Madison Square Garden Earnings Call NUGGETS: Capital Allocation, Fuse Programming
On Friday, Madison Square Garden Co (NASDAQ:MSG) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Bryan Goldberg – Bank of America Merrill Lynch: I have got two questions one on media and the other on capital allocation. With regards to media the Fuse investment is kicking in on the OpEx line. So could you just update us where we are with regards to the current investment cycle in the channel, what does the roadmap look like from here. How long should we expect this investment cycle to go on for, should we be measuring this in terms of quarters or is this a multiyear project?
Hank J. Ratner – President and CEO: Well look the business that we are in, is creating content and building audiences over time. The way the time line works is that it’s building the pipelines, is what we have been doing in the past year. Then you have a very specific set of criteria to evaluate the best shows and you green light those. So we have green lit a handful and then you go into production which is what’s occurring now. We are actually very excited about shows that I mentioned in my remarks, they’ll be rolling out to the coming year and we expect that those will be successful. Over time for us we think that our overall purchase programming is very disciplined and very prudent. At the same time we don’t really make a bet on any one show, we do that so that we can make sure in the event that it has been successful we can go back and if the show does happen to be successful, we can tumble down the gas and really push it. So I feel very comfortable about our investment and growing the shows. And we still believe that Fuse is a really significant growth opportunity for this Company and that will come again from better content, larger audiences and being able to be more economic in a way that generates revenue for those advertisers and our affiliates.
Bryan Goldberg – Bank of America Merrill Lynch: Just one point of clarification the higher OpEx in the quarter associated with Fuse, was that largely production driven or is that driven by the airing of programming?
Robert M. Pollichino – EVP and CFO: Well, it’s actually both but it’s mostly driven by the production cycle. What we do from an accounting perspective is that unless we’re acquiring rights, if we acquire rights we can put them on the balance sheet and we can amortize them over the length of term of the rights that we acquire but with respect to our original productions and original programming, we expense it as incurred. So, what you’re seeing in the quarter is that production cycle, even in advance of the shows coming on later this fiscal year?
Bryan Goldberg – Bank of America Merrill Lynch: Then on capital allocation, you’ve got over 200 million of cash on the balance sheet, this summer’s transformation work, the end’s almost in sight. You’ve got a smaller workload on deck for next summer, so free cash flow generation looks set to grow nicely assuming everything goes okay with the NHL CBA. Could you just update us how you’re thinking about deploying cash to grow long-term as opposed to potentially returning some capital to shareholders in these mutually exclusive strategies?
Hank J. Ratner – President and CEO: Not at all. I don’t think they’re mutually exclusive whatsoever. We still are in the position that we’ve been in since we became a public Company and we’re still in the midst of the transformation. I agree with you, we’re a lot further along than when we began and we’ve accomplished a lot to-date, but we’re still not done. So, we still need to be prudent and we still need to be mindful of the remaining cash to be spent on the transformation, but you’re right, that has a finite life and then at some point we’ll be beyond that and that will change the liquidity profile of the Company quite dramatically. We’re really looking to be prudent, strategic and smart. We’re looking to maximize shareholder value and we will be looking at all options. Currently we look and we looked at balance near-term economics with long-term growth and I think the balance is key, and again being smart not just looking at today, but we got to look at the future and we think that’s again the best thing in order to maximize shareholder value. So, there’s an element of investing back into the business and then there is other uses of capital that as people discussed whether they’ll be dividends or stock buybacks, everything will be something that will be looked. They all can be done or they cannot be done and we’ll look when we get through and we pass through that tunnel, we will be evaluating the environment and the circumstance and the opportunities and figure out what’s in the best interest of the shareholders and Company and how we best can maximize value and will make our determinations based on that lot.
Ryan Fiftal – Morgan Stanley: Good morning. This is Ryan Fiftal on for Ben. First I have a follow-up question on Fusion then a quick one on the sports side. So starting on Fuse as a follow-up, could you give a little more color on how you’re evaluating the success or failure of the programming, specifically I’m wondering when you go to make the decision next year to expand or contract the amount of content on Fuse what are the benchmarks that you’re looking for and how you’re thinking about that decision?
Hank J. Ratner – President and CEO: Yeah, sure. I mean the first thing obviously is your audio, the society audience as well as the type of audience that you’ve got. I think one of the advantages for Fuse is that we’re the only media company that has a youthful audience, which at the same time is grounded in music that makes this I think distinctive and it gives us a slight premium in the advertising rates that we can charge and makes it a unique offering for our affiliates. In addition to looking at the ratings that each show generates, we also look at the expense against that particular show it’s ability of syndicated over time. We you look at how much of that content could also then be put online, so there are a series of those metrics that are both financial and also driving demand and awareness of the overall channel. Based on that, each then will be renewed or not. But again, as I said before, we are not living and dying by any one show, it’s really the volume of shows over time, and in fact, in the first of week of September, we’ll be announcing a new initiative in programming which will be multiplatform that we think will not only be a first of its kind, but will be very economic to the business, (reach) users awareness and generate a important value.
Ryan Fiftal – Morgan Stanley: Then on the Sports side, it was – you guys put up a big beat on Sports revenues. So can you help give us a sense on sizing how much of the $55 million I think revenue growth was specifically tied to the playoffs versus the compressed regular season versus relative size of some of the other drivers, maybe (suite-lights) and things versus your growth and sponsorship? Thank you.
Scott O’Neil – President, MSG Sports: Sure. So as you said, MSG Sports AOCF growth this quarter was driven by the significant increase in revenue. That was driven by the increased number of home playoff games, also, the benefit of the transformation, and really the third thing to a lesser extent, the higher percentage of Knicks-related revenues being recognized in the quarter because the season was compressed. So when you look at the $56 million of year-over-year increase in revenues, playoff related revenues were $36 million of the $56 million. Ticket related revenues increased $11.7 million, and that’s driven by the transformation related ticket price increase this past season. Suites was $4.8 million of the increase, and if you remember, that’s primarily driven by the addition of our 20 event level suites, and then thinking about the revenue and what you know fell to the bottom line, the revenue increase was partially offset by $29 million in direct operating expenses. Of that $29 million, $23 million was related to the playoffs, and $5 million was related to increased SG&A marketing expense, advertising and other G&A increases. So, playoffs were a key driver.