Madison Square Garden Sports Corp (MSGS) 2021 Q2 法說會逐字稿

Good morning. My name is Teresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Madison Square Garden Sports Corp. Fiscal 2021 Second Quarter Earnings Conference Call. (Operator Instructions)

Thank you. I would now like to turn the conference over to Ari Danes, Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to MSG Sports Fiscal 2021 Second Quarter Earnings Conference Call. Our President and CEO, Andy Lustgarten, will begin this morning's call with an update on the company's operations. This will be followed by a review of our financial results with Victoria Mink, our EVP, Chief Financial Officer and Treasurer. 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 note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The 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.

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 or AOI, a non-GAAP financial measure.

And with that, I will now turn the call over to Andy.

Thank you, Ari, and good morning, everyone. I'd like to begin by saying that we're excited to have both the Knicks and Rangers back in action. Even though the season started later than usual and our fans can't be at The Garden in person, we know they are enjoying watching their teams compete again. And while the COVID-19 pandemic still presents operating challenges in the near term, we are paying close attention to the vaccine rollout and what it means for the return of normal operations.

Since our last earnings call, there have been a number of positive developments for both our company and the leagues. The NHL and NBA completed their 2019 seasons. The success of each league's return to play clearly demonstrated the shared commitment and strong working relationships that both the leagues have with their teams, players and partners.

This was followed by the 2020 NHL and NBA drafts, during which, both the Rangers and Knicks made key additions to their rosters. The Rangers used their #1 overall pick to select Alexis Lafrenière, a dynamic forward with the potential to become an all-star player for the team. And the Knicks finished the draft, welcoming 2 talented first round picks: forward, Obi Toppin, who last season was named College Basketball Player of the Year; and guard, Immanuel Quickley, who was named the 2019-'20 SEC Player of the Year. The Knicks and the Rangers each have a talented young core and strong leadership in place, and we look forward to watching them progress over the 2021 season.

We are also excited that the teams have returned to the world's most famous arena for the first time since March. With December marking the start of the NBA's 72-game regular season, and January, the start of the NHL's 56-game season. And while home games at The Garden are currently being played without fans due to government restrictions, we are working towards safely welcoming guests back into the building as soon as possible.

In addition to watching select markets where the NBA and NHL are hosting games with reduced fan attendance, we are also following developments in New York state, including the Buffalo Bills hosting limited crowds for their 2 playoff games. We are obviously interested in what the success of these events could mean for the Knicks and Rangers fan attendance when the time is right. Until that happens, we are seeing a number of signs that illustrate just how eager our fans are to cheer on their teams in person.

For example, even with the current uncertainty and a fan-friendly refund policy, we have a combined Knicks and Rangers average season ticket renewal rate of approximately 75%. And for those who have not renewed, we are optimistic that many will reconsider once we are through the pandemic. Nevertheless, between renewals by our existing customers and the sale of season ticket packages to new customers, we are very pleased with the level of interest we are seeing and are grateful to our loyal fans. We have a strict fan first policy, which in the current environment, has been about providing Knicks and Ranger ticket holders with significant flexibility. This includes pausing season ticket payments and requiring only a minimal deposit to maintain season ticket member status. We continue to be thankful for the support of our fans, who, despite not being able to attend games, have remained passionate about their teams.

As just one example, after launching the Ranger's new 2020 Statue of Liberty retro jerseys in November, it quickly became one of the best-selling jerseys in the league. And while it is still early in the seasons, we've been pleased with the local and national ratings to date, which we believe creates opportunities for our leagues as national media rights come up for renewal over time. As a reminder, the NHL's U.S. national media deal expires after the season and its Canadian deal ends after '25-'26. The NBA's media agreements expire after '24-'25.

And while we remain confident that the fundamentals of our business are strong, we have taken steps to further strengthen our balance sheet until regular operations can resume. In November, we completed a $600 million debt refinancing, which enhanced our financial flexibility through an extended maturity schedule and increased borrowing capacity. Victoria will provide more detail shortly.

