Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
________________________
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2016
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 1-36900
TMSGCLOGO1231201610Q.JPG
(Exact name of registrant as specified in its charter)
 
Delaware
 
47-3373056
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
_______________________ 
Two Penn Plaza
New York, NY 10121
(212) 465-6000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
Accelerated filer   o
Non-accelerated filer  þ
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Number of shares of common stock outstanding as of January 31, 2017 :  
Class A Common Stock par value $0.01 per share
 —
19,433,143
Class B Common Stock par value $0.01 per share
 —
4,529,517


Table of Contents



THE MADISON SQUARE GARDEN COMPANY
INDEX TO FORM 10-Q
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
 
December 31,
2016
 
June 30,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,410,345

 
$
1,444,317

Restricted cash
 
19,652

 
27,091

Accounts receivable, net
 
90,837

 
75,998

Net related party receivables, current
 
3,996

 
4,079

Prepaid expenses
 
40,460

 
27,031

Other current assets
 
23,710

 
25,337

Total current assets
 
1,589,000

 
1,603,853

Net related party receivables, noncurrent
 
—

 
1,710

Investments and loans to nonconsolidated affiliates
 
264,484

 
263,546

Property and equipment, net of accumulated depreciation and amortization of $589,646 and $540,801 as of December 31, 2016 and June 30, 2016, respectively
 
1,131,236

 
1,160,609

Amortizable intangible assets, net
 
24,297

 
15,729

Indefinite-lived intangible assets
 
166,850

 
166,850

Goodwill
 
289,704

 
277,166

Other assets
 
87,214

 
54,487

Total assets
 
$
3,552,785

 
$
3,543,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
29,204

 
$
13,935

Net related party payables
 
16,271

 
15,275

Accrued liabilities:
 
 
 
 
Employee related costs
 
85,445

 
119,357

Other accrued liabilities
 
146,791

 
133,832

Deferred revenue
 
371,806

 
332,416

Total current liabilities
 
649,517

 
614,815

Defined benefit and other postretirement obligations
 
56,436

 
66,035

Other employee related costs
 
23,828

 
32,921

Deferred tax liabilities, net
 
194,897

 
194,583

Other liabilities
 
50,076

 
49,175

Total liabilities
 
974,754

 
957,529

Commitments and contingencies (see Note 8)
 

 

The Madison Square Garden Company Stockholders’ Equity:
 
 
 
 
Class A Common stock, par value $0.01, 120,000 shares authorized; 19,433 and 19,777 shares outstanding as of December 31, 2016 and June 30, 2016, respectively
 
204

 
204

Class B Common stock, par value $0.01, 30,000 shares authorized; 4,530 shares outstanding as of December 31, 2016 and June 30, 2016
 
45

 
45

Preferred stock, par value $0.01,15,000 shares authorized; none outstanding as of December 31, 2016 and June 30, 2016
 
—

 
—

Additional paid-in capital
 
2,812,156

 
2,806,352

Treasury stock, at cost, 1,015 and 671 shares as of December 31, 2016 and June 30, 2016, respectively
 
(166,815
)
 
(101,882
)
Accumulated deficit
 
(46,587
)
 
(75,687
)
Accumulated other comprehensive loss
 
(31,773
)
 
(42,611
)
Total The Madison Square Garden Company stockholders’ equity
 
2,567,230

 
2,586,421

Noncontrolling interests
 
10,801

 
—

Total equity
 
2,578,031

 
2,586,421

Total liabilities and equity
 
$
3,552,785

 
$
3,543,950


See accompanying notes to consolidated and combined financial statements.

1

Table of Contents

THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

 
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
Revenues (a)
 
$
445,150

 
$
410,838

 
$
626,845

 
$
561,219

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Direct operating expenses (b)
 
266,673

 
249,632

 
378,080

 
320,982

Selling, general and administrative expenses (c)
 
94,260

 
86,262

 
171,281

 
144,630

Depreciation and amortization
 
25,966

 
25,905

 
52,076

 
51,145

Operating income
 
58,251

 
49,039

 
25,408

 
44,462

Other income (expense):
 
 
 
 
 
 
 
 
Earnings (loss) in equity method investments
 
(1,188
)
 
(2,475
)
 
(2,182
)
 
204

Interest income (d)
 
2,692

 
1,448

 
5,091

 
2,405

Interest expense
 
(491
)
 
(514
)
 
(901
)
 
(1,054
)
Miscellaneous income (expense)
 
1,405

 
(4,080
)
 
1,405

 
(4,080
)
 
 
2,418

 
(5,621
)
 
3,413

 
(2,525
)
Income from operations before income taxes
 
60,669

 
43,418

 
28,821

 
41,937

Income tax benefit (expense)
 
(3,248
)
 
70

 
(314
)
 
(52
)
Net income
 
57,421

 
43,488

 
28,507

 
41,885

Less: Net loss attributable to noncontrolling interests
 
(305
)
 
—

 
(593
)
 
—

Net income attributable to The Madison Square Garden Company’s stockholders
 
$
57,726

 
$
43,488

 
$
29,100

 
$
41,885

 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to The Madison Square Garden Company’s stockholders
 
$
2.41

 
$
1.74

 
$
1.21

 
$
1.68

Diluted earnings per common share attributable to The Madison Square Garden Company’s stockholders
 
$
2.39

 
$
1.74

 
$
1.20

 
$
1.67

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
23,971

 
24,971

 
24,013

 
24,949

Diluted
 
24,143

 
25,055

 
24,192

 
25,031

_________________
(a)  
Include revenues from related parties of $39,040 and $41,321 for the three months ended December 31, 2016 and 2015 , respectively, and $72,881 and $74,880 for the six months ended December 31, 2016 and 2015 , respectively.
(b)  
Include net charges from (to) related parties of $475 and $1,036 for the three months ended December 31, 2016 and 2015 , respectively, and $689 and $(35) for the six months ended December 31, 2016 and 2015 , respectively.
(c)  
Include net charges to related parties of $(1,616) and $(300) for the three months ended December 31, 2016 and 2015 , respectively, and $(3,204) and $(29,872) for the six months ended December 31, 2016 and 2015 , respectively.
(d)  
Includes interest income from nonconsolidated affiliates of $1,114 and $671 for the three months ended December 31, 2016 and 2015 , respectively, and $1,979 and $1,306 for the six months ended December 31, 2016 and 2015 , respectively. In addition, interest income includes interest income from MSG Networks of $307 for the six months ended December 31, 2015 .

See accompanying notes to consolidated and combined financial statements.

2

Table of Contents

THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
 
 
$
57,421

 
 
 
$
43,488

 
 
 
$
28,507

 
 
 
$
41,885

Other comprehensive income (loss), before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension plans and postretirement plan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net unamortized losses arising during the period
 
$
—

 
 
 
$
—

 
 
 
$
—

 
 
 
$
(602
)
 
 
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss included in net periodic benefit cost
 
344

 
 
 
255

 
 
 
688

 

 
554

 

Amortization of net prior service credit included in net periodic benefit cost
 
(13
)
 
331

 
(20
)
 
235

 
(25
)
 
663

 
(37
)
 
(85
)
Net changes related to available-for-sale securities
 
 
 
3,433

 
 
 
—

 
 
 
10,175

 
 
 
—

Other comprehensive income (loss), before income taxes
 
 
 
3,764

 
 
 
235

 

 
10,838

 
 
 
(85
)
Reversal of income tax expense related to items of other comprehensive income
 
 
 
3,126

 
 
 
—

 
 
 
—

 
 
 
—

Other comprehensive income (loss)
 
 
 
6,890

 
 
 
235

 
 
 
10,838

 
 
 
(85
)
Comprehensive income
 
 
 
64,311

 
 
 
43,723

 

 
39,345

 
 
 
41,800

Less: Comprehensive loss attributable to noncontrolling interests
 
 
 
(305
)
 
 
 
—

 
 
 
(593
)
 
 
 
—

Comprehensive income attributable to The Madison Square Garden Company’s stockholders
 
 
 
$
64,616

 
 
 
$
43,723

 
 
 
$
39,938

 
 
 
$
41,800


See accompanying notes to consolidated and combined financial statements.


