]] The increase in event-related revenues reflects (i) higher revenues from concerts of $179,892 during Fiscal Year 2022 and (ii) higher revenues from other live entertainment and sporting events of $59,682 during Fiscal Year 2022. These increases were due to the return of live events to the Company’s venues during the current year as compared to limited live events held in the prior year due to the COVID-19 pandemic. See “— Introduction — Business Overview — Impact of the COVID-19 Pandemic on Our Business” for more information. In Fiscal Year 2022, the Knicks and Rangers played a combined 98 pre-season, regular season, and post-season games at The Garden without any capacity restrictions. As a result, the Company recorded $68,072 in arena license fees under the Arena License Agreements for Fiscal Year 2022. In the prior year, capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements during Fiscal Year 2021. Direct operating expenses Direct operating expenses increased $317,216 from $103,089 for Fiscal Year 2021 to $420,305 for Fiscal Year 2022. The net increase was attributable to the following:  [[GREPCENT_TABLE]] [["Increase in event-related direct operating expenses, as discussed below","$","125,931"],["Increase in direct operating expenses associated with revenue or profit sharing expense from signage, suites licenses and sales of food, beverage and merchandise with MSG Sports pursuant to the Arena License Agreements","94,226"],["Increase in direct operating expenses from the shortened Christmas Spectacular 2021 holiday season run as compared to the cancellation of the 2020 production in the prior year as a result of the COVID-19 pandemic","39,029"],["Increase in direct operating expenses associated with the Boston Calling Music Festival as compared to the cancellation of the festival in Fiscal Year 2021 as a result of the COVID-19 pandemic","19,003"],["Increase in direct operating expenses associated with the Arena License Agreements","17,645"],["Increase in direct operating expenses associated with venue operating costs","15,445"],["Other net increases","5,937"],["","$","317,216"]] [[/GREPCENT_TABLE]] For Fiscal Year 2022, the increase in event-related direct operating expenses reflects (i) higher direct operating expenses from concerts of $91,938, and (ii) higher direct operating expenses from other sporting and live entertainment events of $33,993, primarily due to the return of events to the Company’s venues during the current year as compared to limited live events in the prior year due to the COVID-19 pandemic. 66 Selling, general and administrative expenses SG&A expenses for Fiscal Year 2022 increased $125,846, or 47%, to $394,551 as compared to Fiscal Year 2021. The increase was primarily due to (i) a net increase in employee compensation and related benefits of $89,245, which included the impact of severance-related costs attributable to separation agreements in the current year, and (ii) higher professional fees of $15,092 inclusive of costs for MSG Sphere development and higher merger and acquisition costs (including litigation costs) of $4,754. Depreciation and amortization Depreciation and amortization for Fiscal Year 2022 decreased $2,965, or 4%, to $77,177 as compared to Fiscal Year 2021 primarily due to certain assets in The Garden being fully depreciated and amortized. Operating loss Operating loss for Fiscal Year 2022 improved $140,320 to $250,634 as compared to an operating loss of $390,954 in Fiscal Year 2021. The improvement in operating loss was primarily due to the increase in revenues, offset by higher direct operating expenses and selling, general and administrative expenses and, to a lesser extent, the decrease in restructuring charges. Adjusted operating loss Adjusted operating loss for Fiscal Year 2022 improved $120,396 to $118,430 as compared to Fiscal Year 2021. The improvement in adjusted operating loss was less than the decrease in operating loss of $140,320 primarily due to (i) the increase in adjustments for the non-cash portion of arena license fees from MSG Sports of $14,728 and (ii) a decrease in restructuring charges of $7,061, both of which are excluded in the calculation of adjusted operating (loss). 67 MSG Networks The tables below set forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Networks segment.  [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2022","","2021","","Amount","","Percentage"],["Revenues","","$","608,155","","","$","647,510","","","$","(39,355)","","","(6)","%"],["Direct operating expenses","","320,278","","","262,859","","","57,419","","","22","%"],["Selling, general and administrative expenses","","147,007","","","115,339","","","31,668","","","27","%"],["Depreciation and amortization","","9,394","","","7,335","","","2,059","","","28","%"],["Restructuring charges","","452","","","\u2014","","","452","","","NM"],["Operating income","","$","131,024","","","$","261,977","","","$","(130,953)","","","(50)","%"],["Reconciliation to adjusted operating income:"],["Share-based compensation","","17,092","","","17,667"],["Depreciation and amortization","","9,394","","","7,335"],["Restructuring charges","","452","","","\u2014"],["Merger and acquisition related costs","","27,683","","","4,502"],["Amortization for capitalized cloud computing arrangement costs","","176","","","\u2014"],["Adjusted operating income","","$","185,821","","","$","291,481","","","$","(105,660)","","","(36)","%"]] [[/GREPCENT_TABLE]] _________________ NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. Factors Affecting Results of Operations Due to the COVID-19 pandemic, in March 2020, the 2019-20 NHL and NBA seasons were suspended. The leagues resumed play during the summer of 2020, with the Rangers and Islanders participating in the NHL’s return to play and the Islanders advancing to the 2019-20 playoffs. The NHL and NBA completed their shortened 2019-20 seasons in September and October 2020, respectively, which resulted in a delayed start to the shortened 2020-21 NBA and NHL seasons. For the 2021-22 seasons, MSG Networks aired full regular season telecast schedules for its five professional teams across both the NBA and NHL. See “— Introduction — Factors Affecting Results of Operations — Impact of the COVID-19 Pandemic on Our Business” for more information. Revenues Revenues for Fiscal Year 2022 decreased $39,355, or 6%, to $608,155 as compared to the prior year. The changes in revenues were attributable to the following:  [[GREPCENT_TABLE]] [["","","","","Year Ended June 30, 2022"],["Decrease in affiliation fee revenue","","","","$","(67,286)"],["Increase in advertising revenue","","","","26,310"],["Other net increases","","","","1,621"],["","","","","$","(39,355)"]] [[/GREPCENT_TABLE]] For Fiscal Year 2022, the decrease in affiliation fee revenue was primarily due to the impact of (i) the non-renewal of MSG Networks’ carriage agreement with Comcast as of October 1, 2021 and (ii) a decrease in subscribers of approximately 7% (excluding the impact of previously disclosed non-renewals with Comcast and a small Connecticut-based distributor). These decreases were partially offset by the impact of higher affiliation rates and a decrease in net unfavorable affiliate adjustments of approximately $9,400. 