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Edited Transcript of MSG earnings conference call or presentation 8-Nov-19 3:00pm GMT

Q1 2020 Madison Square Garden Co Earnings Call

New York Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Madison Square Garden Co earnings conference call or presentation Friday, November 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew S. Lustgarten

The Madison Square Garden Company - President

* Ari Danes

The Madison Square Garden Company - SVP, IR

* Gregg G. Seibert

The Madison Square Garden Company - Vice Chairman

* Lawrence J. Burian

The Madison Square Garden Company - Executive VP & General Counsel

* Victoria M. Mink

The Madison Square Garden Company - Executive VP & CFO

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Conference Call Participants

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* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* Brandon A Ross

LightShed Partners - Partner and Media & Technology Analyst

* Bryan Daniel Goldberg

BofA Merrill Lynch, Research Division - Research Analyst

* David Carl Joyce

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Michael C. Morris

Guggenheim Securities, LLC, Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Madison Square Garden Company Fiscal 2020 First Quarter Earnings Conference Call. (Operator Instructions) Thank you. I would now like to turn the call over to Ari Danes, Senior Vice President of Investor Relations for the Madison Square Garden Company. Please go ahead, sir.

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Ari Danes, The Madison Square Garden Company - SVP, IR [2]

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Thank you, Carmen. Good morning, and welcome to the Madison Square Garden Company's Fiscal 2020 First Quarter Earnings Conference Call. Our President, Andy Lustgarten, will provide an update on the company's operations, after which Victoria Mink, our EVP and Chief Financial Officer, will review our financial results.

But before they do so, Gregg Seibert, our Vice Chairman, will begin today's call by discussing the update to our proposed spin-off transaction. After our prepared remarks, we will open up the call for questions.

If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take a note of following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties. And that actual results, developments and events may differ materially from those in the forward-looking statements as a result of various factors. These include financial community perceptions of the company and its business, operations, financial condition and the industry in which it operates as well as the factors described in the company's filings with the Securities and Exchange Commission including the sections entitled risk factors and management's discussion and analysis of financial condition and results of operations contained therein. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

Lastly, on Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, a non-GAAP financial measure.

And with that, I'll now turn the call over to Gregg.

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [3]

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Thank you, Ari, and good morning, everyone. Yesterday afternoon, we announced a revised plan for the proposed separation of our sports and entertainment businesses. A plan that simplifies the overall structure and story for our investors while still positioning both companies for long-term success.

We are now planning on pursuing a full spin-off of our entertainment business from our sports business. As a result of this new structure, the entertainment company will not retain any equity interest in the sports company. As a reminder, our prior plan was to spin-off approximately 2/3 of the equity interest in MSG Sports businesses and have the entertainment company retain the remaining approximate 1/3 stake. A key reason for the retained stake was to provide the entertainment company with additional financial flexibility to enable it to fund its growth plans.

While Andy will have more to say on our MSG Sphere initiative shortly, time line for the opening of our London venue is evolving, and we believe that the entertainment company will have sufficient financial flexibility to pursue its venue expansion plans without the need for the retained interest.

As a result, we think this new structure makes the most sense for our shareholders. It enables all shareholders to maintain their current economic interest in both the entertainment and sports businesses and eliminates any potential tax leakage associated with the sale of the retained interest in the sports company. And the change to a spin-off of entertainment from sports rather than sports from entertainment also provides us with additional tax efficiencies. In terms of timing, without the retained interest in sports, we no longer need to obtain a prior letter ruling from the -- private letter ruling from the IRS. However, our revised structure will require us to file a new Form 10 with the SEC.

Even with the changes to the structure, we believe we can still complete the transaction during the first quarter of calendar 2020. And of course, I'll just note that the spin-off remains subject to final Board and other approvals.