As of December 31, we had over $290 million in liquidity between cash on hand and availability under our credit facilities. Our quarter end cash balance included $30 million from the NBA, which it provided to each team following the league's $900 million private placement in December. Last month, the NHL completed its own debt rates of $1 billion in order to provide additional liquidity to the league and teams, and we may look to excess our portion, which is approximately $30 million to further enhance our cash position.

The NBA and NHL's ability to raise these amounts on attractive terms during such an uncertain period, is a great illustration of the confidence in the long-term outlook for both leagues. It's also a reminder of the significant value of professional sports franchises. Even in this environment, the scarcity of the teams, along with their strong fundamentals, has continued to drive substantial interest in these assets, as evidenced by the recent transaction for the Utah Jazz.

Furthermore, the NBA recently approved widening the pool of potential investors by allowing private equity funds to own interest in multiple teams, which should be positive for team valuations. The NBA and NHL have also been great partners as we continue to pursue creative solutions to satisfy our marketing partnership commitments. We've worked closely with both leagues to create new inventory and opportunities for our partners this season. And we're very pleased with the demand we're seeing for these assets.

For example, we've placed Lexus and Kia vehicles on the arena floor at the Knicks games and welcomed Chase as our first ever Rangers helmet sponsor. We've also added new arena signage as well as virtual signage on the court and ice, all of which can be seen clearly by TV audiences during Knicks and Rangers games. And finally, we were happy to name Northwell Health the first Ranger practice jersey sponsor.

On the e-sports front, our teams have continued to compete throughout the pandemic as interest and fan engagement in the sports grows, and we remain excited about the long-term opportunity. We are also incredibly encouraged by the recent developments around the potential legalization of mobile gaming in New York state. We remain bullish about the impact this could have on our fan engagement, sponsorship, media rights and ultimately, the value of our teams.

In conclusion, as we navigate through this challenging time, we are confident in the strength of our business, and are optimistic about the future of our company. We believe the vaccine rollout offers a light at the end of this tunnel, getting us closer to the day when we could safely welcome fans back to cheer on their teams in person. Until then, I'd like to thank our fans, partners, employees and shareholders for their continued support.

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

Thank you, Andy, and good morning, everyone. I'm going to begin by discussing our November debt refinancing and providing an update on our company's liquidity position. As Andy mentioned, in November, we enhanced our financial flexibility and increased our borrowing capacity by completing a $600 million debt refinancing. As part of the refinancing, the mix increased the availability under their senior secured revolving credit facility by $75 million to $275 million, while the Rangers increased the availability under their revolver by $100 million to $250 million. In addition, both teams extended the maturity dates of their facilities to November 2023.

As a reminder, the Knicks and Rangers facilities were previously set to mature in September 2021 and January 2022, respectively. The Knicks also entered into a new $75 million unsecured revolving credit facility, which also matures in November 2023. As part of this refinancing, the Knicks' previous $15 million unsecured revolver and the $200 million delayed draw term loans with MSG Entertainment were extinguished.

At the end of the quarter, we had $380 million of total debt outstanding, consisting of $220 million drawn on our Knicks senior secured revolver and $160 million on our Rangers facility.

Turning to our liquidity. As of December 31, we had $290.8 million of liquidity, comprised of $70.8 million of cash and cash equivalents and $220 million in borrowing capacity under the team's revolving credit facilities. Our quarter end cash balance of $70.8 million represented a net increase of $47.2 million compared to our September 30 balance of $23.5 million. This net increase was primarily due to local and national media rights fees related to the 2021 NBA and NHL seasons; a combined $30 million draw on our Knicks and Rangers senior secured revolvers; and the $30 million from the NBA that Andy mentioned.

These inflows were partially offset by a number of items, including our normal operating expenses such as compensation for our teams as well as our corporate and administrative staff, payments to MSG Entertainment under our various commercial agreements and debt-related payments, including nonrecurring amounts for our recent refinancing. I would note that our quarter end cash balance did not include the approximately $30 million that we may look to access from the NHL's recent debt raise.