68 Effective October 1, 2021, Comcast’s license to carry MSG Networks expired and MSG Networks has not been carried by Comcast since that date. The financial impact of Comcast’s non-carriage of MSG Networks will depend on many factors including if, when and on what terms Comcast and the Company reach a new carriage agreement and the extent to which Comcast subscribers switch to other Distributors that carry MSG Networks. As of October 1, 2021, Comcast’s non-carriage has reduced MSG Networks’ subscribers by approximately 10% and, subject to the foregoing factors, has and is expected to reduce MSG Networks’ revenue by a comparable percentage for so long as MSG Networks’ carriage agreement with Comcast is not renewed. In addition, during any period of non-carriage, MSG Networks’ segment operating income and AOI have been, and are expected to be, reduced by an amount that is approximately equal to the dollar amount of the reduced revenue. For Fiscal Year 2022, the increase in advertising revenue was primarily due to the impact of (i) higher per-game advertising sales from the telecast of live professional sports programming, (ii) a greater number of live NBA and NHL telecasts in the current year as compared with the prior year and (iii) increased advertising sales related to the Company’s non-ratings based advertising initiatives. As a result of the impact of the COVID-19 pandemic on the 2020-21 NBA and NHL seasons, MSG Networks telecasted fewer NBA and NHL games in the prior year, as compared with a regular NBA and NHL telecast schedule in the current year. Direct operating expenses For Fiscal Year 2022, direct operating expenses increased $57,419, or 22%, to $320,278 as compared to the prior year. The increases were primarily due to higher rights fees expenses of $45,024 and, to a lesser extent, an increase in other programming and production-related costs of $12,395. The increase in rights fees was primarily due to the net impact of lower media rights fees in the prior year as a result of fewer NBA and NHL games made available for exclusive broadcast by MSG Networks during the shortened 2020-21 NBA and NHL regular seasons, and annual contractual rate increases. The increase in other programming and production-related costs was primarily due to the impact of fewer NBA and NHL regular season games in the prior year, as compared with a regular NBA and NHL telecast schedule in the current year, and expenses related to sports gaming programming, partially offset by other net cost decreases. Selling, general and administrative expenses For Fiscal Year 2022, SG&A expenses increased $31,668, or 27%, to $147,007 as compared to the prior year. The increase in SG&A expenses reflected an increase of approximately $24,900 of merger and acquisition costs that occurred primarily during the first quarter of Fiscal Year 2022, inclusive of the impact of executive separation agreements and share based compensation expense. In addition, the increase in SG&A expenses was due to higher (i) advertising sales commissions of approximately $7,200, which are eliminated in consolidation and (ii) advertising, and marketing expenses of approximately $3,100. These increases were partially offset by lower employee compensation and related benefits (including share based compensation expense) of $5,600. Operating income For Fiscal Year 2022, operating income decreased $130,953, or 50%, to $131,024 as compared to the prior year. The decrease in operating income was primarily due to the increase in direct operating expenses, the decrease in revenues, and to a lesser extent, the increase in SG&A expenses. Adjusted operating income For Fiscal Year 2022, adjusted operating income decreased $105,660, or 36%, to $185,821 as compared to the prior year. The decrease in adjusted operating income was lower than the decrease in operating income of $130,953 primarily due to the increase in merger and acquisition-related costs of approximately $25,000, which are excluded in the calculation of adjusted operating income. 69 Tao Group Hospitality The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income (loss) to adjusted operating income (loss) for the Company’s Tao Group Hospitality segment.  [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2022","","2021","","Amount","","Percentage"],["Revenues","","$","484,947","","","$","100,166","","","$","384,781","","","NM"],["Direct operating expenses","","264,641","","","66,591","","","198,050","","","NM"],["Selling, general and administrative expenses","","160,991","","","54,034","","","106,957","","","198","%"],["Depreciation and amortization","","26,021","","","8,955","","","17,066","","","191","%"],["Impairment and other (gains) losses, net","","(3,969)","","","\u2014","","","(3,969)","","","NM"],["Operating income (loss)","","$","37,263","","","$","(29,414)","","","$","66,677","","","NM"],["Reconciliation to adjusted operating income (loss):"],["Share-based compensation","","7,647","","","5,284"],["Depreciation and amortization","","26,021","","","8,955"],["Impairment and other (gains) losses, net","","(3,969)","","","\u2014"],["Merger and acquisition related costs","","247","","","3,638"],["Adjusted operating income (loss)","","$","67,209","","","$","(11,537)","","","$","78,746","","","NM"]] [[/GREPCENT_TABLE]] ————— NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. Factors Affecting Results of Operations Disruptions caused by the COVID-19 pandemic had a significant and negative impact on Tao Group Hospitality’s operations and financial performance for Fiscal Year 2021. For the majority of Fiscal Year 2021, Tao Group Hospitality’s venues conducted limited operations, subject to significant regulatory requirements, which included limits on capacity, curfews and social distancing requirements for outdoor and indoor dining, while certain venues remained closed for the entire fiscal year. At the end of Fiscal Year 2021, government-mandated capacity restrictions were lifted in Tao Group Hospitality’s key U.S. markets. During Fiscal Year 2022, operations were impacted by an increase in COVID-19 cases due to a new variant, which resulted in reduced operating schedules and reduced demand from guests, including corporate and private event cancellations and postponements in the second and third fiscal quarters. See “— Introduction — Business Overview — Impact of the COVID-19 Pandemic on Our Business” for more information. Tao Group Hospitality operates over 70 entertainment dining and nightlife branded locations within 60 venues (a single venue may have multiple branded locations on-site) in over 20 markets across five continents. As of June 30, 2022, 59 of Tao Group Hospitality’s venues (28 legacy Tao Group Hospitality venues and 31 Hakkasan venues acquired in connection with the April 27, 2021 transaction) were open for outdoor dining, limited or full capacity indoor dining (depending on the market), and delivery/takeout, inclusive of Lavo Ristorante in Los Angeles, a venue that first opened in March 2022, Tao Beach in Las Vegas that reopened in April 2022 following a multi-year renovation, and Lavo San Diego that first opened in June 2022 following the rebranding of a legacy Hakkasan venue, while one legacy Tao Group Hospitality venue remained closed. Subsequent to the end of Fiscal Year 2022, Tao Group Hospitality opened Fleur Room in Los Angeles. As of the date of this filing, Tao Group Hospitality’s domestic venues no longer require guests to provide proof of COVID-19 vaccination before entering, and Tao Group Hospitality is operating without capacity restrictions in all markets. 