3

Table of Contents

THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six Months Ended
 
 
December 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
28,507

 
$
41,885

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
52,076

 
51,145

Amortization of deferred financing costs
 
106

 
—

Share-based compensation expense
 
20,098

 
10,259

Loss (earnings) in equity method investments
 
2,182

 
(204
)
Impairment of cost method investment
 
—

 
4,080

Provision for doubtful accounts
 
(16
)
 
62

Change in assets and liabilities, net of acquisitions:
 
 
 
 
Accounts receivable, net
 
(14,792
)
 
(23,688
)
Net related party receivables
 
2,397

 
(27,176
)
Prepaid expenses and other assets
 
(1,602
)
 
(29,640
)
Accounts payable
 
12,549

 
17,126

Net related party payables
 
996

 
15,658

Accrued and other liabilities
 
(31,930
)
 
(8,545
)
Deferred revenue
 
39,047

 
63,266

Deferred income taxes
 
314

 
54

Net cash provided by operating activities
 
109,932

 
114,282

Cash flows from investing activities:
 
 
 
 
Capital expenditures, net of acquisitions
 
(21,766
)
 
(59,681
)
Payments for acquisition of assets
 
(1,000
)
 
(2,000
)
Payments to acquire available-for-sale securities
 
(23,222
)
 
—

Payments for acquisition of a business, net of cash acquired
 
(13,468
)
 
—

Investments and loans to nonconsolidated affiliates
 
(3,235
)
 
(18,492
)
Capital distribution from equity method investments
 
—

 
1,043

Net cash used in investing activities
 
(62,691
)
 
(79,130
)
Cash flows from financing activities:
 
 
 
 
Net transfers from MSG Networks and MSG Networks’ subsidiaries
 
—

 
1,525,241

Repurchases of common stock
 
(72,277
)
 
(15,716
)
Proceeds from stock option exercises
 
7

 
57

Taxes paid in lieu of shares issued for equity-based compensation
 
(7,034
)
 
(48
)
Payments for financing costs
 
(1,909
)
 
—

Net cash provided by (used in) financing activities
 
(81,213
)
 
1,509,534

Net increase (decrease) in cash and cash equivalents
 
(33,972
)
 
1,544,686

Cash and cash equivalents at beginning of period
 
1,444,317

 
14,211

Cash and cash equivalents at end of period
 
$
1,410,345

 
$
1,558,897

Non-cash investing and financing activities:
 
 
 
 
Investments and loans to nonconsolidated affiliates
 
$
322

 
$
2,052

Capital expenditures incurred but not yet paid
 
2,961

 
1,617

Non-cash transfers resulting from the Distribution, net
 
—

 
(2,500
)
See accompanying notes to consolidated and combined financial statements.

4

Table of Contents

THE MADISON SQUARE GARDEN COMPANY
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
 
 
 
Common
Stock
Issued
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total The Madison Square Garden Company Stockholders ’  Equity
 
Noncontrolling Interests
 
Total Equity
Balance as of June 30, 2016
 
$
249

 
$
2,806,352

 
$
(101,882
)
 
$
(75,687
)
 
$
(42,611
)
 
$
2,586,421

 
$
—

 
$
2,586,421

Net income (loss)
 
—

 
—

 
—

 
29,100

 
—

 
29,100

 
(593
)
 
28,507

Other comprehensive income
 
—

 
—

 
—

 
—

 
10,838

 
10,838

 
—

 
10,838

Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
39,938

 
(593
)
 
39,345

Exercise of stock options
 
—

 
(39
)
 
46

 
—

 
—

 
7

 
—

 
7

Share-based compensation
 
—

 
20,175

 
—

 
—

 
—

 
20,175

 
—

 
20,175

Tax withholding associated with shares issued for equity-based compensation
 
—

 
(5,702
)
 
(1,332
)
 
—

 
—

 
(7,034
)
 
—

 
(7,034
)
Common stock issued under stock incentive plans
 
—

 
(8,630
)
 
8,630

 
—

 
—

 
—

 
—

 
—

Repurchases of common stock
 
—

 
—

 
(72,277
)
 
—

 
—

 
(72,277
)
 
—

 
(72,277
)
Noncontrolling interests from acquisition
 
—

 
—

 
—

 
—

 
—

 
—

 
11,394

 
11,394

Balance as of December 31, 2016
 
$
249

 
$
2,812,156

 
$
(166,815
)
 
$
(46,587
)
 
$
(31,773
)
 
$
2,567,230

 
$
10,801

 
$
2,578,031

 
 
 
Common Stock Issued
 
MSG Networks’ Investment
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained Earnings
 
Accumulated
Other
Comprehensive
 Income (Loss)
 
Total The Madison Square Garden Company Stockholders ’  Equity
Balance as of June 30, 2015
 
$
—

 
$
1,263,490

 
$
—

 
$
—

 
$
—

 
$
(40,215
)
 
$
1,223,275

Net income (loss)
 
—

 
(1,603
)
 
—

 
—

 
43,488

 
—

 
41,885

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(85
)
 
(85
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
41,800

Exercise of stock options
 
—

 
—

 
57

 
—

 
—

 
—

 
57

Share-based compensation
 
—

 
—

 
7,208

 
—

 
—

 
—

 
7,208

Tax withholding associated with shares issued for equity-based compensation
 
—

 
—

 
(48
)
 
—

 
—

 
—

 
(48
)
Repurchases of common stock
 
—

 
—

 
—

 
(15,716
)
 
—

 
—

 
(15,716
)
Net increase in MSG Networks’ investment
 
—

 
1,525,982

 
—

 
—

 
—

 
—

 
1,525,982

Conversion of MSG Networks’ investment
 
249

 
(2,787,869
)
 
2,787,620

 
—

 
—

 
—

 
—

Adjustment related to the transfer of Pension Plans and Postretirement Plan liabilities as a result of the Distribution
 
—

 
—

 
—

 
—

 
—

 
5,896

 
5,896

Balance as of December 31, 2015
 
$
249

 
$
—

 
$
2,794,837

 
$
(15,716
)
 
$
43,488

 
$
(34,404
)
 
$
2,788,454


See accompanying notes to consolidated and combined financial statements.



5

Table of Contents

THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
All amounts included in the following Notes to Consolidated and Combined Financial Statements are presented in thousands, except per share data or as otherwise noted.
Note 1. Description of Business and Basis of Presentation
Description of Business
The Madison Square Garden Company (together with its subsidiaries, the “Company” or “ Madison Square Garden ”) is a live sports and entertainment business. The Company classifies its business interests into two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts and special events, which are presented or hosted in the Company’s diverse collection of venues. MSG Entertainment also includes the Company's original productions — Christmas Spectacular Starring the Radio City Rockettes (“ Christmas Spectacular ”) and New York Spectacular Starring the Radio City Rockettes (“ New York Spectacular ”) — as well as Boston Calling Events LLC, the live events production company that owns and operates the Boston Calling Music Festival. MSG Sports includes the Company’s professional sports franchises: the New York Knicks (the “ Knicks ”) of the National Basketball Association (the “ NBA ”), the New York Rangers (the “ Rangers ”) of the National Hockey League (the “ NHL ”), the New York Liberty (the “ Liberty ”) of the Women’s National Basketball Association (the “ WNBA ”), the Hartford Wolf Pack of the American Hockey League (the “ AHL ”) and the Westchester Knicks of the NBA Development League (the “ NBADL ”). The MSG Sports segment is also home to a broad array of other live sporting events, including professional boxing, college basketball, professional bull riding, mixed martial arts, tennis and college wrestling, all of which the Company promotes, produces and/or presents.
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns the Madison Square Garden Arena (“ The Garden ”) and The Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston.
The Company was incorporated on March 4, 2015 as an indirect, wholly-owned subsidiary of MSG Networks Inc. (“ MSG Networks ” or “ Former Parent ”), formerly known as The Madison Square Garden Company. On September 11, 2015, MSG Networks ’ board of directors approved the distribution of all the outstanding common stock of Madison Square Garden to MSG Networks’ shareholders (the “ Distribution ”), which occurred on September 30, 2015. See Note 1 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the Distribution to its common stockholders.
Basis of Presentation
The accompanying unaudited consolidated and combined interim financial statements (referred to as the “Financial Statements” herein) have been prepared in accordance with U.S. generally accepted accounting principles (“ GAAP ”) and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission for interim financial information, and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 . The Financial Statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the Financial Statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company's fiscal year. The dependence of the MSG Entertainment segment on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues in the second quarter of the Company’s fiscal year.
For the periods after the Distribution, the financial information disclosed is presented on a consolidated basis, as the Company became a standalone public company on September 30, 2015. For the periods prior to the Distribution, the financial information was prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a standalone public company prior to the Distribution. See Note 1 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the basis of presentation for periods before and after the Distribution.