As of December 31, our deferred revenue balance net of billed but not yet collected revenue was $206 million as compared to approximately $127 million as of September 30. The increase in this balance was primarily due to local and national media rights payments for the 2021 season and the $30 million from the NBA. This deferred revenue balance as of December 31 was primarily comprised of local and national media rights, tickets and suites, which will be addressed through games played and if necessary, through make goods, credits or refunds.

I will now touch on our fiscal second quarter financial performance. Results for the quarter were significantly impacted by the COVID-19 pandemic. Both the NBA and NHL seasons began later than usual and as Andy mentioned, Knicks and Rangers home games are currently being played without fans in attendance. As a result, total revenues for the quarter were $28.8 million, a decrease of $264 million on a year-over-year basis. Revenues decreased across every major revenue line item, including tickets, local media rights fees, national media and league distributions, suites and sponsorship and signage. Adjusted operating income decreased $38 million to a loss of $19 million. This was due to lower revenues, partially offset by a decrease in direct operating expenses and to a lesser extent, lower SG&A expenses.

Similar to revenues, the decrease in direct operating expenses mainly reflects the delayed start to the seasons and the impact of home games being played without fans in attendance. This was reflected in declines across team compensation and other team operating expenses as well as revenue sharing expense. I would note that these results include significantly reduced arena license fees due to attendance restrictions at The Garden. The decline in SG&A expenses was primarily due to lower corporate overhead costs. And as a reminder, results for the prior year second quarter are not directly comparable as they include certain corporate overhead expenses that we no longer incur following the spinoff of MSG Entertainment, but which did not meet the criteria for inclusion in discontinued operations.

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

Thank you, Victoria. We would now like to open the call for questions.

(Operator Instructions) Your first question comes from John Janedis with Wolfe Research.

Andy, you've talked about private equity investments in NBA teams. And I think the liquidity position is well appreciated, but can you talk about the potential willingness to bring in a minority partner to further bolster the balance sheet if COVID drags on longer than expected or to at least establish what could be perceived as normalized value for the equity?

Thanks, John. I did mention private equity, the NBA has made some rule changes, as you know. But in terms of our point of view, we're not going to comment on hypotheticals on a sale of states right now.

Okay. And the second, in the past, you guys have also talked about the impact of no fans for a full season. Can you talk about to what extent that changes or not due to the shortened seasons?

Victoria, you want to take that question?

Yes, sure, John. So you're right. As you know, we're currently operating in an environment where fan attendance at The Garden is restricted by government mandates. And the fan restrictions will have a greater impact on our financials this year as compared to the impact of just the shortened seasons. But with that said, in terms of the impact of fewer games this year, I can certainly give you a little color.

So from a revenue perspective, we currently expect a reduction in local media rights fees for the Rangers side as we have a minimum threshold of gains that must be delivered to MSG Networks for broadcast on an exclusive basis. So if those thresholds are not met, there'll be a pro rata reduction in our local media rights fees. I also note that we currently don't anticipate a reduction in local media rights fees on the Knicks side. Also in a shortened season, it reduces camera-visible sponsorship and signage opportunities.

But on the other side, on the expense side, we would anticipate additional reductions in -- for example, costs under our arena licenses such as day of game expenses. And also, we would expect reductions for certain other team operating expenses. And just noteworthy is, right, to the extent revenues, on a league-wide basis, are impacted by the shortened seasons. We could see reductions in other areas, including player compensation.

And your next question comes from Brandon Ross with LightShed Partners.

Andy, you mentioned earlier your excitement around potential mobile sports betting legalization in New York. Could you unpack some of the opportunities for MSG? And maybe help us understand how incremental sponsorship or an on-site sports book would break down as opportunities between MSGS and MSGE?

Thanks, Brandon. Happy to take you through it. I mean we've been focusing on this for a long time. We think this is a tremendous opportunity for our company. I note if you looked across the border in New Jersey, the Meadowlands, which opened in 2018, has been -- become one of the largest, if not the largest sports book in the country. Much of the research I have seen would suggest that New York state will be the largest market for sports gaming once legalized.