70 Revenues Revenues increased $384,781 from $100,166 for Fiscal Year 2021 to $484,947 for Fiscal Year 2022. The net increase was attributable to the following:  [[GREPCENT_TABLE]] [["Increase in revenues for the months of July 2021 through April 2022 due to the acquisition of Hakkasan on April 27, 2021","$","174,263"],["Increase in revenues at venues subject to capacity restrictions in the prior year period (a)","140,954"],["Increase in revenues at venues that were temporarily closed in the prior year as a result of the COVID-19 pandemic","59,870"],["Other net increases, including the impact of new venue openings","9,694"],["","$","384,781"]] [[/GREPCENT_TABLE]] _________________ (a) Includes the increases in revenues from converting previously managed venues to operational venues of $31,482 for Fiscal Year 2022 as compared to the prior year. Direct operating expenses Direct operating expenses increased $198,050 from $66,591 for Fiscal Year 2021 to $264,641 for Fiscal Year 2022. The net increase was attributable to the following:  [[GREPCENT_TABLE]] [["Increase in direct operating expenses for the months of July 2021 through April 2022 due to the acquisition of Hakkasan on April 27, 2021","$","86,985"],["Increase in the costs of food, beverage and venue entertainment as a result of resuming operations compared with the closure of certain venues and capacity restrictions due to the COVID-19 pandemic in the prior year","48,774"],["Increase in employee compensation and related benefits as a result of resuming operations compared with the reduction in headcount resulting from the COVID-19 pandemic in the prior year","45,066"],["Increase in rent expense, primarily due to rent concessions in the prior year resulting from the COVID-19 pandemic","12,372"],["Other net increases","4,853"],["","$","198,050"]] [[/GREPCENT_TABLE]] Selling, general and administrative expenses SG&A expenses for Fiscal Year 2022 increased $106,957, or 198%, to $160,991 as compared to Fiscal Year 2021 primarily due to higher (i) expenses from the Hakkasan operations for July 2021 through April 2022 due to the acquisition of Hakkasan on April 27, 2021 of $50,665, (ii) employee compensation and related benefits, inclusive of an increase in share-based compensation, of $24,075, (iii) restaurant expenses, as well as supplies, utilities, general liability insurance, pre-opening expenses and repairs and maintenance of $18,091, and (iv) marketing costs of $9,871. The increases were partially offset by a decrease in professional fees primarily related to the acquisition of Hakkasan of $820. Depreciation and amortization Depreciation and amortization for Fiscal Year 2022 increased $17,066, 191%, to $26,021 as compared to Fiscal Year 2021 primarily due to the Hakkasan acquisition in April 2021. Impairment and other (gains) losses, net For Fiscal Year 2022, the Company recorded net gains of $3,969 from the extinguishment of lease liabilities associated with four Hakkasan venues. Operating income (loss) Operating income for Fiscal Year 2022 improved $66,677 to $37,263 as compared to an operating loss of $29,414 for Fiscal Year 2021. The improvement in operating income was primarily due to the acquisition of Hakkasan in April 2021 and increased revenues, partially offset by an increase in direct operating expenses, SG&A expenses, and depreciation and amortization, as discussed above. All increased operations were significantly driven by the acquisition of Hakkasan in April 2021 and the prior year period disruptions caused by the COVID-19 pandemic. 71 Adjusted operating income (loss) Adjusted operating income for Fiscal Year 2022 was $67,209 as compared to an adjusted operating loss of $11,537 in the prior year, an improvement of $78,746. The improvement in adjusted operating income was higher than the improvement in operating income primarily due to increased depreciation and amortization, as discussed above. Comparison of the Fiscal Year Ended June 30, 2021 versus the Fiscal Year Ended June 30, 2020 The Merger with MSG Networks Inc. did not have a material impact on the previously reported segment results for Entertainment, MSG Networks and Tao Group Hospitality for Fiscal Year 2021 and Fiscal Year 2020. As such, the Company has applied the SEC’s FAST Act Modernization and Simplification of Regulation S-K, which permits the discussion to be limited to the two most recent fiscal years which are provided above for those segments. For the comparison of Fiscal Year 2021 and Fiscal Year 2020 for the Entertainment, MSG Networks and Tao Group Hospitality segments, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2021 Annual Report on Form 10-K/A, filed with the SEC on February 9, 2022. Since the previously reported consolidated results for Fiscal Year 2021 and Fiscal Year 2020 did not include MSG Networks, see below for a discussion of the comparison of Fiscal Year 2021 versus Fiscal Year 2020 for the consolidated and combined Company. Consolidated and Combined Results of Operations The table below sets forth, for the periods presented, certain historical financial information.  [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2021","","2020","","Amount","","Percentage"],["Revenues","","$","814,213","","","$","1,436,018","","","$","(621,805)","","","(43)","%"],["Direct operating expenses","","434,783","","","790,499","","","(355,716)","","","(45)","%"],["Selling, general and administrative expenses","","424,355","","","433,211","","","(8,856)","","","(2)","%"],["Depreciation and amortization","","121,999","","","112,062","","","9,937","","","9","%"],["Impairment for intangibles, long-lived assets, and goodwill","","\u2014","","","105,817","","","(105,817)","","","(100)","%"],["Gain on disposal of assets held for sale and associated settlements","","\u2014","","","(240,783)","","","240,783","","","100","%"],["Restructuring charges","","21,299","","","\u2014","","","21,299","","","NM"],["Operating income (loss)","","(188,223)","","","235,212","","","(423,435)","","","(180)","%"],["Other income (expense):"],["Loss in equity method investments","","(6,858)","","","(4,433)","","","(2,425)","","","(55)","%"],["Interest expense, net","","(17,201)","","","(14,337)","","","(2,864)","","","(20)","%"],["Other income, net","","51,488","","","35,061","","","16,427","","","47","%"],["Income (loss) from operations before income taxes","","(160,794)","","","251,503","","","(412,297)","","","(164)","%"],["Income tax expense","","(5,725)","","","(101,690)","","","95,965","","","94","%"],["Net income (loss)","","(166,519)","","","149,813","","","(316,332)","","","NM"],["Less: Net loss attributable to redeemable noncontrolling interests","","(16,269)","","","(30,387)","","","14,118","","","46","%"],["Less: Net loss attributable to nonredeemable noncontrolling interests","","(2,099)","","","(1,534)","","","(565)","","","(37)","%"],["Net income (loss) attributable to Madison Square Garden Entertainment Corp.\u2019s stockholders","","$","(148,151)","","","$","181,734","","","$","(329,885)","","","(182)","%"]] [[/GREPCENT_TABLE]] NM — Absolute percentages greater than 200% and comparisons from positive to negative values or to zero values are considered not meaningful. 