Let me conclude by saying that we continue to believe this transaction would better highlight the unique value of our entertainment and sports assets while enabling the 2 companies to pursue their own distinct business plans and growth strategies, and that this opportunity will ultimately set the stage for continued growth and long-term value creation for our shareholders.

With that, let me turn the call over to Andy.

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Andrew S. Lustgarten, The Madison Square Garden Company - President [4]

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Thank you, Gregg. We expect fiscal 2020 to be a defining year as we move forward with the spin-off as well as our plans for MSG Sphere in Las Vegas. There are a number of reasons why we expect to be highly successful in Las Vegas.

First, as a leader in live entertainment, we've directly experienced the growing demand for immersive shared experiences. Unlike any other venue that exists today, MSG Sphere will be uniquely situated to deliver on this trend.

Second, we believe Las Vegas as one of the world's top entertainment destinations with over 40 million visitors annually is the ideal market to introduce the first MSG Sphere.

Third, we have a valuable partner in Las Vegas Sands, a leader in convention-based resorts. Our venue will be directly connected to their Expo Center and Venetian resort, and we see this as an extremely beneficial relationship for both companies, as we help drive each other's business.

And fourth, we've assembled the expertise to bring this venue to life. From venue design and construction, to immersive content creation, to tickets, sponsorship and suite sales, we've brought together an extremely talented team to execute our plans.

Regarding expected returns, let me be very clear. We expect a robust after-tax return on our investment, and let me tell you why. We have a strong track record of delivering significant returns on large-scale venue projects. We successfully renovated the Madison Square Garden Arena and The Forum in Los Angeles. And in both cases, we've delivered robust returns on our investments.

We have been developing our strategy for MSG Sphere for a number of years. We have a business plan that includes a wide variety of revenue streams and takes into account the unique aspects of MSG Sphere, which make the opportunity around residencies, attractions, corporate events and sponsorships especially significant. We expect MSG Sphere to change how we think about the entertainment experience, which is why we anticipate the Las Vegas Sphere becoming the most highly utilized venue in our portfolio.

With respect to our time line. In Las Vegas, we are full speed ahead on construction as we work towards our goal of opening the venue in calendar 2021.

Turning to London. We continue to move forward with our planning application process, which will now run into calendar 2020. In addition, we are taking the time to apply what we are learning in Las Vegas to our design and construction plans for London. So while we have previously planned to open our London venue approximately 1 year after Las Vegas, that time frame is no longer realistic. And as we work through the planning application and design process, our time line will continue to evolve. And therefore, we do not have a target opening date at this time.

In terms of cost for our Las Vegas venue. We shared last quarter that our contractor had provided us with an initial estimate as part of the contractual process for setting the incentive benchmark. The incentive benchmark is meant to encourage our contractor to bring the cost in lower. To the extent actual costs come in higher than that benchmark, the contractor receives lower fees on that portion of the work. Therefore, it's in our contractor's interest to set the benchmark as high as possible to ensure that the actual costs do not exceed that number. On the other hand, it is in our interest to set the benchmark lower. So there is more risk on the contractor if costs exceed the agreed target.

As we said on our last call, we believe our contractor's initial benchmark proposal was too high. That should not be a surprise given the competing goals. We are now deep in the process of reviewing every estimate and assumption and are working closely with our design team and with our contractor towards reaching an agreed incentive benchmark. We are making good progress and continue to believe this process will result in significant cost savings.

Turning to our operations. For the fiscal 2020 first quarter, our bookings business again benefited from growth in the overall number of concerts held at our venues. However, we hosted the MTV Video Music Awards at Radio City last year and did not have a comparable special event this first quarter, which creates a difficult year-over-year comparison.

In addition, as you think about our second quarter on a year-over-year basis, keep in mind we had a record-breaking quarter last year that included one of the busiest Octobers in the company's history. That said, we expect to make up this ground by the end of the fiscal year. We would also like to note that we are honored, the Garden was recently named Billboard's Arena of the Year for the second year in a row. We've also been encouraged by the continued improvement in TAO Group's results. After a challenging first half last fiscal year, TAO Group's results have steadily improved including solid year-over-year results this past quarter.