Obviously, we're extremely encouraged by Governor Cuomo's recent announcement regarding sports gaming here, but there's lots of questions as to what regulations are going to be. And there's lots of different flavors as we look to places where it is legal. The -- just to take it from the highest level, I mean, we like it just from what it does for fan engagement during programming and the ability to drive extra eyeballs, which therefore drives sponsorship just on its face on top and, of course, implicitly, the media rights that would come from having an increased engagement.

We think there's also upside in -- or big upside for sponsorship, official partners. And there's many other ways to make money. I mean if you look at Washington, they have a sports book in a building. It's just a question of how does -- how do the regulations play out, but I know there's a big opportunity for us. In terms of how it would play between what the opportunity here, it's -- there's lots of ways to make -- to everybody -- both companies would benefit if there was a sports book, but it's a -- this is a big opportunity. It's just a question of exactly how to commercialize it.

Yes. You just mentioned media rights. At the local level, is there anything that would be available to you at sports besides what you've already kind of licensed out to MSG Networks?

Do you mean in terms of rights?

Yes, in terms of -- like what are the additional opportunities for MSG Sports on the media front? Or is that really more of an MSG Networks?

Well, I mean, look, we have a long-term rights deal with networks and networks will have many ways to monetize the rights. As always being a rights holder, it's -- owning sports, it's a unique asset in these times. We love being a sports rights holder. The leagues will -- obviously, when the rights agreements will come up, will have an impact on sports. But there still is opportunities, right? We have gained visible signage. We have official partnerships. So there's lots of ways to generate incremental revenue, even if it's not directly from a rights fee this second.

Got it. And then staying on the rights fees, the NHL deal is obviously coming up. Been surprised there hasn't been an announcement yet. Maybe if you could comment on how and when you see that playing out. And then more generally, as an NBA and an NHL team owner, how you think about the future of national and local sports rights, especially with cord cutting and kind of younger demos being on other platforms and shying away from full lens games? Do you think the model needs to be adjusted some?

That's a lot to unpack there. So let me try to start at the top and tell me, I don't know -- that's great, Brandon. So I think I should start at the highest level, right? I think at the highest level, as I mentioned, right, we have -- in MSG, we were 15, almost 16 years left with MSG Networks on our media deals. The league sell their rights for the league level, both -- the NHL deal is coming up very shortly, as you mentioned, but the NBA is coming up a few years after that.

But as everyone knows, the media landscape is constantly evolving. And the paradigm, the distribution pattern is going to change, right? I don't know -- or it may, I guess it's not -- that's not something I can appoint on. But I do know it's right, what fundamental value of live sports. We feel really good about that. There's going to be a market for that. And as there's more platforms that come into line, I mean, the one thing we know is content is king. And there's nothing like live sports for premium content.

So I know there's going to be platforms and the more platforms that are out there, the more buyers and there's more value in our product. So -- and then once you add an impact of legalized gaming and what the impact is that's going to have on media rights, it just -- I feel very good about our long-term nature of being a sports rights holder.

In terms on the shorter term with the NHL, I mean I'm not at liberty to discuss their current negotiations. I could say that it's expiring at the end of the season. I love being a sports rights holder. Ratings have been up this year, and everyone's focused on what legalized -- as I said, legalized sports gaming and its impact on media rights. And so when the NHL has more information, we'll be -- we feel very good about where the future is of all, being the rights holder. But I can't give you much more on the NHL itself.

And your next question comes from the line of David Karnovsky with JPMorgan.

Prepared remarks on how the pandemic and some of the resulting fallout to the New York City area may impact the current or even future cycles...

David, could you start over again? I missed the beginning. You cut out for a second. I didn't hear what you started your question. I'm sorry.

Sure. It's just, can you just comment on how the tendon is and maybe some of the resulting fallout of the New York City area may impact the current or even future cycles for suite and sponsor renewal?