6


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The combined results of operations for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015 include allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and venue operations , among others. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the results of operations for the three months ended September 30, 2015 that are included in the combined financial statements for the six months ended December 31, 2015 do not include all of the actual expenses that would have been incurred by the Company and do not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone public company during the period presented on a combined basis. Actual costs that would have been incurred if the Company had been a separate, standalone public company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
For purposes of the combined financial statements, income tax expense has been recorded as if the Company filed tax returns on a standalone basis separate from Former Parent. This separate return methodology applies to accounting guidance for income taxes in the combined financial statements as if the Company was a standalone public company for the periods prior to the Distribution. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the Distribution. Prior to the Distribution, the Company's operating results were included in Former Parent’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, the Company expects to file its initial U.S. income tax return for the period from October 1, 2015 through June 30, 2016. The calculation of the Company’s income taxes involves considerable judgment and use of both estimates and allocations.
Note  2 . Accounting Policies
Principles of Consolidation and Combination
For the periods prior to the Distribution, the financial statements include certain assets and liabilities that were historically held at Former Parent’s corporate level but were specifically identifiable or otherwise attributable to the Company. All intercompany transactions between the Company and Former Parent have been included in the combined financial statements as components of MSG Networks’ investment. All significant intracompany transactions and accounts within the Company's consolidated and combined financial statements have been eliminated. Expenses related to corporate allocations prior to the Distribution were considered to be effectively settled in the combined financial statements at the time the transaction was recorded, with the offset recorded against MSG Networks’ investment.
Use of Estimates
The preparation of the accompanying Financial Statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, investments, goodwill, intangible assets, other long-lived assets, tax accruals and other liabilities. In addition, estimates are used in revenue recognition, revenue sharing expense (net of escrow), luxury tax expense, income tax expense, performance and share-based compensation, depreciation and amortization, reserve and recovery for contingencies, litigation matters and other matters, as well as in the valuation of contingent consideration and noncontrolling interests resulting from business combination transactions. Management believes its use of estimates in the Financial Statements to be reasonable.
Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. The Company adjusts such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on management’s best judgment at a point in time and as such these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond the Company’s control could be material and would be reflected in the Company’s financial statements in future periods.

7


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Summary of Significant Accounting Policies
The following is an update to the Company's Summary of Significant Accounting Policies disclosed in its Annual Report on Form 10-K for the year ended June 30, 2016 :
Business Combinations
The acquisition method of accounting for business combinations requires management to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the Company is allowed to adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which is also measured at fair value if the consideration is non-cash, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to complete a business combination such as investment banking, legal and other professional fees are not considered part of consideration and the Company charges these costs to selling, general and administrative expense as they are incurred. In addition, the Company recognizes measurement-period adjustments in the period in which the amount is determined, including the effect on earnings of any amounts the Company would have recorded in previous periods if the accounting had been completed at the acquisition date.
On July 1, 2016, the Company acquired a controlling interest in Boston Calling Events LLC (“ BCE ”). In accordance with Accounting Standards Codification (“ ASC ”) Topic 805, Business Combinations , and ASC Topic 810, Consolidation , the financial position of BCE has been consolidated to the Company’s consolidated balance sheet as of December 31, 2016 . The results of operations for BCE have been included in the Company’s consolidated results of operations from the date of acquisition in the MSG Entertainment segment. The relevant amounts attributable to investors other than the Company are reflected under “Noncontrolling interests” and “Net income (loss) attributable to noncontrolling interests” on the accompanying consolidated balance sheet and consolidated statement of operations, respectively. See Note 3 for more information regarding the Company’s acquisition of BCE .
Revenue Recognition
Deferred revenue reported in the accompanying consolidated balance sheets as of December 31, 2016 and June 30, 2016 includes amounts due to the third-party promoters of $48,458 and $45,877 , respectively.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ ASU ”) No. 2015-02 , Consolidation (Topic 810): Amendments to the Consolidation Analysis , which changes the analysis to be performed in determining whether certain types of legal entities should be consolidated. Specifically, ASU No. 2015-02 (i) modifies the assessment of whether limited partnerships are variable interest entities (each a “ VIE ”) or voting interest entities, (ii) eliminates the presumption that a limited partnership should be consolidated by its general partner, (iii) removes certain conditions for the evaluation of whether a fee paid to a decision maker constitutes a variable interest, and (iv) modifies the evaluation concerning the impact of related parties in the determination of the primary beneficiary of a VIE . This standard was adopted by the Company in the first quarter of fiscal year 2017. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement , which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract and expense the cost as the services are received. This standard was adopted by the Company in the first quarter of fiscal year 2017 on a prospective basis for all arrangements entered into or materially modified after July

8


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


1, 2016. The adoption of the standard did not have an impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ( Topic 606 ) , which supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition . ASC Topic 606 , among other things, (i) is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange f or those goods or services, and (ii) requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14 , Revenue from Contracts with Customers (Topic 606) : Deferral of the Effective Date , which defers the effective date of ASU No. 2014-09 for all entities by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net) , which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard under ASU No. 2014-09. ASU No. 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , which clarifies the principle in ASU No 2014-09 for determining whether a good or service is separately identifiable from other promises in the contract and, therefore, should be accounted for separately. ASU No. 2016-10 also clarifies that entities are not required to identify promised goods or services that are immaterial in the context of the contract and allows entities to elect to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients , which clarifies the following aspects in ASU No. 2014-09: collectability, presentation of sales taxes and other similar taxes collected from customers, noncash considerations, contract modifications at transition, completed contracts at transition, and technical correction. In December, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , which allows entities not to make quantitative disclosures about remaining performance obligations in certain cases and requires entities that use any of the new or previously existing optional exemptions to expand their qualitative disclosures. Early adoption of ASC Topic 606 and the related updates discussed above is permitted and the Company can early adopt ASC Topic 606 and the related updates beginning in the first quarter of fiscal year 2018. If the Company does not apply the early adoption provision, ASC Topic 606 and the related updates will be effective for the Company beginning in the first quarter of fiscal year 2019 using one of two retrospective application methods. The Company is currently evaluating the impact the standard and updates will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This standard, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. Early adoption is not permitted with the exception of certain provisions related to the presentation of other comprehensive income. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 , Leases (Topic 842) , which supersedes existing guidance on accounting for leases in FASB ASC Topic 840, Leases . ASU No. 2016-02 , among other things, (i) requires lessees to account for leases as either finance leases or operating leases and generally requires all leases to be recorded on the balance sheet, including those leases classified as operating leases under previous accounting guidance, through the recognition of right-of-use assets and corresponding lease liabilities, and (ii) requires extensive qualitative and quantitative disclosures about leasing activities. The accounting applied by a lessor is largely unchanged from that applied under previous accounting guidance. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied using the modified retrospective approach for all leases existing as of the effective date. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