New venue openings continue to be a positive story for TAO Group. Since September of last year, TAO Group has successfully debuted several new restaurants and nightclubs including the popular TAO Chicago as well as additional venues in Singapore and New York. Building on this momentum, TAO Group has launched another great restaurant brand of Cathédrale which, we believe, has the potential for expansion into other locations. Cathédrale opened in September as part of the new Moxy East Village hotel, which also includes other dining and nightlife offerings managed by TAO Group.

With regard to the Christmas Spectacular, last year's run was record-setting in terms of revenue and profitability. A reflection of the shows enduring popularity. The 87 season is set to debut today, and despite 9 fewer scheduled shows this year, primarily due to the holiday calendar, we're off to a terrific start in ticket sales and anticipate another successful year.

Turning to our Sports segment. While our first quarter did not include any regular season games, we were able to head into the season with strong full season ticket renewal rates for both the Knicks and Rangers. With the season now underway, an important focus for us is on delivering the best in venue experience and continuing to establish a more direct connection with our fans.

With regard to media rights. In addition to our local media rights deal with MSG Networks, which have 16 years remaining, we also expect National Media revenue from the NHL and NH -- and NBA to continue to grow. We also expect to continue benefiting from the strength of our suite offerings with a significant majority are contracted for multiyear period.

With respect to sponsorships. In September, we announced a renewed expanded multiyear agreement with the hospital for special surgery, which provides this long-term partner with significant brand exposure across the Knicks, Westchester Knicks and our NBA 2K team, Knicks Gaming. In addition, as you may recall, last year we entered into a new marketing partnership with Verizon Wireless, across a number of entertainment assets. We recently expanded this important relationship to include integration opportunities across the Knicks and Rangers. We are pleased with our ongoing success in partnering with blue chip brands, which reflects both the strength of our assets and the unique value we provide our partners.

Looking ahead, we are optimistic about our sports business. The underlying fundamentals remain strong and we believe there is meaningful upside when team performance improves. We are also bullish on the potential impact of legalized gaming, if approved in our market. We have seen how transformative it's been in Europe and in the various states where it's been legalized in terms of driving fan engagement and sponsorship opportunities. And we believe it would have a notable impact on our in-venue business and on the value of sports media rights in the U.S.

In summary, we are focused on growing our core business while also pushing forward with our plans for both our spin-off and MSG Sphere. We are executing on a strategy that positions our company for long-term growth and continued value creation for our shareholders.

And with that, I'll turn the call over to Victoria.

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Victoria M. Mink, The Madison Square Garden Company - Executive VP & CFO [5]

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Thank you, Andy, and good morning, everyone. I'd like to start by discussing results for our fiscal 2020 first quarter. On a total company basis, we generated $214.8 million in revenues, a decrease of 2% year-over-year. In addition, we generated an adjusted operating loss of $41.1 million as compared to a loss of $9.9 million in the year ago quarter. The increased AOI loss reflects higher employee compensation related to corporate and our MSG Sphere initiative, additional expenses in MSG Sphere-related content and technology and a $10.2 million charge related to a player waiver.

Turning to our segment results. At MSG Entertainment, revenues of $159 million, decreased 2%. As Andy mentioned, last year in the first quarter, we hosted the MTV Video Music Awards, but did not have a similar special event in our fiscal 2020 first quarter. In addition, the wind down of Obscura Digital's third-party business continues to impact the year-over-year comparability of results. As a reminder, we are winding down Obscura's third-party business so we can focus those resources on our MSG Sphere initiative.

These revenue decreases were mostly offset by growth in both concert related and TAO Group revenues. MSG Entertainment AOI of $6.2 million, decreased by $2.8 million, primarily due to the decrease in revenues, partially offset by lower direct operating expenses.