So we -- I mean, right now, we're working with all of our partners. We generally have long-term deals with both suite holders as well as sponsor agreements. We believe in being very -- we believe in being consumer friendly, and so we're working with all of our partners right now. Obviously, New York is in a different place today than it was a year ago, but I'm hopeful on the rebounds. I feel the city getting more lively every single day I'm here. And our partners, we're very focused on staying very close to our partners and thinking long term.

And so while we're currently focused on this season, it's hard to take a really long-term point of view. But I feel very good about long-term and our long-term relationships and the way the partners, how we've been able to -- both suite holders and partners, how they have been working with us during these difficult times.

Okay. And then maybe as a follow-up to John's first question. Do you expect that in time, the NBA or NHL might be open to PE firms taking controlling interest in teams? And if so, how much has further impacting values overall in your view?

Okay. The leagues have a -- it's pretty public, have a pretty detailed vetting process about who can buy both minority stakes as well as controlling stakes, and it's very hard for me to comment on any further than that. I'll note that the recent changes are focused on approved -- certain approved PE funds to own minority stakes in multiple teams, not obviously a control stake in multiple teams, but minority stakes. This -- which we believe will help drive team valuations. So I can't give you much more than that.

And your next question comes from the line of David Beckel with Berenberg.

Andy, one for you on reopening. I'm curious if you could share some insights with respect to talks you've had with local or state regulators regarding the prospective time line of a reopening for The Garden to fans. And specifically, I'd love to hear your thoughts to the extent you're able to share on any specifics with respect to disease incidence or vaccination thresholds that were being considered. And if it's more likely than not, the capacity will be phased once a reopening occurs.

And Victoria, just as a quick housekeeping, could you shed some light from an accounting perspective in terms of how the revised CBAs for the NHL and NBA might affect the accrual of player compensation throughout the year and cash flows for this year and years going forward?

Happy to. Thanks, David. So let's start with the reopening. Governor Cuomo and the state have made -- have always been clear, but have been increasingly clear on the importance of reopening the economy, both here in New York state as well as New York City. He just recently -- I'm sure you followed this, but he recently permitted the Buffalo Bills to host 25% -- to host fans in a pilot for their 2 playoff games. It was a pretty -- it was regarded as a wide success.

The -- in addition, I mean, this pattern so far has been limited opening and then as you move towards a fuller capacity, I'm very -- we're very happy with the recent move to announce that restaurants are now able to have -- host 25% capacity starting February 14. That comes on the heels of the reduced levels of positivity rates here in New York state, so -- in New York City. And I expect that things keep on going down, we'll continue to see capacities increase.

In addition, he announced that -- or the state announced that gatherings, such as wedding receptions or parties, can increase their capacity of 150 people, assuming protocols are followed starting in March. So that's another movement -- positive movement towards capacity increases. And so yes, you're definitely weighing reopening with health and safety of everybody. The vaccine rollout is clearly critical towards getting this economy fully reopened. And the governor has been very vocal and very focused on delivering the vaccine as fast as possible. I saw last night, he even mentioned that there is even a further amount of vaccines distributed here in New York over the next 3 weeks. And so that should even further drive vaccine rollout here in New York.

But in terms of our opening, I mean, look, the thing that's most important to us is the safety of our fans, our athletes, our employees. So we're going to do this in a phased, measured way. And we continue to remain contacted, but there's been an open dialogue on what the possible protocols are, including testing, and we really are focused on just getting this back open, safe and something that everyone can enjoy and have a great experience.

Okay. And then, David, your question was around the mechanics around the CBAs. So first, let me start with the NBA. So the amended collective bargaining agreement for the NBA includes more flexibility. With new terms added as a result of COVID-19 to ensure that the players still ultimately receive the approximately 50% of the league-wide revenues, right? So for example, while the escrow remains the same at 10%, player compensation can be reduced by up to 20% in a season, inclusive of the escrow. And now the salary cap and the luxury trigger for the 2021 seasons are flat with last year with the 2019-'20 season. And the CBA lays out a minimum of 3% and a maximum of 10% annual increases in the salary cap through the remainder of the CBA.

