MSG Entertainment

Madison Square Garden Entertainment’s quarterly revenues surged by 36% to $401.2 million, an increase of nearly $107 million over last year, thanks to a packed calendar for its performance venues that included Harry Styles‘ 15 sold-out concerts at the company’s namesake venue in New York City.

However, those revenues were not enough to offset a total operating loss of $44 million and a 73% decline in adjusted operating income to $2.8 million, as expenses related to the return of live events and increased construction costs for MSG Sphere caused company-wide operating expenses to climb $88.1 million.

On a call with analysts on Wednesday, executives were optimistic saying that the company is moving into the lucrative holiday season– a boom time for MSG performances like Radio City Christmas Spectacular.

“This is expected to be the first full year of events at our venues since fiscal 2019,” James Dolan, executive chairman and chief executive, said. “The best months are coming up for our events business.”

Revenues from the company’s entertainment business quadrupled to $147.1 million in the first fiscal quarter of 2023, which ended Sept. 30. That is compared to $34.2 million last year.

Investors were not swayed by executives comments that the company hosted a record 1 million guests at events over the quarter. Madison Square Garden Entertainment Corp’s stock was down 10.47% to $40.43 by 11 a.m. in New York.

Executives disclosed that the cost of building MSG Sphere, the state-of-the-art venue under construction in Las Vegas, rose again to $2.75 billion from $2 billion on higher costs from inflation and global supply chain issues. The project has rougly 8-9 months of construction remaining.

Dolan briefly commented on the proposed spin-off of the company’s live entertainment and MSG Networks business. If the plan is approved, he said, the venues and networks business would be named Madison Square Garden Entertainment Corp, while the business encompassing MSG Sphere and Tao Group Hospitality, owner of TAO, Hakkasan, LAVO and Beauty & Essex, would be named MSG Sphere Corp.

MSG Entertainment’s board approved the plan in August, and it now faces review by the U.S. Securities and Exchange Commission. Under the plan, the new, publicly traded company would house MSG Entertainment’s venues — including Madison Square Garden, Radio City Music Hall, the Beacon Theatre and The Chicago Theatre — and MSG Networks, which broadcasts five basketball and hockey teams on MSG Network and MSG+. Also in that new company would be MSG Entertainment’s sports and entertainment booking business, the Radio City Rockettes and the Christmas Spectacular production and arena license agreements with the NBA Knicks and NHL Rangers.

Executives and analysts have said the spin-off could provide investors with more clarity on the company’s many businesses and a clearer choice between the type of investment they want to make. The venues and networks businesses have long-term track records as stable revenue generators, while the Sphere and Tao Group businesses are more speculative but provide an opportunity for higher returns.

Below is a greater breakdown of the company’s earnings for the quarter.

Q1 fiscal 2023 earnings for Entertainment division:

Revenues of $147.1 million, up $112.9 million from last year

Event related revenues rose $80.6 million

Arena license agreements with MSG Sports revenues rose $18.3 million

Suite license fee revenues rose $8.4 million

Direct operating expenses rose $65.5 million to $101.8 million from last year driven by expenses from events and arena license agreements with MSG Sports.

Selling, general, administrative costs rose 11% to $103.4 million on higher employee compensation, benefits.

Operating losses totaled $75.3 million for the quarter, a 34% improvement from the year-ago period when operating losses totales $114.7 million. Adjusted operating losses totaled $44.4 million.

Q1 fiscal 2023 earnings for MSG Networks division:

Revenues fell 13% to $122.5 million from last year on $19-million-decrease in affiliation fee revenues.

Direct operating expenses rose 10% to $75.4 million, driven by $5.9 million increase in rights fees and $1.1 million increase in other programming and production costs.

Selling, general and administrative expenses fell by 63% from a year ago to $17.8 million.

Q1 fiscal 2023 earnings for Tao Group division:

Revenues rose 11% to $132.7 million, including $7.5 from new venue openings.

Direct operating expenses rose 25% to $76.6 million driven by a $7.9-million-increase in employee compensation and related benefits.

Food and bevereage costs rose $4.1 milion on inflation, new venue openings