At MSG Sports, revenues of $56 million, increased 1%. This was primarily driven by higher revenues from other live sporting events, partially offset by lower ticket-related revenue. The increase in revenues from other live sporting events was due to higher average per show revenue.

During the quarter, we hosted a number of sporting events including 2 WWE events at the Garden and a Bellator MMA event at The Forum. The decrease in ticket-related revenue included the impact of our sale of the New York Liberty Basketball team, which occurred in January.

MSG Sports AOI decreased $14.2 million to a loss of $13.7 million. This reflects higher direct operating and SG&A expenses, offsetting the 1% increase in revenues. The increase in direct operating expenses reflects a $10.2 million charge related to a player waiver, partially offset by other net cost decreases.

Lastly, Corporate and Other adjusted operating loss of $33.7 million, increased $14.2 million. The increase reflects higher employee compensation related to Corporate and our MSG Sphere initiative as well as additional expenses for MSG Sphere-related content development and technology.

Now turning to our balance sheet. As of September 30, total unrestricted cash and cash equivalents and short-term investments were approximately $1.1 billion.

In addition, there have been no borrowings made under either our $150 million New York Rangers revolving credit facility or our $215 million New York Knicks credit facility. With respect to TAO Group, as of September 30, $52.5 million was outstanding on its 5-year bank term loan and revolving credit facility.

With that, I will now turn the call back over to Ari.

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Ari Danes, The Madison Square Garden Company - SVP, IR [6]

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Thank you, Victoria. Carmen, can we open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from the line of Bryan Goldberg with Bank of America.

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Bryan Daniel Goldberg, BofA Merrill Lynch, Research Division - Research Analyst [2]

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I've got some questions on the new spin plans. First, since you'll no longer have the retained interests as a financing tool at the entertainment company and given your comments about the financial flexibility of the entertainment company, I was wondering if you could share your latest thinking in terms of how you intend to pay for the sphere builds in Las Vegas and London? Is there a more definitive financing plan now? And then I have a follow-up.

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [3]

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Great. Good morning, Bryan, it's Gregg. I think I'd start by noting that with the time frame continuing to evolve in London, the first impact of that is that the entertainment company's capital expenditure needs will be spread out over a much longer period than we had previously anticipated.

That said, let me walk you through our current thinking regarding financial flexibility for the entertainment company. The entertainment company will start with an extremely strong cash position. This is expected to include the vast majority of our current $1.1 billion in cash on hand. And it's also likely that we'll look to the Knicks' and Rangers' revolvers to make some cash contribution to entertainment prior to the spin-off.

As you heard from Victoria earlier, the total availability on those revolvers is $365 million. Further to the entertainment company as an independent public company, it will have additional debt capacity and would also have the flexibility to add some debt, but one thing I want to make absolutely clear is that we're not planning on collateralizing the Madison Square Garden Arena.

Lastly, we anticipate that the cash flow of the entertainment company, both the current cash flow and what we're ultimately going to see out of the spheres in Las Vegas, are going to provide additional support and financial flexibility.

So as you can see, between the entertainment company starting liquidity position, current and future financing options and cash from operations, the company is going to be well positioned to fund its growth plans.

You asked about other financing options for the entertainment company and I'll extend that over to the London Sphere at the end of the day. We feel that we're going to have a complete playbook of corporate finance options available to the entertainment company for financing any future spheres. What do I mean by that? Nonrecourse debt financing, other types of securitized financings, perhaps, maybe even the possibility of having an equity partner or partners in future spheres. So we're very comfortable that we have adequate financial resources at entertainment to be able to make the company's plans a success.

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Bryan Daniel Goldberg, BofA Merrill Lynch, Research Division - Research Analyst [4]

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That's really helpful. My second question is more of a structural one. In the revised spin plan, the entertainment company is now going to be the spinco versus your previous plan to spin sports. And I was just hoping if you could provide some perspective as to why this way of separating sports from entertainment is more advantageous for shareholders?