9


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting . ASU No. 2016-07 eliminates the requirement for an investor to retrospectively apply the equity method when an investment that it had accounted for by another method qualifies for use of the equity method. This standard will be effective for the Company beginning in the first quarter of fiscal year 2018 and is required to be applied prospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting . ASU No. 2016-09, among other things, (i) requires the income tax effects of all awards to be recognized in the statement of operations when the awards vest or are settled, (ii) allows an employer to repurchase more of an employee’s shares for tax withholding purposes than currently allowable, without triggering liability accounting, and provides companies with the option to make a policy election to account for forfeitures as they occur, and (iii) requires companies to present excess tax benefits as operating activity rather than as financing activity on the statement of cash flows. This standard will be effective for the Company beginning in the first quarter of fiscal year 2018. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). ASU No. 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory . ASU No. 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash . The primary purpose of ASU No. 2016-18 is to reduce the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. This standard will require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard will be effective retrospectively for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . The primary purpose of this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, which will affect many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This standard will be effective for the Company beginning in the first quarter of fiscal year 2019 and is required to be applied prospectively. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2021 is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

10


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note  3 . Acquisitions
BCE Acquisition
On July 1, 2016, in connection with the Company’s strategy to broaden its live experience offerings, the Company acquired a controlling interest in BCE , the live events production company that owns and operates the Boston Calling Music Festival. The Company acquired net tangible assets of $2,221 . In addition, based on the purchase price allocation, the Company recognized $11,800 of amortizable intangible assets and $12,538 of goodwill. See Note 7 for more information regarding the intangible assets and goodwill recognized in this acquisition. The estimated fair value of the noncontrolling interest of $11,394 was based on the present value of future cash flows, adjusted for the lack of control and lack of marketability associated with the noncontrolling interests and was classified within Level III of the fair value hierarchy as they were valued using unobservable inputs. An additional escrow payment in the amount of $1,750 was made for potential earn-out. The amounts of revenue and earnings of BCE since the acquisition date included in the Company’s consolidated statement of operations for the reporting period were not material. Pro forma information is not provided since the acquisition was not material when compared with the Company’s consolidated financial statements.
Investment in Townsquare Media, Inc.
On August 16, 2016, the Company acquired 3,208 shares, or approximately 12% , of the common stock of Townsquare Media, Inc. (“ Townsquare ”) for approximately $23,099 in cash. Townsquare is a leading media, entertainment and digital marking solutions company that is listed on the New York Stock Exchange under the symbol “TSQ.” This investment is reported in the accompanying consolidated balance sheet as of December 31, 2016 in other assets, and is classified as available-for-sale securities in accordance with ASC Topic 320, Investments — Debt and Equity Securities . Investments in available-for-sale securities are carried at fair market value with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in stockholders’ equity. See Note 9 for more information on the fair value of the investment in Townsquare.
TAO Group Acquisition
On January 31, 2017 , in connection with the Company’s strategy to broaden its portfolio of live offerings, the Company entered into a transaction agreement pursuant to which it acquired a 62.5% common equity interest and a preferred equity interest in TAO Group Holdings LLC (“ TAOH ”), which indirectly owns all of the equity of TAO Group Operating LLC (“ TAOG ”). TAOG is engaged in the management and operation of restaurants and nightclubs in Las Vegas, New York City and Australia (with venues under contract which are expected to open in Los Angeles, Chicago and Singapore in the coming years). The Company paid approximately $181,000 , subject to customary purchase price adjustments, and $8,700 to acquire preferred equity in TAOH . In addition, the Company will be responsible to pay an earn-out of up to $25,500 , if certain performance conditions based upon earnings growth are met during the first five years following the transaction. The transaction assumed an estimated enterprise value of TAOG of approximately $400,000 , which excludes the potential earn-out amount discussed above.
The purchase price allocation has not been completed as of the date of this filing pending the valuation of assets acquired and liabilities assumed. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets acquired and liabilities assumed, including goodwill and intangible assets. Furthermore, the Company is unable to provide the supplemental pro forma revenue and net income of the combined entity, as some of the pro forma adjustments are dependent upon the purchase price allocation. The Company will include this information in the quarterly report on Form 10-Q for the quarter ended March 31, 2017.
In addition, in connection with this transaction, TAO Group Intermediate Holdings LLC (“ TAOIH ”), a subsidiary of TAOH , TAOG and certain of its subsidiaries obtained a five -year term senior secured term loan facility of $110,000 from a third party group of lenders to fund the acquisition of the TAOH and a senior secured revolving credit facility of up to $12,000 with a term of five years for working capital and general corporate purposes of TAOG . These credit facilities are provided without recourse to the Company or any of its affiliates (other than TAOIH and its subsidiaries). See Note 10 for more information regarding these credit facilities.

11


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note 4. Computation of Earnings (Loss) per Common Share
The following table presents a reconciliation of weighted-average shares used in the calculations of basic and diluted earnings per common share (“EPS”).  
 
 
Three Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
Weighted-average shares for basic EPS
 
23,971

 
24,971

 
24,013

 
24,949

Dilutive effect of shares issuable under share-based compensation plans
 
172

 
84

 
179

 
82

Weighted-average shares for diluted EPS
 
24,143

 
25,055

 
24,192

 
25,031

  Anti-dilutive shares
 
7

 
4

 
6

 
2

Note 5. Team Personnel Transactions
Direct operating expenses in the accompanying consolidated statement of operations include provisions for transactions relating to a player trade and player waiver/contract termination costs (“ Team Personnel Transactions ”). Team Personnel Transactions were $980 and $5,990 for the three and six months ended December 31, 2016 , respectively.
Note 6 . Investments and Loans to Nonconsolidated Affiliates
The Company’s investments and loans to nonconsolidated affiliates which are accounted for under equity method and cost method of accounting in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures , and ASC Topic 325, Investments - Other , respectively, consisted of the following:
 
 
Ownership Percentage
 
Investment
 
Loan
 
 
Total
December 31, 2016
 
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
 
Azoff MSG Entertainment LLC (“AMSGE”)
 
50
%
 
$
108,194

 
$
97,500

 
 
$
205,694

Brooklyn Bowl Las Vegas, LLC (“BBLV”)
 
(a)  

 
—

 
2,662

(b)  
 
2,662

Tribeca Enterprises LLC (“Tribeca Enterprises”)
 
50
%
 
15,770

 
13,951

(c)  
 
29,721

Fuse Media LLC (“Fuse Media”)
 
15
%
 
20,631

 
—

 
 
20,631

Cost method investments
 
 
 
4,098

 
1,678

 
 
5,776

Total investments and loans to nonconsolidated affiliates
 
 
 
$
148,693

 
$
115,791

 
 
$
264,484

 
 
 
 
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
 
 
 
Equity method investments:
 
 
 
 
 
 
 
 
 
AMSGE
 
50
%
 
$
112,147

 
$
97,500

 
 
$
209,647

BBLV
 
(a)  

 
—

 
2,662

(b)  
 
2,662

Tribeca Enterprises
 
50
%
 
13,736

 
10,395

(c)  
 
24,131

Fuse Media
 
15
%
 
21,634

 
—

 
 
21,634

Cost method investments
 
 
 
3,794

 
1,678

 
 
5,472

Total investments and loans to nonconsolidated affiliates
 
 
 
$
151,311

 
$
112,235

 
 
$
263,546

_________________
(a)  
The Company is entitled to receive back its capital, which was 74% of BBLV’s total capital as of December 31, 2016 and June 30, 2016 , plus a preferred return, after which the Company would own a 20% interest in BBLV.