72 The following is a summary of changes in our segments’ operating results for Fiscal Year 2021 as compared to Fiscal Year 2020: [[GREPCENT_TABLE]] [["Changes attributable to","","Revenues","","Direct operating expenses","","SG&A","","Depreciation and amortization","","Impairment for intangibles, long-lived assets, and goodwill","","Gain on disposal of assets held for sale and associated settlements","","Restructuring charges","","Operating income (loss)"],["Entertainment segment","","$","(502,927)","","","$","(285,554)","","","$","(13,338)","","","$","(4,147)","","","$","\u2014","","","$","240,783","","","$","21,299","","","$","(461,970)"],["MSG Networks segment","","(38,287)","","","(19,978)","","","14,510","","","172","","","\u2014","","","\u2014","","","\u2014","","","(32,991)"],["Tao Group Hospitality segment","","(80,035)","","","(50,047)","","","(9,015)","","","799","","","(94,946)","","","\u2014","","","\u2014","","","73,174"],["Purchase accounting adjustments","","\u2014","","","(1,027)","","","(6)","","","13,113","","","(10,871)","","","\u2014","","","\u2014","","","(1,209)"],["Inter-segment eliminations","","(556)","","","890","","","(1,007)","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(439)"],["","","$","(621,805)","","","$","(355,716)","","","$","(8,856)","","","$","9,937","","","$","(105,817)","","","$","240,783","","","$","21,299","","","$","(423,435)"]] [[/GREPCENT_TABLE]] Depreciation and amortization Depreciation and amortization for Fiscal Year 2021 increased $9,937, or 9%, to $121,999 as compared to Fiscal Year 2020 primarily due to (i) $14,280 of accelerated amortization expense recorded in Fiscal Year 2021 for certain Tao Group Hospitality venue management contracts that were converted to operating leases, and (ii) higher depreciation expense of $3,820 for equipment used in the development of MSG Sphere at The Venetian. The increase was partially offset by the full depreciation and amortization of certain assets in The Garden of $3,013 and lower depreciation and amortization of $5,827 associated with the Forum as the recording of depreciation ceased on March 24, 2020 when the venue was classified as assets held for sale. Impairment for intangibles, long-lived assets, and goodwill The disruptions caused by the COVID-19 pandemic directly impacted the Company’s projected cash flows resulting in operating disruptions. These disruptions, along with the deteriorating macroeconomic conditions and industry/market considerations, were considered a “triggering event” for the Company’s Tao Group Hospitality reporting unit, which required the Company to assess the carrying value of its goodwill for that reporting unit for impairment. In connection with the goodwill impairment test, the Company also evaluated the intangibles and long-lived assets for the Tao Group Hospitality reporting unit for impairment. Based on this evaluation, the Company recorded a non-cash impairment charge of $105,817 for Fiscal Year 2020, which consisted of the following: [[GREPCENT_TABLE]] [["","","Tao Group Hospitality Segment","","Purchase accounting adjustments","","Total"],["Intangibles","","$","\u2014","","","$","3,541","","","$","3,541"],["Long-lived assets","","6,363","","","7,330","","","13,693"],["Goodwill","","88,583","","","\u2014","","","88,583"],["","","$","94,946","","","$","10,871","","","$","105,817"]] [[/GREPCENT_TABLE]] For Fiscal Year 2021, no impairments were identified. Gain on disposal of assets held for sale and associated settlements In May 2020, the Company sold the Forum, and the parties settled related litigation for cash consideration in the amount of $400,000. In connection with this transaction, the Company recorded a gain of $240,783 in the fourth quarter of Fiscal Year 2020, which included $140,495 attributable to the Forum associated settlement. 73 Restructuring charges The Company’s operations have been disrupted since March 2020 due to the COVID-19 pandemic. As a direct response to this disruption, in Fiscal Year 2021, the Company implemented cost savings initiatives in order to streamline operations and preserve liquidity. For Fiscal Year 2021, the Company recorded total restructuring charges of $21,299 related to termination benefits provided to employees associated with a full-time workforce reduction of approximately 350 employees in August 2020 and 10 employees in November 2020. Loss in equity method investments Loss in equity method investments for Fiscal Year 2021 increased $2,425, or 55%, to $6,858 as compared to a loss of $4,433 in Fiscal Year 2020. The year-over-year increase is primarily due to higher loss in an investment held by Tao Group Hospitality, primarily as a result of an impairment charge recorded by the investee. In addition, the loss in equity method investments in the current year reflected higher inter-entity profit eliminations recorded in connection with the capital expenditure purchases for MSG Sphere at The Venetian. Interest expense, net Net interest expense for Fiscal Year 2021 was $17,201 as compared to $14,337 for Fiscal Year 2020, an increase of $2,864. The increase was primarily due to (i) higher interest expense in Fiscal Year 2021 associated with the National Properties Term Loan Facility of $33,481, (ii) lower interest income of $19,005 mainly due to the Company shifting its investments into U.S. Treasury Bills, money market funds, and time deposits, which yield a lower interest rate, and, to a lesser extent, the absence of interest income earned on a loan extended to The Azoff Company as compared to the prior year since the loan was repaid during the second quarter of Fiscal Year 2020. Additionally, the increase in net interest expense was offset by higher interest capitalization in Fiscal Year 2021 related to construction of MSG Sphere of approximately $32,800. The Company capitalized $34,890 of interest for Fiscal Year 2021 as compared to approximately $2,100 for Fiscal Year 2020. The increase in net interest expense was also partially offset by lower interest expense of $16,109 on the MSGN Term Loan Facility (as defined below) due to lower interest rates for Fiscal Year 2021, which averaged 1.6% compared to 3.1% in the prior year. Other income, net Other income, net for Fiscal Year 2021 increased by $16,427 to $51,488 as compared to $35,061 for Fiscal Year 2020. The increase was primarily due to the net realized and unrealized gains recognized on the Company’s investment in DraftKings and Townsquare Media of $13,550. Income taxes Income tax expense for Fiscal Year 2021 of $5,725 differs from income tax benefit derived from applying the statutory federal rate of 21% to the pretax loss primarily due to (i) tax expense of $25,704 related to an increase in valuation allowance, (ii) tax expense of $9,646 related to nondeductible officers’ compensation, (iii) tax expense of $3,857 relating to noncontrolling interests and (iv) tax expense of $3,117 related to change in state apportionment, partially offset by state income tax benefit of $4,705. Income tax expense for Fiscal Year 2020 of $101,690 differs from income tax expense derived from applying the statutory federal rate of 21% to the pretax income primarily due to (i) state income tax expense of $31,111, (ii) tax expense of $6,961 relating to nondeductible transaction costs relating to the Entertainment Distribution, (iii) tax expense of $6,703 