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [5]

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Well, let's go back to the previous structure for a second. Because of the fact that we were considering a retained interest, it was necessary to spin the partial interest in sports enable to -- in order to enable entertainment to retain the approximate 1/3 interest that we were talking about. That -- since there's no retained interest, that doesn't really apply at this point.

And as you look at which entity to spin, I think it's tax considerations that are primarily driving the spin of entertainment. For example, if we were to borrow some portion of the $365 million in revolvers that I mentioned we have against the teams, those proceeds could go directly to the entertainment company without incurring tax.

If we were to do to spin the other way around, borrowings at the sports company to help fund entertainment's growth plans would be taxable. And so I think we've got some pretty significant savings built in there. I also think that one of the important points here is that even though we are changing the direction of the spin, our shareholders are going to own 100% interest in both companies. I really believe that that, on a long-term basis, is beneficial to shareholder value.

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Ari Danes, The Madison Square Garden Company - SVP, IR [6]

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Operator, do we have another question? I would hope.

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Operator [7]

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Your next question is from the line of Brandon Ross with LightShed.

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Brandon A Ross, LightShed Partners - Partner and Media & Technology Analyst [8]

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Just following up on Bryan's first question there. I mean even with this additional financial flexibility that you talk about, simple math tells us that you're not going to be able to fund a second sphere for many years. Is it reasonable to assume that you would wait like several years to build a sphere in London? Or that the scope of that project may change dramatically, especially given whatever pushback there has been from the city in London?

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [9]

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As we mentioned before, we don't have clarity on our opening timing. We're still in the process of planning application and design process, and our time line is going to continue to evolve, but we don't know what it's going to evolve to. One thing I can tell you is that when you asked about the venue itself, sphere is what's intended for London. It's what's in the planning applications and it's what the company's intent is to build in London.

Andy had previously mentioned that we plan to open London a year after Vegas. It's not going to be a year after Vegas. I don't know if it's going to be 2 years after Vegas or 3 years after Vegas, but we're going to continue to go through the process there and that's going to determine what the capital expenditure profile is going to look like here.

And as I mentioned before, in response, I think, to Bryan's question, I think we have the complete corporate finance playbook available to us here. We could probably, if we wanted to, go out and do nonrecourse financing against the sphere in Las Vegas right now as it stands. But we wouldn't do that because we've got the cash balance that's in place, the equity fund, the beginning of that. I think you could see us very easily looking at the sphere in Vegas as a financing source as we go forward. We're going to have significant -- and certainly in our business plan, we have significant sponsorship and other revenue opportunities, which are -- which are -- should be fairly easy to monetize. So I think we've got an awful lot of options here, and I am not concerned about this company having the financial flexibility that will be required to build London.

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Brandon A Ross, LightShed Partners - Partner and Media & Technology Analyst [10]

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And I guess related, in limiting your very near-term financial flexibility at entertainment co, should we read into it that you have increased confidence that you can keep the Vegas CapEx far below your contractor's estimate?

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Victoria M. Mink, The Madison Square Garden Company - Executive VP & CFO [11]

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Brandon, it's Victoria, good morning. So as Andy said, we feel good about where we are in the process. And as we've said previously, we thought our contractor's initial besetting benchmark estimate was too high. So we are deep in a very detailed process of reviewing and challenging the estimates and assumptions. We're also very carefully reviewing our plans with an eye towards ensuring we're efficiently and effectively achieving our design objectives for the Las Vegas Sphere.

And just as a reminder, one of the reasons that we entered into a cost-plus contract was so we could negotiate and play a much more vigilant role in the process. We're part of the negotiations. We're selecting the subcontractors, the materials, the labor rates, and we believe that this will maximize not only the quality of the work, but helps manage the project's costs overall. So this is all part of that process. But what I can tell you is that we continue to believe we'll be successful in achieving the significant cost reductions.