So -- and then on the NHL side, the amended CBA includes a 4-year extension. So it now expires in September 2026. So obviously, that gives us some additional visibility. The NHL's amendment also includes more flexibility. We're also adding new terms as a result of COVID-19. So for the NHL, for example, right, the salary cap for 2021 was also kept flat with last season. And there'll only be modest average annual increases throughout the '25-'26 season.

And in addition, the players for the NHL have agreed to defer a portion of their 2021 salaries and signing bonuses. So with new maximum escrow recovery rates also having been established with those same mechanism in place to achieve the players ultimately receiving the 50% of league-wide revenues. So when you think about the 2 leagues, the mechanisms are a little different, but the end result is generally the same with the players ultimately receiving the 50% of league-wide revenue.

And your next question comes from Ben Swinburne with Morgan Stanley.

Victoria, could you help us think about sort of the cash flows over the next couple of quarters and through the end of the fiscal year, particularly around your deferred revenue balance? I'm just thinking if you have refunds as we move through the rest of the season, but also whether you're going to be pulling in some cash from season tickets. Anything you can tell us about kind of the puts and takes around cash flows through the end of this fiscal year would be great.

And then Andy, I wanted to ask you about the Knicks. Congratulations on quickly, it looks like a steal in the draft. I'm just wondering what you guys are doing to try to maximize fan engagement during the pandemic. Obviously, everyone's wishing they were there at the games, but the team seems to have really picked up in interest level and excitement. And I'm wondering what you guys are doing specifically to try to maximize fan engagement during this tough period, if you can share would be great.

Thanks, Ben. Let me -- why don't I answer that question first and I'll talk about cash flow second, stepping in close. So we definitely had to shift a little bit on how we communicate with our fans. We've been -- we've made a -- it actually happens to tie with what we've been pushing anyway for the last couple of years. So we've been slowly getting better and better. We've been very focused on social media and how do we connect with people that obviously, right now, it's very hard to connect with people in person, but how do you connect groups of people. So we've done many small roundtables with our either retired players or current players, our coaches to communicate directly with our fans. We've been very focused on increasing the access.

So I was really proud of our team during the NHL draft. We made a trade in the first round to get a second first rounder and our team was right there, and there's a great video. I don't know if you've seen it, where Jeff Gorton is going, "Yes, we got it," and we got that moment on camera. We're bringing people behind the scenes. And our players have really welcomed it and really want to connect with our fans. And so we've been doing a really -- we've been very focused on how do we connect people, give people more insight on what's going on. And I think it's been pretty successful. And I think -- and it shows also in our ratings and our users and our interactions and all those -- and everything seems to be trending in the right direction.

I'd also say we're focused on other unique types of ways to connect with people such as we have a partnership with Kith, where they designed our new jersey and had a rollout of a line of clothes of Knicks/Kith branded clothes, which sold out in record times for them. The NHL, on the NHL side, we released a new jersey called the Ranger side of a Liberty retro jersey, which was quickly became one of the fastest selling items or fastest selling jerseys in the NHL. So we're just trying to stay in touch with our people. We're trying to give them a voice, and we're trying to stay connected, but obviously, we have to do it in different ways than we would have when we have people in the building.

On the cash flow side, I'll let Victoria comment. But there's just one thing I would say is we've had a very fan-friendly policy so far, and we allowed people to -- we haven't been charging people's credit cards so far this year. We haven't. We have allowed people to remain their -- keep their season ticket membership by having a very low amount of the deposit. We believe that's a really important way to treat people during these times. Many other teams just took people's money and rolled into next year. We don't think that's very fan friendly. We didn't -- they didn't give people an option. We did not take that decision, and we won't do that.

I will -- I mentioned earlier, we're beginning to get ready for a renewal cycle. So obviously, once the renewals start, there will be a timing and period of charging around that, but we haven't announced -- we haven't started that yet, but it's coming soon. I'll let Victoria on top of it, but I just -- I thought it was important to talk about our philosophy on how we treat our customers because it does tie very close to the cash flow.