relating to noncontrolling interest, and (iv) tax expense of $6,454 related to nondeductible officers’ compensation, partially offset by excess tax benefit related to share-based payment awards of $3,852. See Note 20, Income Taxes to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the statutory federal rate to the effective tax rate. 74 Adjusted operating income The following is a reconciliation of operating income (loss) to adjusted operating income: [[GREPCENT_TABLE]] [["","","Years Ended June 30,","","Change"],["","","2021","","2020","","Amount","","Percentage"],["Operating income (loss)","","$","(188,223)","","","$","235,212","","","$","(423,435)","","","(180)","%"],["Non-cash portion of arena license fees from MSG Sports","","(13,026)","","","\u2014"],["Share-based compensation expense","","70,584","","","61,425"],["Depreciation and amortization (a)","","121,999","","","112,062"],["Restructuring charges","","21,299","","","\u2014"],["Impairment and other (gains) losses, net","","\u2014","","","105,817"],["Merger and acquisition related costs","","24,220","","","\u2014"],["Gain on disposal of assets held for sale, including legal settlement","","\u2014","","","(240,783)"],["Other purchase accounting adjustments","","3,334","","","4,367"],["Adjusted operating income","","$","40,187","","","$","278,100","","","$","(237,913)","","","(86)","%"]] [[/GREPCENT_TABLE]] ________________ (a)Depreciation and amortization included purchase accounting adjustments of $25,567 and $12,454 for Fiscal Years 2021 and 2020, respectively. The increase in purchase accounting adjustments related depreciation and amortization for Fiscal Year 2021 includes $14,280 of accelerated amortization expense for certain Tao Group Hospitality venue management contracts that were converted to operational that were previously under management contracts. Adjusted operating income for Fiscal Year 2021 decreased $237,913 to $40,187 as compared to the prior year. The net decrease was attributable to the following:  [[GREPCENT_TABLE]] [["Increase in adjusted operating loss of the Entertainment segment","$","(194,575)"],["Increase in adjusted operating loss of the Tao Group Hospitality segment","(13,014)"],["Decrease in adjusted operating income of the MSG Networks segment","(29,885)"],["Inter-segment eliminations","(439)"],["","$","(237,913)"]] [[/GREPCENT_TABLE]] Net loss attributable to redeemable and nonredeemable noncontrolling interests For Fiscal Year 2021, the Company recorded a net loss attributable to redeemable noncontrolling interests of $16,269 and a net loss attributable to nonredeemable noncontrolling interests of $2,099 as compared to $30,387 of net loss attributable to redeemable noncontrolling interests and $1,534 of net loss attributable to nonredeemable noncontrolling interests for Fiscal Year 2020. These amounts represent the share of net loss of Tao Group Hospitality and BCE that is not attributable to the Company. In addition, the net loss attributable to redeemable and nonredeemable noncontrolling interests includes a proportional share of expenses related to purchase accounting adjustments. Liquidity and Capital Resources Overview Impact of the COVID-19 Pandemic The Company’s operations and operating results have been materially impacted by the COVID-19 pandemic (including COVID-19 variants) and actions taken in response by governmental authorities and certain professional sports leagues during Fiscal Years 2020, 2021 and 2022. For the majority of Fiscal Year 2021, substantially all operations of the Entertainment business were suspended, MSG Networks aired substantially fewer games and Tao Group Hospitality was operating at significantly reduced capacity and demand. Fiscal Year 2022 was also impacted by the pandemic, with fewer ticketed events at our venues in the first half of the fiscal year as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19) due to the lead-time required to book touring acts and artists, and an increase in COVID-19 cases due to a new variant, which resulted in a number of events at our performance, entertainment dining and nightlife venues being cancelled or postponed in the second and third quarters. As a result of government-mandated assembly limitations and closures, all of our performance venues were closed beginning in March 2020. Use of The Garden resumed for Knicks and Rangers home games without fans in December 2020 and January 2021, 75 respectively, and was available at 10% seating capacity from February through May 2021 with certain safety protocols and social distancing. Beginning in May 2021, all of our New York performance venues were permitted to host guests at full capacity, subject to certain restrictions, and effective June 2021, The Chicago Theatre was permitted to host events without restrictions. Guests of our Chicago and New York venues were also subject to certain vaccination requirements until February and March 2022, respectively. As a result, our performance venues no longer require guests to provide proof of COVID-19 vaccination before entering (although specific performers may require enhanced protocols). For Fiscal Year 2021, the majority of ticketed events at our venues were postponed or cancelled. For Fiscal Year 2022 and as of the date of this filing, live events have been permitted to be held at all of our performance venues and we are continuing to host and book new events. As a result of an increase in cases of a COVID-19 variant, select bookings were postponed or cancelled at our performance venues in the second and third quarters of Fiscal Year 2022. Variants of COVID-19 that arise in the future may result in additional postponements or cancellations of bookings at our performance venues. The impact of the COVID-19 pandemic on our operations also included (i) the partial cancellation of the 2021 production of the Christmas Spectacular, (ii) the cancellation of the 2020 production of the Christmas Spectacular, and (iii) the cancellation of both the 2020 and 2021 Boston Calling Music Festival. The Company’s long-term Arena License Agreements with MSG Sports require the Knicks and Rangers to play their home games at The Garden. As discussed above, capacity restrictions, use limitations and social distancing requirements were in place for the entirety of the Knicks and Rangers 2020-21 regular seasons, which materially impacted the payments we received under the Arena License Agreements for Fiscal Year 2021. On July 1, 2021, the Knicks and Rangers began paying the full amounts provided for under their respective Arena License Agreements. The Knicks and the Rangers each completed their 2021-2022 82-game regular seasons, with the Rangers advancing to the playoffs. As a result of the COVID-19 pandemic and league and government actions relating thereto, MSG Networks aired substantially fewer NBA and NHL telecasts during Fiscal Year 2021, as compared with Fiscal Year 2019 (the last full fiscal year not impacted by COVID-19), and consequently experienced a decrease in revenues, including a material decrease in advertising revenue. The absence of live sports games also resulted in a decrease in certain MSG Networks expenses, including rights fees, variable production expenses, and advertising sales commissions. MSG Networks resumed airing full regular season telecast schedules in Fiscal Year 2022 for its five