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Brandon A Ross, LightShed Partners - Partner and Media & Technology Analyst [12]

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Okay. And then I guess just lastly for Gregg. You spoke recently about introducing sports to the right "backdrop" which presumably meant with a mark on the sports teams. Now there is no mark. So what is the new right backdrop for sports as it becomes a separately traded entity?

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [13]

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Thanks, Brandon. Let me go back to a scenario where the entertainment company would have maintained or retained interest in sports. And under that scenario, I could see how a sale of some portion of the retained interest would have made sense or could have made sense for both the company and the investors. It may have benefited valuation. It certainly would have helped to reduce any potential stock overhang from the approximately 33% retention to some amount smaller than that. But if you look at it, at the same time, the valuation mark would have been for a minority stake, which an investor could purchase over time in the market after the spin. So I'm not sure what type of premium would have been associated with that type of a stake sale. And I think it's more important that as we move forward with the new structure, we're going to have a fully distributed very liquid sports stock and what we need to do is get out and tell the story about MSG Sports, which we will do prior to the spin taking place. But as I've said in the past, our teams are clearly extremely valuable assets. There are 30 NBA teams, a limited number of which are located in major metropolitan areas. There do happen to be 2 in the New York area, but only 1 in Manhattan.

And if you take a look at the NHL, there are 31 teams with the addition of the Las Vegas Golden Knights a couple of years ago. And that's it. So these are incredibly scarce assets. And as you've seen from private market transactions, they're incredibly valuable.

So I think as we look at things other than the scarcity value, and we also want to look at strong underlying fundamentals. Legalize gaming, Andy said if approved in our market, I would like to say when approved in our market, represents a very attractive growth opportunity for us. We've got upside potential should the performance of the teams improve over time. And our sports businesses generate significant recurring revenue. A substantial portion of that's contractual, suites, sponsorships, media rights. So we anticipate that as a pure play, as this company is not expected to be an active acquirer of other assets and arguably either a delevering initially or ultimately a return of capital story, we think this is the future for the sports business is bright, and we're looking forward to meeting with our investor base to communicate that story as we get closer to the spin.

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Operator [14]

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Your next question is from the line of Michael Morris with Guggenheim Securities.

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Michael C. Morris, Guggenheim Securities, LLC, Research Division - MD and Senior Analyst [15]

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Two topics. One on the London Sphere and then one on sports gaming. First, on the sphere, can you share any more detail on what's happening there with the planning application process? And what the sort of delay is relative to what your expectations were? And maybe as that progresses or doesn't progress, are there any other geographies that perhaps would make sense to be a second destination for spheres?

And then on the gaming side, Andy and Gregg, you both brought the topic up. One of your peer companies, Monumental Sports, announced opening a sports book inside the Capital One Arena in D.C. So I realize it's pending legalization in New York, but how are you thinking about in-venue gaming from either a sports book perspective online and kind of what would it take from where you are now to take advantage of that opportunity?

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Andrew S. Lustgarten, The Madison Square Garden Company - President [16]

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Thanks. I appreciate it. Let's start with London. Let me just start about what the site is. We love the site because of its connectivity. That said, the site has rail yard -- rails on 3 sides and a bridge that connects to it. So it's a complicated site, and we have to work with multiple stakeholders, the local planning authority, the local government, the 2 different rail companies given the 3 different rail sites, other organizations, and we're deep into it. The process is moving forward. We're in the planning application process, and this just takes time. We're expecting it to run through into 2020 now. This is typical planning application process in London, especially for a project of this size. There's a lot of work to be done, and we're well into it. And we're really looking to what's going on in Las Vegas to inform both our construction and our design to make sure London is the best project we could be. And we're looking forward to working with all the shake stakeholders to get this done and expect it will happen. It's just a question of when. I think that answers the London question.