Yes. Great. Thank you, Andy. Yes, Ben, let me just take a step back, right? With $290.8 million in available liquidity at the quarter end, including a cash balance of $70.8 million and then the $220 million capacity under our Knicks and Rangers facilities, we feel confident in our liquidity position and some of the cost reduction measures we've taken to date that we've talked about.

I think also one of the items mentioned in our prepared remarks is that we may also look to access our portion of the NHL's recent $1 billion private placement, which would be approximately $30 million. So that's not reflected in our December 31 cash balance or liquidity. So we are feeling good about our liquidity position. And as I had indicated, talking about the CBAs, part of this cash provided by the leagues is to assist with the timing of the payments as it relates to player compensation and recovery. So we feel like we're in a good position there as well.

But when you think about deferred revenue, I think, what's important to remember particularly at December 31, is we've received a lot of the national and local media rights cash in advance. And so we would expect to record revenue and earn that as seasons -- as the seasons play over the next 2 quarters. But in general, as Andy has said, we have a very fan-friendly approach. But we hope to earn the deferred revenue through games played or make goods and then to an extent, if necessary, through refunds.

We have time for one last caller.

And your last question is from David Joyce with Barclays.

Two questions, please. First, on the COVID impacts, given that you've got some variability in the lease expense, how should we think about what that would look like in a normal kind of a period? And also related to COVID, are there any like, expenses that you've just taken out of the equation going forward? Or can you discuss the expenses that will be required for new things like air purification and cleaning?

And then a second question is on the sports gaming aspect. What is the status of the leagues trying to participate in the sports betting handle via legally inserting the integrity fee concepts into the state legislation process?

Thanks, David. Victoria, you want to start with -- talking about revenue and expenses?

Yes. So let me touch on the COVID impact. I think you explicitly referenced the arena license agreement first. So let me just touch on that. Our arena license fee payments to MSG Entertainment have been impacted by both the seasons starting later for the -- through December 31, starting later than usual, with only the Knicks playing a few games to date through December and no Rangers games and obviously, the restrictions on fan attendance during those games. So the arena licensees to the games we're currently playing are at an 80% reduction due to these attendance restrictions at The Garden. But of course, the situation remains fluid, and really we're just -- if we have the opportunity to welcome fans back into the arena at some point this season, which would be great. Our license fee payments would change accordingly.

And then I think you sort of mentioned overall, just some of our expense impacts as it relates to COVID. We've talked a bit both last quarter and a little bit this quarter about our various revenue impacts on -- in arena, tickets, suites, food, beverage, et cetera, and some reductions that we would be anticipating because of the NHL's shortened season. But specifically on the expense side, as compared to a normal season, right, we're seeing expense reductions for player compensation, revenue sharing expense, league assessments.

You talked about the leagues amending the CBAs to ensure that players are still only receiving about half of the league-wide revenues. And we do have lower day-of-game costs and lower marketing expenses. I think that's the bulk of the types of savings that we're seeing across the board as it relates to COVID, but obviously getting fans back in the building is really what we're looking forward to.

And I'd note, at least the way I think about it, even one fan is marginal revenue because we have to put on the event already. The events are already on. So every time we have a ticket sale or any revenue, it's actually -- it's profitable. The -- your question about what changes do we need to make because marginally profitable.

The questions we have to change to make to make effective is, look, remember, we have a relatively new building. We built our building. And so we have a lot -- our filter system is pretty strong. There's a lot of -- we're not starting from scratch. And yes, there might be some additional costs, but we've been thinking about it very carefully. And if we are able to advance safely, it will be a positive revenue and marginal profit related to those fans.

In terms of your question around the integrity fee, I mean, look, I can't really comment on league matters. But as I said, and I'll keep on saying it, we believe sports gaming provides a number of growth opportunities both for the leagues and for the teams, including media rights. As I noted, the NHL is coming up soon as well as the NBA in a few years as well as sponsorship opportunities, and I'm sure there's other ways to commercialize. So -- but I can't comment specifically on the integrity thing.

And I would like to turn the call back over to Ari for closing remarks.

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

Thank you, ladies and gentlemen, for your participation. You may now disconnect.