professional teams across both the NBA and NHL, and as a result, its advertising revenue and certain operating expenses, including rights fees expense, reflect the same. Disruptions caused by the COVID-19 pandemic had a significant and negative impact on Tao Group Hospitality’s operations and financial performance for Fiscal Year 2021. Due to government actions taken in response to the COVID-19 pandemic, virtually all of Tao Group Hospitality’s venues were closed for approximately three months starting in March 2020. Additionally, three venues were permanently closed. Throughout Fiscal Year 2021, Tao Group Hospitality conducted limited operations at certain venues, subject to significant regulatory requirements, including capacity limits, curfews and social distancing requirements for outdoor and indoor dining. During Fiscal Year 2022, Tao Group Hospitality’s operations were also impacted by an increase in COVID-19 cases due to a new variant, which resulted in reduced operating schedules and reduced demand from guests, including corporate and private event cancellations and postponements in the second and third quarters. As of the date of this filing, Tao Group Hospitality is operating without capacity restrictions in all markets. It is unclear to what extent ongoing COVID-19 concerns, including with respect to new variants, could result in new government or league-mandated capacity restrictions or vaccination/mask requirements or impact the use of and/or demand for our performance, entertainment dining and nightlife venues, demand for our sponsorship and advertising assets, deter our employees and vendors from working at our venues (which may lead to difficulties in staffing) or otherwise materially impact our operations. Sources of Liquidity Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our businesses and available borrowing capacity under our credit facilities. Our principal uses of cash include working capital-related items (including funding our operations), capital spending (including our construction of MSG Sphere at The Venetian in Las Vegas, as described below), debt service, investments and related loans and advances that we may fund from time to time, and mandatory purchases from prior acquisitions. We may also use cash to repurchase our common stock. Our decisions as to the use of our available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation. To the extent that we desire to access alternative sources of funding through the capital and credit markets, challenging U.S. and global economic and market conditions could adversely impact our ability to do so at that time. We regularly monitor and assess our ability to meet our net funding and investing requirements, including the construction of MSG Sphere at The Venetian. We believe we have sufficient liquidity from cash and cash equivalents ($828,540 as of June 30, 2022) and future cash flows from operations to fund our operations, service the credit facilities for the foreseeable future, as well as complete the construction of MSG Sphere at The Venetian. The Company may seek to raise capital to fund additional content, which would be expected to generate significant revenue for MSG Sphere. See Note 15, Credit Facilities to the consolidated and 76 combined financial statements included in Item 8 of this Annual Report on Form 10-K for a discussion of the MSGN Credit Agreement, the National Properties Term Loan Facilities, and the Tao Revolving Credit Facilities. Our cash and cash equivalents at June 30, 2022 included approximately $277,000 in advance cash proceeds primarily related to tickets, suites, and, to a lesser extent, sponsorships. On March 31, 2020, the Company’s Board of Directors authorized, effective following the Entertainment Distribution, a share repurchase program to repurchase up to $350,000 of the Company’s Class A Common Stock. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. No shares have been repurchased to date. MSG Spheres The Company has made significant progress on MSG Sphere at The Venetian, its state-of-the-art entertainment venue under construction in Las Vegas. See “Part I — Item 1. Our Business — Our Performance Venues — MSG Sphere.” The Company expects the venue to have a number of significant revenue streams, including a wide variety of content such as attractions, concert residencies and corporate and select sporting events, as well as sponsorship and premium hospitality opportunities. As a result, we anticipate that MSG Sphere at The Venetian will generate substantial revenue and adjusted operating income on an annual basis. MSG Sphere at The Venetian is a complex construction project that has become even more challenging due to the global impact of COVID-19. In April 2020, the Company announced that it was suspending construction due to COVID-19-related factors outside of its control, including supply chain issues. As the ongoing effects of the pandemic continued to impact its business operations, in August 2020, the Company disclosed that it resumed construction with a lengthened timetable. The Company remains committed to bringing MSG Sphere to Las Vegas and expects to open the venue in the second half of calendar year 2023. As with any major construction project, the construction of MSG Sphere is subject to potential delays, unexpected complications or cost fluctuations. As of June 30, 2022, our cost estimate, inclusive of core technology and soft costs, for MSG Sphere at The Venetian was approximately $2,000,000. This cost estimate was net of $75,000 that the Venetian has agreed to pay to defray certain construction costs and also excludes significant capitalized and non-capitalized costs for items such as content creation, internal labor, capitalized interest, and furniture and equipment. Relative to our cost estimate above, our actual construction costs for MSG Sphere at The Venetian incurred through June 30, 2022 were approximately $1,530,000, which is net of $65,000 received from the Venetian. In addition, the amount of construction costs incurred as of June 30, 2022 includes approximately $190,000 of accrued expenses that were not yet paid as of that date. With regard to MSG Sphere at The Venetian, the Company plans to finance the construction of the venue from cash-on-hand and cash flows from operations. If the Company’s cash-on-hand and cash flows from operations are not sufficient to finance the remaining construction costs of MSG Sphere at The Venetian, the Company would need to access additional capital, including potential incremental debt. There is no assurance that the Company will be able to obtain such capital. While the Company plans to self-fund the construction of MSG Sphere at The Venetian, under the right terms it would consider third-party financing alternatives. The Company’s intention for any future venues is to utilize several options, such as non-recourse debt financing, joint ventures, equity partners and a managed venue model. For additional information regarding the Company’s capital expenditures, including those related to MSG Sphere, see Note 22, Segment Information to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K. In February 2018, we announced the purchase of land in Stratford, London, which we expect will become home to a future MSG Sphere. The Company submitted planning applications to the local planning authority in March 2019 and that process, which requires various stages of review to be completed and approvals to be granted, is ongoing. Therefore, we do not have a definitive timeline at this time. We will continue to explore additional domestic and international markets where we believe next-generation venues such as MSG Sphere can be successful. 