In terms of gaming. So let's talk a little bit about sports betting in D.C. So well, let me start, actually, I made the comment of sports gaming being legal in our market. Truth is it's actually legal in the New York market currently, but it's only based in the 4 land-based casinos that are upstate from New York. So we strongly believe that there needs to be a downstate option, either mobile or venue based. In D.C., the -- where the -- the Capital One Arena, they were able to secure a license to have sports betting in their venue. So they will be able to offer sports betting in venue. We, of course, would be very interested in either a venue based or mobile application, and we'd be open to either one. But I will say the sports gaming landscape -- legislative landscape is fluid right now. And so there's going to be a lot of questions into exactly what will it be? And what's the time. But we are very bullish for the opportunity, and we believe it will occur. It's just a question of when. We've seen how -- we've seen how transformative it has been in both Europe and in other municipalities including New Jersey where it's just been -- the gaming has been off the chart as well as the fan engagement, and the sponsorship opportunities. And so we're very bullish about what does it mean for our sports business.

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Operator [17]

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Your next question is from the line of Ben Swinburne with Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [18]

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Just on process for the spin, maybe back to Gregg, I don't think you commented on this, but on the league approval front, and sort of the other gating items beyond the SEC process, do you have any update? I think lease terms between the teams and the arena was part of the -- one of the many things you guys were working on. I didn't know if you also needed approval on levering up the teams at all, has that just added any complexity to it? Just any update on that piece as we think about what has to happen between now and Q1 to execute this?

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [19]

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I'm going to turn it over to our General Counsel, Lawrence Burian, to talk about the league approval process. But I don't think that there's anything at all involved in our borrowing against the existing revolvers. They're there to provide availability for The Madison Square Garden Company and for the sports teams, and we're not proposing changing anything at this point in time.

Lawrence, let me turn it over to you for sort of a more detailed perspective.

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Lawrence J. Burian, The Madison Square Garden Company - Executive VP & General Counsel [20]

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First of all, let me just confirm what Gregg said, which is the revolvers are in place, we're free to borrow against them, that does not require any further league approval and so what Gregg said is 100% accurate. In terms of the rest of the league approval process, we have a wonderful relationship with each of the NBA and the NHL. They could not be more collaborative with us as we've been working through the process. The change of spinning entertainment from sports rather than sports from entertainment actually makes that approval process simpler because there's no longer any transfer in any ownership interest even technically in the team. So it actually [optimizes] the approval process. We are very far along in terms of putting in place the intercompany arena license and a couple of other key operational intercompany agreements. The leads have been fully engaged in that process and we are close to finalizing them.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [21]

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That's helpful. And then, Gregg, are there any other tax benefits to the new structure beyond what you talked about, being able to send the revolver cash over tax free? I don't know if you get any kind of basis benefit on the entertainment assets or does it allow remainco to be monetized more efficiently should something like that play out, given it's not being spun? I don't know if there's anything else you would add beyond what you've already highlighted.

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [22]

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No. I think the only other tax saving that exists here between the -- and I'm going to answer the question, and I'm going to turn it over to my tax guy to make sure that I answered it properly. But from my perspective, the other tax saving that exists here was that if we were to have sold and a position in the retained interest under the prior structure, it's quite likely that a portion of that transaction would have been taxable. And so that's -- we have saved tax leakage there.

(inaudible) is there anything further on the tax side that you think we should highlight?

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Lawrence J. Burian, The Madison Square Garden Company - Executive VP & General Counsel [23]

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Nothing. That's all, Gregg.

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Gregg G. Seibert, The Madison Square Garden Company - Vice Chairman [24]

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Okay. Thank you.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [25]

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And then lastly, just for Andy, on the bookings side of the business. Any update on sort of how much -- what sort of the pipeline looks like for fiscal '20 sitting here in early November versus last year? Just trying to get a sense for sort of the growth of the underlying booking business as you look through the fiscal year sitting here today?