12


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


(b)  
Represents outstanding loan balance, inclusive of amounts due to the Company for interest of $62 as of December 31, 2016 and June 30, 2016 .
(c)  
Includes outstanding payments-in-kind (“ PIK ”) interest of $451 and $95 as of December 31, 2016 and June 30, 2016 , respectively. PIK interest owed does not reduce availability under the revolving credit facility.
As a result of certain legal and regulatory actions against one of the Company’s cost method investments, the Company evaluated whether or not an other-than-temporary impairment of this cost method investment had occurred as of December 31, 2015. This evaluation resulted in the Company recording a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of its cost method investment, which is reflected in miscellaneous expense in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2015 .
See Note 8 for more information regarding a legal matter related to a company with its majority interest owned by AMSGE.
Note  7 . Goodwill and Intangible Assets
The carrying amounts of goodwill , by reportable segment, as of December 31, 2016 and June 30, 2016 are as follows:  
 
 
December 31,
2016
 
June 30,
2016
MSG Entertainment
 
$
71,517

 
$
58,979

MSG Sports
 
218,187

 
218,187

 
 
$
289,704

 
$
277,166

During the first quarter of fiscal year 2017, the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for either of its reporting units . The increase in the carrying amount of goodwill , as compared to June 30, 2016 , in the MSG Entertainment segment was due to the purchase price allocation for the BCE acquisition during the first quarter of fiscal year 2017. The goodwill that arose from this acquisition was valued using unobservable inputs within Level III of the fair value hierarchy, primarily from utilizing the discounted cash flow model, which is an income-based approach that allocates to goodwill any acquisition costs not specifically assigned to intangibles, fixed assets or working capital. Goodwill recognized in this acquisition is expected to be deductible for tax purposes. See Note 3 for more information on the allocation of the purchase price and goodwill recognized.
The Company’s indefinite-lived intangible assets as of December 31, 2016 and June 30, 2016 are as follows:
Sports franchises (MSG Sports segment)
 
$
101,429

Trademarks (MSG Entertainment segment)
 
62,421

Photographic related rights (MSG Sports segment)
 
3,000

 
 
$
166,850

During the first quarter of fiscal year 2017, the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified.
The Company’s intangible assets subject to amortization are as follows:  
December 31, 2016
 
Gross
 
Accumulated
Amortization
 
Net
Season ticket holder relationships
 
$
73,124

 
$
(61,808
)
 
$
11,316

Other intangibles
 
16,017

 
(3,036
)
 
12,981

 
 
$
89,141

 
$
(64,844
)
 
$
24,297


13


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


June 30, 2016
 
Gross
 
Accumulated
Amortization
 
Net
Season ticket holder relationships
 
$
73,124

 
$
(59,178
)
 
$
13,946

Other intangibles
 
4,217

 
(2,434
)
 
1,783

 
 
$
77,341

 
$
(61,612
)
 
$
15,729

The increase in gross carrying amount of other intangibles, as compared to June 30, 2016 , was due to the purchase price allocation for the BCE acquisition during the first quarter of fiscal year 2017. Other amortizable intangible assets acquired from this acquisition include festival rights and a tradename with useful lives ranging from 5 to 15 years. Other amortizable intangible assets acquired were valued using unobservable inputs within Level III of the fair value hierarchy, primarily from utilizing the discounted cash flow models and relief-from-royalty approach. See Note 3 for more information on the allocation of the purchase price and intangible assets recognized.
Amortization expense for intangible assets was $1,616 and $1,734 for the three months ended December 31, 2016 and 2015 , respectively. For the six months ended December 31, 2016 and 2015 , amortization expense for intangible assets was $3,232 and $3,469 , respectively.
Note 8 . Commitments and Contingencies
Commitments
As more fully described in Note 7 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 , the Company’s commitments consist primarily of (i) the MSG Sports segment’s obligations under employment agreements that the Company has with its professional sports teams’ personnel that are generally guaranteed regardless of employee injury or termination, (ii) long-term noncancelable operating lease agreements primarily for entertainment venues and office and storage space, and (iii) revolving credit facilities provided by the Company to AMSGE and Tribeca Enterprises (see Note 6 ).
Contingencies
On November 22, 2016, the Company announced that it was notifying customers that it had identified and has addressed a payment card issue that affected cards used at merchandise and food and beverage locations at several of the Company’s New York and Chicago venues. After being notified of a transaction pattern indicating a potential data security concern, the Company commenced an investigation and engaged leading computer security firms to examine its network. The Company, working with security firms, promptly fixed the issue and implemented enhanced security measures.
The Company has incurred and expects to incur expenses associated with the payment card incident and will continue to recognize those expenses as incurred. Such expenses were recognized in selling, general and administrative expenses in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2016. Payment card networks may demand that the Company pay certain fees and assessments designed to reimburse payment card issuers. During the second quarter of fiscal year 2017, the Company recorded a contingent liability equal to the currently estimable future payments and a receivable in the same amount reflecting probable insurance recoveries, which are reported in other accrued liabilities and other current assets, respectively, in the accompanying consolidated balance sheet as of December 31, 2016. The Company cannot currently reasonably estimate the remaining amount that may be payable to the card companies and associations in connection with the incident. Although the Company expects its insurance coverage will offset most, if not all, of the expenses associated with the incident, the incident could have a material adverse impact on the Company’s operating results for a future quarter.
Legal Matters
The Company owns 50% of Azoff MSG Entertainment LLC, which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters to digital and terrestrial radio and other outlets. GMR has been negotiating licensing terms with radio stations and station groups represented by the Radio Music Licensing Committee (“RMLC”), which acts for and on behalf of over 10,000 commercial radio stations. On November 18, 2016, RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania asserting that GMR is

14


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


violating Section 2 of the Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses that include GMR’s entire repertory. GMR and RLMC agreed to an interim license arrangement through September 30, 2017, which radio stations may elect to join on or before January 31, 2017. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20, 2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal jurisdiction of GMR and that in any event the Complaint fails to state a claim. In addition, on December 6, 2016, GMR filed a complaint against RMLC in the United States District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that unreasonably restrict competition for copyright licenses.
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty, management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
Note 9 . Fair Value Measurements
The following table presents for each of these hierarchy levels, the Company’s assets that are measured at fair value on a recurring basis, which include cash equivalents, marketable securities and available-for-sale securities:  
 
 
Fair Value Hierarchy
 
December 31,
2016
 
June 30,
2016
Assets:
 
 
 
 
 
 
Commercial Paper
 
I
 
$
73,472

 
$
79,968

Money market accounts
 
I
 
139,543

 
159,881

Time deposits
 
I
 
1,192,450

 
1,202,681

Marketable securities
 
I
 
—

 
787

Available-for-sale securities
 
I
 
33,397

 
—

Total assets measured at fair value
 
 
 
$
1,438,862

 
$
1,443,317

All assets listed above are classified within Level 1 of the fair value hierarchy as they are valued using observable inputs that reflect quoted prices for identical assets in active markets. The carrying amounts of the Company’s commercial paper, money market accounts and time deposits approximate fair value due to their short-term maturities.
The carrying value and fair value of the Company’s financial instruments reported in the accompanying consolidated balance sheet are as follows:
 
 
December 31, 2016
 
June 30, 2016
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Notes receivable, including interest accruals
 
$
7,090

 
$
7,090

 
$
7,090

 
$
7,090

Marketable securities
 
—

 
—

 
787

 
787

Available-for-sale securities (a)
 
33,397

 
33,397

 
—

 
—

_________________
(a)  
Aggregate cost basis for available-for-sale securities, including transaction costs, was $23,222 as of December 31, 2016 . The unrealized gain recorded in accumulated other comprehensive income was $10,175 as of December 31, 2016 .

15


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note 10 . Credit Facilities

Knicks Revolving Credit Facility
On September 30, 2016, New York Knicks, LLC (“ Knicks LLC ”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Knicks Credit Agreement ”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years (the “ Knicks Revolving Credit Facility ”) to fund working capital needs and for general corporate purposes.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . As of December 31, 2016 , Knicks LLC was in compliance with this financial covenant.
All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging from 1.00% to 1.125% per annum.   Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily unused commitments under the Knicks Revolving Credit Facility . The Knicks Revolving Credit Facility was undrawn as of December 31, 2016 .
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
In addition to the financial covenant described above, the Knicks Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
In connection with the entry into the Knicks Revolving Credit Facility , the Company incurred $2,112 for deferred financing costs, which are being amortized to interest expense over the five-year term of the Knicks Revolving Credit Facility . The amount of deferred financing costs, net of amortization, of $422 and $1,584 were included in other current assets and other assets, respectively, in the accompanying consolidated balance sheet as of December 31, 2016 .
Knicks Unsecured Credit Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a one -year term (the “ Knicks Unsecured Credit Facility ”). This facility was undrawn as of December 31, 2016 .
Rangers Revolving Credit Facility
On January 25, 2017, New York Rangers, LLC (“ Rangers LLC ”), a wholly owned subsidiary of the Company, entered into a credit agreement (the “ Rangers Credit Agreement ”) with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years (the “ Rangers Revolving Credit Facility ”) to fund working capital needs and for general corporate purposes.