77 Financing Agreements See Note 15, Credit Facilities to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for discussions of the Company’s debt obligations and various financing arrangements. National Properties Facilities On June 30, 2022, MSG National Properties, an indirect, wholly-owned subsidiary of the Company, MSG Entertainment Group, LLC (“MSG Entertainment Group”) and certain subsidiaries of MSG National Properties entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders and L/C issuers party thereto (the “National Properties Credit Agreement”), providing for a five-year, $650,000 senior secured term loan facility (the “National Properties Term Loan Facility”) and a five-year, $100,000 revolving credit facility (the “National Properties Revolving Credit Facility” and, together with the National Properties Term Loan Facility, the “National Properties Facilities”). As of June 30, 2022, outstanding letters of credit were $6,631 and the remaining balance available under the National Properties Revolving Credit Facility was $70,900. The National Properties Facilities will mature on June 30, 2027. The principal obligations under the National Properties Term Loan Facility are to be repaid in quarterly installments beginning with the fiscal quarter ending March 31, 2023, in an aggregate amount equal to 2.50% per annum (0.625% per quarter), stepping up to 5.0% per annum (1.25% per quarter) in the fiscal quarter ending September 30, 2025, with the balance due at the maturity of the facility. The principal obligations under the National Properties Revolving Credit Facility are due at the maturity of the facility. The National Properties Credit Agreement includes financial covenants requiring MSG National Properties and its restricted subsidiaries to maintain a specified minimum liquidity level, a specified minimum debt service coverage ratio and specified maximum total leverage ratio. The minimum liquidity level is set at $50,000, and is tested based on the level of average daily liquidity, consisting of cash and cash equivalents and available revolving commitments, over the last month of each quarter over the life of the National Properties Facilities. The debt service coverage ratio covenant begins testing in the fiscal quarter ending December 31, 2022, and is set at a ratio of 2:1 before stepping up to 2.5:1 in the fiscal quarter ending September 30, 2024. The leverage ratio covenant begins testing in the fiscal quarter ending June 30, 2023. It is tested based on the ratio of MSG National Properties and its restricted subsidiaries’ consolidated total indebtedness to adjusted operating income, with an initial maximum ratio of 6:1, stepping down to 5.5:1 in the fiscal quarter ending June 30, 2024 and 4.5:1 in the fiscal quarter ending June 30, 2026. As of June 30, 2022, MSG National Properties and its restricted subsidiaries were in compliance with the covenants of the National Properties Credit Agreement. MSG Networks Senior Secured Credit Facility MSGN L.P., MSGN Eden, LLC, an indirect subsidiary of the Company (through the Merger) and the general partner of MSGN L.P., Regional MSGN Holdings LLC, an indirect subsidiary of the Company and the limited partner of MSGN L.P. (collectively with MSGN Eden, LLC, the “MSGN Holdings Entities”), and certain subsidiaries of MSGN L.P. have senior secured credit facilities pursuant to a credit agreement (as amended and restated on October 11, 2019, the “MSGN Credit Agreement”) consisting of: (i) an initial $1,100,000 term loan facility (the “MSGN Term Loan Facility”) and (ii) a $250,000 revolving credit facility (the “MSGN Revolving Credit Facility”), each with a term of five years. As of June 30, 2022, there were no borrowings or letters of credit issued and outstanding under the MSGN Revolving Credit Facility. The MSGN Term Loan Facility amortizes quarterly in accordance with its terms beginning March 31, 2020 through September 30, 2024 with a final maturity date of October 11, 2024. MSGN L.P. is required to make mandatory prepayments in certain circumstances, including without limitation from the net cash proceeds of certain sales of assets (including MSGN Collateral) or casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions. The MSGN Credit Agreement generally requires the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis to comply with a maximum total leverage ratio of 5.50:1.00, subject, at the option of MSGN L.P. to an upward adjustment to 6.00:1.00 during the continuance of certain events. In addition, the MSGN Credit Agreement requires a minimum interest coverage ratio of 2.00:1.00 for the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis. As of June 30, 2022, the MSGN Holdings Entities and MSGN L.P. and its restricted subsidiaries on a consolidated basis were in compliance with the covenants. Tao Credit Facilities On May 23, 2019, TAO Group Intermediate Holdings LLC (“TAOIH” or “Intermediate Holdings”) and TAO Group Operating LLC (“TAOG” or “Senior Borrower”), entered into a credit agreement (as amended on August 6, 2020, the “Tao Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and a letter of credit issuer, and the 78 lenders party thereto. On June 9, 2022, TAOG and TAOIH entered into an agreement to amend and restate the Tao Senior Credit Agreement (the “Restated Tao Senior Credit Agreement”) with JPMorgan Chase Bank, N.A., as agent, and the lenders party thereto. The Restated Tao Senior Credit Agreement provides TAOG with senior secured credit facilities (the “Tao Senior Secured Credit Facilities”) consisting of: (i) an initial $75,000 term loan facility with a term of five years (the “Tao Term Loan Facility”) and (ii) a $60,000 revolving credit facility with a term of five years (the “Tao Revolving Credit Facility”). As of June 30, 2022, outstanding letters of credit were $750 and the remaining borrowing available under the Tao Revolving Credit Facility was $49,250. The Tao Term Loan Facility amortizes quarterly in accordance with its terms from June 9, 2022 through the maturity date on June 9, 2027. TAOG is required to make mandatory prepayments of the Tao Term Loan Facility from the net cash proceeds of certain sales of assets or casualty insurance and/or condemnation recoveries (in each case, subject to certain reinvestment, repair or replacement rights) and the incurrence of certain indebtedness, subject to certain exceptions. The Restated Tao Senior Credit Agreement requires TAOIH to comply with a maximum total leverage ratio of 3.50:1.00, a maximum senior leverage ratio of 2.50:1.00 and a minimum fixed charge coverage ratio of 1.25:1.00. The Restated Tao Senior Credit Agreement, among other things, (i) increased the minimum liquidity for TAOG to $20,000 and maximum capital expenditures to $30,000, with a one year carry forward of $20,000, (ii) increased the basket for the maximum amount of the incremental revolving credit facility to $50,000; and (iii) amended certain other financial covenants regarding leverage to allow