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Andrew S. Lustgarten, The Madison Square Garden Company - President [26]

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Sure, happy to. Let me take a macro. We are very bullish. I've said this before and I'll say it again. We are very bullish about live entertainment and live entertainment experiences. So in the long-term view, we are very bullish about the booking business. However, as I mentioned earlier, we had a record-breaking second quarter last year, which included our busiest October in the company's history. This, obviously, impacts our year-over-year comparison. But as I said also earlier, we expect to make up this ground this fiscal year.

In addition, we've had pretty strong success with our sports booking business. The UFC just played here on Saturday night, that was a massive success, and we have the NCAA East Regionals coming in March along with a number of other events. So we feel good.

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Ari Danes, The Madison Square Garden Company - SVP, IR [27]

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Thanks, Ben. Carmen, we have time for one last caller.

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Operator [28]

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And your final question will come from the line of David Joyce with Evercore ISI.

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David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [29]

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And thinking about the entertainment business, there were some elevated costs at TAO because you've had some openings. What's the outlook there for the cadence of further openings? Are they all going to be relatively the same size as what you've been opening? And then on the new entertainment offerings, there's some elevated expenses for that, was that more onetime or is that ongoing? And is there any sphere costs other than in the corporate line that's helping or that's in the AOI for entertainment?

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Andrew S. Lustgarten, The Madison Square Garden Company - President [30]

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Victoria, you want to take that?

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Victoria M. Mink, The Madison Square Garden Company - Executive VP & CFO [31]

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Yes. Sure. David, I guess, first, I would say that the preopening costs that you're referring to are actually the preopening costs that we experienced for TAO Chicago, which was the year ago first quarter. Had included some of those costs. We were actually down year-over-year as it relates to preopening, but let me -- I'll cover a little bit about TAO. And on an overall basis, the group revenues were up $2.4 million on a year-over-year basis in the first quarter with expenses only slightly higher. So we did -- we are seeing some good success with TAO Chicago, and our results do include the impact of closing 1 venue in New York after a successful 15-year run. But as I mentioned, on an overall basis, we think TAO delivered solid growth in our first quarter. And as I think we've talked about on previous calls, we continue to work with TAO management to identify areas of cost efficiencies and we are seeing the positive impact on TAO expenses.

But when we think about pipeline and preopening costs and just respect -- with respect to the new venues, TAO Group evaluates each opportunity on a case-by-case basis in terms of how best to structure. And our current expectation is that we'll continue to do so over the next several years, either manage or lease venues depending in domestic or international, but it really will be evaluated based on opportunities that we see and the most efficient way to use our capital whether it's managed or owned.

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Andrew S. Lustgarten, The Madison Square Garden Company - President [32]

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It's Andy, just to give a little more insight also about Victoria's point about lease versus managed. In leased revenues, generally, we put up our own capital and we keep all the benefits of that. On managed venues, somebody else generally puts up the capital, but we have a smaller share of the profit. The workload generally is the same. So the question is whose capital and where the deal with our partner, and so we anticipate doing, looking at both types of deals, sometimes putting our own money, sometimes using other people's money, but they both -- they're both options and the TAO Group continues to pursue both types of model.

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David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [33]

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Are there any sphere or other entertainment -- new entertainment offering costs that were in AOI for entertainment this quarter?

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Victoria M. Mink, The Madison Square Garden Company - Executive VP & CFO [34]

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Yes. So David, all of the costs associated with our sphere initiatives related to content development, technology, all of that is within our Corporate and Other segment.

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Operator [35]

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Okay. And I would now like to turn the call back over to Ari Danes for any closing remarks.

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Ari Danes, The Madison Square Garden Company - SVP, IR [36]

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Thank you all for joining us. We look forward to speaking with you on our next earnings call. Have a good day.

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Operator [37]

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Thank you. Thank you again for joining today's call. You may now disconnect.