16


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . Rangers LLC was in compliance with this financial covenant on the closing date. All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum.   Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility . The Rangers Revolving Credit Facility was undrawn on the closing date.
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Rangers Revolving Credit Facility is less than 17% of qualified revenues.
In addition to the financial covenant described above, the Rangers Credit Agreement and the related security agreement contain certain customary representations and warranties, affirmative covenants and events of default. The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC’s assets securing the obligations under the Rangers Revolving Credit Facility.
TAO Credit Facilities
On January 31, 2017 , TAO Group Intermediate Holdings LLC (“ TAOIH ”), TAO Group Operating LLC (“ TAOG ” ) and certain of its subsidiaries entered into a credit and guaranty agreement with a syndicate of lenders providing for a senior secured term loan facility of $110,000 with a term of five years (the “TAO Term Loan Facility”) to fund, in part, the acquisition of TAOH and a senior secured revolving credit facility of up to $12,000 with a term of five years (the “TAO Revolving Credit Facility,” and together with the TAO Term Loan Facility, the “TAO Credit Facilities”) for working capital and general corporate purposes of TAOG. The TAO Credit Facilities were obtained without recourse to MSG or any of its affiliates (other than TAOIH and its subsidiaries).
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the first quarter of fiscal year 2021 and through the remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over time to 1.15:1.00 by the second quarter of fiscal year 2021 and through the remainder of the term of the TAO Credit Facilities. TAOIH was in compliance with these financial covenants on the closing date.
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum.   TAOG is required to pay a commitment fee of 0.50% per annum in respect of the average daily unused commitments under the TAO Revolving Credit Facility.

17


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and 100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in whole or in part (subject to customary breakage costs with respect to LIBOR loans) with premiums due in respect of prepayments of the TAO Term Loan Facility or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. TAOG is required to make scheduled amortization payments under the TAO Term Loan Facility in consecutive quarterly installments equal to $687.5 per quarter initially and stepping up over time to $4,125 per quarter commencing March 31, 2021 through the final maturity date of the TAO Term Loan Facility with the final balance payable on such maturity date. TAOG is also required to make mandatory prepayments under the TAO Credit Facilities in certain circumstances, including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making distributions, dividends and other restricted payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and (vii) prepaying certain indebtedness.
Note 11. Accumulated Other Comprehensive Income (Loss)
The following table details the components of accumulated other comprehensive income (loss):
 
Pension Plans and
Postretirement
Plan (a)
 
Unrealized Gain on Available-for-sale
Securities
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance as of June 30, 2016
$
(42,611
)
 
$
—

 
$
(42,611
)
Other comprehensive income before reclassifications, before income taxes
—

 
10,175

 
10,175

Amounts reclassified from accumulated other comprehensive loss, before income taxes
663

 
—

 
663

Other comprehensive income
663

 
10,175

 
10,838

Balance as of December 31, 2016
$
(41,948
)
 
$
10,175

 
$
(31,773
)
 
 
 
 
 
 
Balance as of June 30, 2015
$
(40,215
)
 
$
—

 
$
(40,215
)
Adjustment related to the transfer of Pension Plans and Postretirement Plan liabilities as a result of the Distribution
5,896

 
—

 
5,896

 
 
 
 
 
 
Other comprehensive loss before reclassifications, before income taxes
(602
)
 
—

 
(602
)
Amounts reclassified from accumulated other comprehensive loss, before income taxes
517

 
—

 
517

Other comprehensive loss
(85
)
 
—

 
(85
)
Balance as of December 31, 2015
$
(34,404
)
 
$
—

 
$
(34,404
)
________________
(a)  
Amounts reclassified from accumulated other comprehensive loss, before income taxes, represent amortization of net actuarial loss and net unrecognized prior service credit included in net periodic benefit cost, which is reflected in direct

18


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


operating expenses and selling, general and administrative expenses in the accompanying consolidated and combined statements of operations (see Note 12 ).
Note 12 . Pension Plans and Other Postretirement Benefit Plan
See Note 9 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the Company’s defined benefits pension plans (“Pension Plans”) and postretirement benefit plan (“Postretirement Plan”) as well as the treatment of the Pension Plans and Postretirement Plan before and after the Distribution.
Components of net periodic benefit cost for the Pension Plans and Postretirement Plan recognized in direct operating expenses and selling, general and administrative expenses in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2016 and 2015 are as follows:  
 
 
Pension Plans
 
Postretirement Plan
 
 
Three Months Ended
 
Three Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
Service cost (a)
 
$
23

 
$
1,502

 
$
34

 
$
32

Interest cost (a)
 
1,240

 
1,680

 
40

 
58

Expected return on plan assets
 
(596
)
 
(740
)
 
—

 
—

Recognized actuarial loss
 
344

 
255

 
—

 
—

Amortization of unrecognized prior service credit
 
—

 
—

 
(13
)
 
(20
)
Net periodic benefit cost
 
$
1,011

 
$
2,697

 
$
61

 
$
70

 
 
 
 
 
 
 
 
 
 
 
Pension Plans
 
Postretirement Plan
 
 
Six Months Ended
 
Six Months Ended
 
 
December 31,
 
December 31,
 
 
2016
 
2015
 
2016
 
2015
Service cost (a)
 
$
46

 
$
3,014

 
$
68

 
$
82

Interest cost (a)
 
2,480

 
3,609

 
81

 
149

Expected return on plan assets
 
(1,192
)
 
(1,480
)
 
—

 
—

Recognized actuarial loss
 
688

 
554

 
—

 
—

Amortization of unrecognized prior service cost (credit)
 
—

 
14

 
(25
)
 
(51
)
Net periodic benefit cost
 
$
2,022

 
$
5,711

 
$
124

 
$
180

_________________
(a)  
Effective July 1, 2016, the Company changed the approach used to measure service and interest cost components of net periodic benefit costs for Pension Plans and Postretirement Plan. Previously, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plans’ obligations. Beginning fiscal year 2017, the Company elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows (“Spot Rate Approach”). The Company believes the Spot Rate Approach provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates on the yield curve. This change does not affect the measurement of the plans’ obligations and it is accounted for as a change in accounting estimate, which is applied prospectively. This change in estimate reduced the Company’ s pension and postretirement net periodic cost by approximately $290 and $580 for the three and six months ended December 31, 2016 , respectively, relative to the estimated pension expense had the Company not changed the approach.