up to $10,000 of cash netting. As of June 30, 2022, TAOG, TAOIH and the restricted subsidiaries were in compliance with the covenants of the Restated Tao Senior Credit Agreement. Disruptions caused by the COVID-19 pandemic have had, and may in the future have, a significant and negative impact on Tao Group Hospitality’s operations and financial performance. For a discussion of the impacts of COVID-19 on the Tao Senior Secured Credit Facilities, see “Risk Factors—Risks Related to Our Indebtedness, Financial Condition and Internal Controls—We Have Substantial Indebtedness and Are Highly Leveraged, Which Could Adversely Affect Our Business” included in Item 1.A of this Annual Report on Form 10-K. See Note 15, Credit Facilities to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for additional information such as repayments of $740,000 made in Fiscal Year 2022 and scheduled repayment requirement of $78,512 in Fiscal Year 2023 on the MSGN Term Loan Facility, National Properties Term Loan Facility and Tao Senior Secured Credit Facilities. Letters of Credit The Company uses letters of credit to support its business operations. As of June 30, 2022, the Company had a total of $8,247 of letters of credit outstanding, which included two outstanding letters of credit for an aggregate of $750 issued under the Tao Revolving Credit Facility and two outstanding letters of credit for an aggregate of $6,631 issued under the National Properties Revolving Credit Facility. Cash Flow Discussion As of June 30, 2022, cash, cash equivalents and restricted cash totaled $846,010, as compared to $1,539,976 as of June 30, 2021 and $1,121,141 as of June 30, 2020. The following table summarizes the Company’s cash flow activities for Fiscal Years 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["","","Years Ended June 30,"],["","","2022","","2021","","2020"],["Net income (loss)","","$","(190,147)","","","$","(166,519)","","","$","149,813"],["Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities","","268,317","","","88,347","","","170,703"],["Subtotal","","$","78,170","","","$","(78,172)","","","$","320,516"],["Changes in working capital assets and liabilities","","63,170","","","19,478","","","(12,393)"],["Net cash provided by (used in) operating activities","","$","141,340","","","$","(58,694)","","","$","308,123"],["Net cash used in investing activities","","(804,164)","","","(123,183)","","","(394,531)"],["Net cash provided by (used in) financing activities","","(30,392)","","","592,685","","","(113,866)"],["Effect of exchange rates on cash, cash equivalents and restricted cash","","(750)","","","8,027","","","2,927"],["Net increase (decrease) in cash, cash equivalents and restricted cash","","$","(693,966)","","","$","418,835","","","$","(197,347)"]] [[/GREPCENT_TABLE]] 79 Operating Activities Net cash provided by operating activities for Fiscal Year 2022 increased by $200,034 to $141,340 as compared to the prior year primarily due to a lower operating loss in the current year and changes in working capital assets and liabilities, which included an increase in customers’ advanced payments associated with deferred revenue, an increase in payables, including related party payable and net operating lease liabilities, partially offset by higher prepaid revenue share for suite licenses and an increase in accounts receivable associated with increased revenues due to resuming normal operations post COVID-19. Net cash used in operating activities for Fiscal Year 2021 increased by $366,817 to $58,694 as compared to the prior year primarily due to a higher operating loss in the current year and changes in working capital assets and liabilities, which included higher cash collection associated with deferred revenue, higher accrued operating expenses due to an increase in business due to the easing of league and governmental restrictions related to the COVID-19 pandemic, partially offset by lower cash receipts from collections of accounts receivables and payments for certain prepaid insurance. Investing Activities Net cash used in investing activities for Fiscal Year 2022 increased by $680,981 to $804,164 as compared to the prior year primarily due to an increase in capital expenditures in the current year and the absence of proceeds from the maturity of short-term investments in the prior year. Net cash used in investing activities for Fiscal Year 2021 decreased by $271,348 to $123,183 as compared to the prior year period primarily due to the absence of cash used to purchase short-term investments in the prior year, as well as higher proceeds from the maturity of short-term investments in Fiscal Year 2021. Financing Activities Net cash used in financing activities for Fiscal Year 2022 increased by $623,077 to $30,392 as compared to the prior year primarily due to lower principal payments for the National Properties Term Loan Facility in Fiscal Year 2021 of $46,750 versus $725,000 in Fiscal Year 2022. Net cash provided by financing activities for Fiscal Year 2021 increased by $706,551 to $592,685 as compared to the prior year period primarily due to the proceeds received in Fiscal Year 2021 from (i) the National Properties Term Loan Facility, (ii) a cash contribution received from non-controlling interest owner from the Hakkasan acquisition in April 2021, and (iii) borrowings under the Tao Revolving Credit Facility, partially offset by the absence of net transfers from MSG Sports and its subsidiaries prior to the Entertainment Distribution. Contractual Obligations As of June 30, 2022, the approximate future payments under our contractual obligations are as follows: [[GREPCENT_TABLE]] [["","","Payments Due by Period"],["","","Total","","Year 1","","Years 2-3","","Years 4-5","","More Than 5 Years"],["Leases (a)","","$","736,961","","","$","69,070","","","$","134,752","","","$","76,636","","","$","456,503"],["Debt repayments (b)","","1,762,987","","","78,512","","","974,125","","","710,350","","","\u2014"],["Other (c) (d)","","196,894","","","196,894","","","\u2014","","","\u2014","","","\u2014"],["","","$","2,696,842","","","$","344,476","","","$","1,108,877","","","$","786,986","","","$","456,503"]] [[/GREPCENT_TABLE]] _________________ (a)Includes contractually obligated minimum lease payments for operating leases having an initial noncancellable term in excess of one year for the Company’s venues, including the Tao Group Hospitality venues and various corporate offices. These commitments are presented exclusive of the imputed interest used to reflect the payment’s present value. See Note 11, Leases to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information. (b)See Note 15, Credit Facilities to the consolidated and combined financial statements included in Item 8 of this Annual Report on Form 10-K for more information surrounding the principal repayments required under the credit agreements. (c)Includes accrued expenses for (i) approximately $190,000 associated with the development and construction of MSG Sphere in Las Vegas, all due within Fiscal Year 2023 and (ii) $6,894 associated with MSG Sphere business operations. (d)Pension obligations have been excluded from the table above as the timing of the future cash payments is uncertain. See Note 16, Pension Plans and Other Postretirement Benefit Plans to the consolidated and combined financial statements included in 80