19


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


The net periodic benefit cost for the Pension Plans for the three months ended September 30, 2015 that is included in the six months ended December 31, 2015 reported in the table above includes $485 of expenses related to MSG Networks’ employees, representing the contributory charge from the Company to MSG Networks for participation in the Pension Plans. In addition, for the three months ended September 30, 2015 that is included in the six months ended December 31, 2015 , the Company allocated to MSG Networks $229 of net periodic benefit cost for the Pension Plans related to corporate employees not specifically identified to either the Company or MSG Networks.
The net periodic benefit cost for the Postretirement Plan for the three months ended September 30, 2015 that is included in the six months ended December 31, 2015 reported in the table above includes $18 of expenses related to MSG Networks employees, representing the contributory charge from the Company to MSG Networks for participation in the Postretirement Plan. In addition, for the three months ended September 30, 2015 that is included in the six months ended December 31, 2015 , the Company allocated to MSG Networks $11 of net periodic benefit cost for the Postretirement Plan related to corporate employees not specifically identified to either the Company or MSG Networks.
In addition, prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Savings Plan and the MSG Holdings, L.P. Excess Savings Plan (collectively, the “ Savings Plans ”). In connection with the Distribution, the MSG Holdings, L.P. 401(k) Savings Plan was converted into a multiple employer plan and pursuant to the Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. For the three months ended December 31, 2016 and 2015 , expenses related to the Savings Plans , excluding expenses related to MSG Networks’ employees, included in the accompanying consolidated and combined statements of operations were $1,984 and $868 , respectively. For the six months ended December 31, 2016 and 2015 , expenses related to the Savings Plans , excluding expenses related to MSG Networks’ employees, included in the accompanying combined statements of operations were $3,946 and $1,700 . The amount for the three months ended September 30, 2015 that is included in the results of operations for the six months ended December 31, 2015 includes $89 of expenses related to the Company’s corporate employees which were allocated to MSG Networks.
In addition, prior to the Distribution, MSG Networks sponsored the MSG Holdings, L.P. 401(k) Union Plan (the “ Union Savings Plan ”). In connection with the Distribution, the Union Savings Plan was converted into a multiple employer plan and pursuant to the Employee Matters Agreement, the Company became the sponsor and a contributing employer to this plan. For the three months ended December 31, 2016 and 2015 , expenses related to the Union Savings Plan included in the accompanying consolidated and combined statements of operations were $28 and $27 , respectively. For the six months ended December 31, 2016 and 2015 , expenses related to the Union Savings Plan included in the accompanying consolidated and combined statements of operations were $50 and $45 , respectively.
Note 13 . Share-based Compensation
See Note 10 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 for more information regarding the Company’s 2015 Employee Stock Plan (the “ Employee Stock Plan ”) and its 2015 Stock Plan for Non-Employee Directors, as well as the treatment after the Distribution of share-based payment awards initially granted under MSG Networks’ equity award programs.
For the three months ended December 31, 2016 and 2015 , share-based compensation expense , reduced for estimated forfeiture, was recognized in the consolidated and combined statements of operations as a component of direct operating expenses or selling, general and administrative expenses and was $11,743 and $7,154 , respectively. For the six months ended December 31, 2016 and 2015 , share-based compensation expense , reduced for estimated forfeiture, was $20,098 and $10,259 , respectively.


20


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Restricted Stock Units Award Activity
The following table summarizes activity related to holders (including the Company and MSG Networks’ employees) of the Company’s restricted stock units and performance restricted stock units, collectively referred to as “ RSUs ,” for the six months ended December 31, 2016 :
 
Number of
 
Weighted-Average
Fair Value 
Per Share At
Date of Grant
 
Nonperformance
Based
Vesting
RSUs
 
Performance
Based
Vesting
RSUs
 
Unvested award balance, June 30, 2016
172

 
313

 
$
167.51

  Granted
111

 
181

 
$
170.98

Vested
(64
)
 
(24
)
 
$
143.82

Forfeited
(7
)
 
(1
)
 
$
159.34

Unvested award balance, December 31, 2016
212

 
469

 
$
172.15

The fair value of RSUs that vested during the six months ended December 31, 2016 was $15,209 . RSUs granted under the Employee Stock Plan were net share-settled to cover the required statutory tax withholding obligations. To fulfill the employees’ statutory minimum tax withholding obligations for the applicable income and other employment taxes, 33 of these RSUs , with an aggregate value of $5,702 were retained by the Company and reflected as financing activity in the accompanying consolidated statement of cash flows for the six months ended December 31, 2016 .
Note 14. Stock Repurchase Program
On September 11, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors.
During the six months ended December 31, 2016 , the Company has repurchased 406 shares for a total cost of $72,277 , including commissions and fees. These acquired shares have been classified as treasury stock in the accompanying consolidated balance sheet as of December 31, 2016 . As of December 31, 2016 , the Company had $347,009 of availability remaining under its stock repurchase authorization.
Note 15. Related Party Transactions
As of December 31, 2016 , members of the Dolan family group, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, including trusts for the benefit of the Dolan family group, collectively beneficially own all of the Company's outstanding Class B Common Stock and own approximately 2.8% of the Company’s outstanding Class A Common Stock. Such shares of the Company’s Class A Common Stock and Class B Common Stock, collectively, represent approximately 70.8% of the aggregate voting power of the Company’s outstanding common stock. Members of the Dolan family are also the controlling stockholders of MSG Networks and AMC Networks Inc. (“ AMC Networks ”). Prior to June 21, 2016, members of the Dolan Family were also the controlling stockholders of Cablevision Systems Corporation (“ Cablevision ”).
In connection with the Distribution, the Company has entered into various agreements with MSG Networks, including media rights agreements covering the Knicks and the Rangers games, an advertising sales representation agreement , and a transition services agreement (“ TSA ”).
On June 21, 2016, Cablevision was acquired by a subsidiary of Altice N.V. and a change in control occurred, which resulted in members of the Dolan Family no longer being controlling stockholders of the surviving company, Altice USA. Accordingly, Altice USA is not a related party of the Company, and thus the related party transactions disclosed herein that relate to Altice USA were recognized prior to June 21, 2016. Prior to that, the Company had various agreements with Altice USA. These agreements included arrangements with respect to a number of commercial relationships.

21


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


On June 16, 2016, the Company entered into an arrangement with the Dolan Family Office, LLC (“ DFO ”), AMC Networks and MSG Networks providing for the sharing of certain expenses associated with executive office space which will be available to James L. Dolan (the Executive Chairman and a director of the Company and MSG Networks and a director of AMC Networks), Charles F. Dolan (the Executive Chairman and a director of AMC Networks and a director of the Company and MSG Networks), and the DFO which is controlled by Charles F. Dolan.
Beginning in June 2016, the Company agreed to share certain executive support costs, including office space, executive assistants, security and transportation costs, for (i) the Company’s Executive Chairman with MSG Networks and (ii) the Company’s Vice Chairman with MSG Networks and AMC Networks.
The Company also has certain arrangements with its nonconsolidated affiliates. See Note 6 for information on outstanding loans provided by the Company to its nonconsolidated affiliates.
Revenues and Operating Expenses
The following table summarizes the composition and amounts of the transactions with the Company’s affiliates, primarily MSG Networks. These amounts are reflected in revenues and operating expenses in the accompanying consolidated and combined statements of operations for the three and six months ended December 31, 2016 and 2015 :
 
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
$
39,040

 
$
41,321

 
$
72,881

 
$
74,880

Operating expenses (credits):
 
 
 
 
 
 
 
 
Corporate general and administrative, net - MSG Networks
 
$
(2,406
)
 
$
(2,196
)
 
$
(4,895
)
 
$
(33,787
)
Consulting fees
 
942

 
366

 
1,919

 
434

Advertising
 
475

 
777

 
595

 
945

Transactions with Altice USA
 
—

 
1,749

 
—

 
2,454

Other, net
 
(152
)
 
40

 
(134
)
 
47

Revenues
In connection with the Distribution, the Company entered into new media rights agreements with MSG Networks covering the Knicks and Rangers, which provide MSG Networks with exclusive media rights to team games in their local markets and a new advertising sales representation agreement pursuant to which the Company has the exclusive right and obligation, for a commission, to sell MSG Networks’ advertising availabilities. Revenues from related parties primarily consist of local media rights recognized by the Company’s Sports segment from the licensing of team-related programming to MSG Networks under these new media rights agreements. Local media rights are generally recognized on a straight-line basis over the fiscal year. In addition, the Company and Tribeca Enterprises have a service agreement pursuant to which the Company provides marketing inventory and consulting services to Tribeca Enterprises for a fee.
Corporate General and Administrative Expense, net - MSG Networks
For the three months ended December 31, 2016 and 2015 , Corporate general and administrative expense, net - MSG Networks amount reflects charges from the Company to MSG Networks under the TSA of $2,118 and $2,229 , respectively, net of general and administrative costs charged to the Company by MSG Networks. For the six months ended December 31, 2016 and 2015 , Corporate general and administrative expense, net - MSG Networks amount reflects charges from the Company to MSG Networks under the TSA of $4,166 and $2,229 , respectively
Prior to the Distribution, allocations of corporate overhead and shared services expense from Former Parent were based on direct usage or the relative proportion of revenue or headcount. The Company’s corporate overhead expenses are primarily related to centralized functions, including executive compensation, finance, treasury, tax, internal audit, legal, information technology, human resources and risk management functions.

22


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Consulting Fees
The Company pays AMSGE and its nonconsolidated affiliates for advisory and consulting services that AMSGE and its nonconsolidated affiliates provide to the Company, and for the reimbursement of certain expenses in connection with such services.
Advertising Expenses
The Company incurs advertising expenses for services rendered by its related parties, primarily MSG Networks and Altice USA, most of which related to the utilization of advertising and promotional benefits by the Company.
Transactions with Altice USA
Amounts represent charges to the Company by Altice USA for corporate general and administrative expenses and telephone and other fiber optic transmission services. In addition, transactions with Altice USA include net charges related to a reciprocal aircraft arrangement between the Company and Altice USA.
Other Operating Expenses, net
The Company and its related parties enter into transactions with each other in the ordinary course of business. Amounts charged to the Company for other transactions with its related parties are net of amounts charged by the Company to the Knickerbocker Group, LLC, an entity owned by James L. Dolan, the Executive Chairman and a director of the Company, for office space equal to the allocated cost of such space and the cost of certain technology services. In addition, other operating expenses include net charges related to a reciprocal aircraft arrangement between the Company and the DFO.
Note 16. Income Taxes
Income tax expense (benefit) for the three months ended December 31, 2016 and 2015 was $3,248 and $(70) , respectively. The effective tax rate for the three months ended December 31, 2016 and 2015 was 5.4% and (0.2)% , respectively. For the six months ended December 31, 2016 and 2015 , income tax expense was $314 and $52 , respectively. The effective tax rate for the six months ended December 31, 2016 and 2015 was 1.1% and 0.1% , respectively.
The Company’s effective tax rate for the three months ended December 31, 2016 is different when compared to the statutory federal rate of 35% , primarily as a result of a reduction of $22,123 of recorded Federal and state valuation allowances which offsets tax expense that would otherwise have been recorded on operating income. The tax expense also includes $3,126 to reverse tax benefit recorded on operating losses in the three months ended September 30, 2016, as well as tax expense of $1,012 primarily related to non-deductible expenses.
The Company’s effective tax rate for the six months ended December 31, 2016 is different when compared to the statutory federal rate of 35% as a result of a reduction of $11,115 of recorded Federal and state valuation allowances which offsets tax expense that would have otherwise been recorded on operating income. The income tax expense also reflects tax expense of $1,342 primarily related to non-deductible expenses.
The Company’s effective tax rates for the three and six months ended December 31, 2015 are different when compared to the statutory federal rate of 35% primarily due to a reduction of approximately $20,800 in the valuation allowance recorded on the Company’s net deferred tax asset established at the time of the Distribution. As part of the Distribution, MSG Networks is responsible for paying taxes on approximately $348,000 of deferred revenue from ticket sales, sponsorship and suite rentals collected in advance related to the Company’s business. This initially created a deferred tax asset for which the Company recorded a full valuation allowance as it was more likely than not that the deferred tax asset would not be realized.
The Company has not recorded any unrecognized tax benefits for uncertain tax positions as of December 31, 2016 . The Company’s policy is to reflect interest and penalties associated with uncertain tax positions, if any, as a component of income tax expense.

23


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note  17 . Segment Information
The Company is comprised of two reportable segments: MSG Entertainment and MSG Sports. In determining its reportable segments, the Company assessed the guidance of FASB ASC 280-10-50-1, which provides the definition of a reportable segment. In accordance with the FASB guidance, the Company takes into account whether two or more operating segments can be aggregated together as one reportable segment as well as the type of discrete financial information that is available and regularly reviewed by its chief operating decision maker. The Company has evaluated this guidance and determined that there are two reportable segments. The Company allocates certain corporate costs and its venue operating expenses to each of its reportable segments. Allocated venue operating expenses include the non-event related costs of operating the Company’s venues, and include such costs as rent for the Company’s leased venues, real estate taxes, insurance, utilities, repairs and maintenance, and labor related to the overall management of the venues. Depreciation and amortization expense related to The Garden , The Theater at Madison Square Garden, the Forum, and certain corporate property, equipment and leasehold improvements not allocated to the reportable segments and is reported in “ All other .”
During the first quarter of fiscal year 2017, the Company refined its approach to allocating corporate, venue operating and other shared expenses . Management analyzed the specific support provided by individual corporate and venue personnel using a detailed efforts-based analysis. The Company considered this approach to better refine segment profitability for users of the financial information and, therefore, made this change in the first quarter of fiscal year 2017. Prior period results are reflected as originally reported and have not been restated. Had the revised approach been used in fiscal year 2016, operating income reported in MSG Sports and MSG Entertainment during the second quarter of fiscal year 2016 would have improved by approximately $721 and $34 , respectively. For the six months ended December 31, 2015 , operating income reported in MSG Sports and MSG Entertainment would have improved by approximately $2,649 and $570 , respectively. These improvements would have been offset by increases of $755 and $3,219 in the operating loss of All other for the three and six months ended December 31, 2015 , respectively. The adjusted operating income, as defined below, reported in MSG Sports and MSG Entertainment during the second quarter of fiscal year 2016 would have improved by approximately $849 and $662 , respectively. For the six months ended December 31, 2015 , adjusted operating income reported in MSG Sports and MSG Entertainment would have improved by approximately $2,486 and $1,597 , respectively. These improvements would have been offset by increases of $1,511 and $4,083 in the adjusted operating loss of All other for the three and six months ended December 31, 2015 , respectively.
The Company evaluates segment performance based on several factors, of which the key financial measure is their operating income (loss) before (i) depreciation, amortization and impairments of property and equipment and intangible assets, (ii) share-based compensation expense or benefit, (iii) restructuring charges or credits and (iv) gains or losses on sales or dispositions of businesses, which is referred to as adjusted operating income (loss) , a non-GAAP measure. The Company believes adjusted operating income (loss) is an appropriate measure for evaluating the operating performance of its business segments and the Company on a consolidated basis. Adjusted operating income (loss) and similar measures with similar titles are common performance measures used by investors and analysts to analyze the Company’s performance. The Company uses revenues and adjusted operating income (loss) measures as the most important indicators of its business performance, and evaluates management’s effectiveness with specific reference to these indicators. In the first quarter of fiscal 2017, the Company has renamed its non-GAAP performance measure to adjusted operating income (loss) - formerly known as adjusted operating cash flow. There has been no change to the definition.
Adjusted operating income (loss) should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with GAAP. The Company has presented the components that reconcile operating income (loss), the most directly comparable GAAP financial measure, to adjusted operating income (loss) .

24


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


 
 
 
Three Months Ended December 31, 2016
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
192,485

 
$
252,665

 
$
—

 
$
445,150

Direct operating expenses
 
106,464

 
160,209

 
—

 
266,673

Selling, general and administrative expenses
 
26,442

 
49,346

 
18,472

(a)  
94,260

Depreciation and amortization
 
2,833

 
2,905

 
20,228


25,966

Operating income (loss)
 
$
56,746

 
$
40,205

 
$
(38,700
)
 
$
58,251

Loss in equity method investments
 
 
 
 
 
 
 
(1,188
)
Interest income
 
 
 
 
 
 
 
2,692

Interest expense
 
 
 
 
 
 
 
(491
)
Miscellaneous income
 
 
 
 
 
 
(b)  
1,405

Income from operations before income taxes
 
 
 
 
 
 
 
$
60,669

 
 
 
 
 
 
 
 
 
Reconciliation of operating income (loss) to adjusted operating income (loss):
 
 
 
 
 
 
 
 
Operating income (loss)
 
$
56,746

 
$
40,205

 
$
(38,700
)
 
$
58,251

Add back:
 
 
 
 
 
 
 
 
Share-based compensation expense
 
4,076

 
4,100

 
3,567

 
11,743

Depreciation and amortization
 
2,833

 
2,905

 
20,228

 
25,966

Adjusted operating income (loss)
 
$
63,655

 
$
47,210

 
$
(14,905
)
 
$
95,960

 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
5,434

 
$
693

 
$
7,297

 
$
13,424


25


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


 
 
 
Three Months Ended December 31, 2015
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues (c)
 
$
181,087

 
$
229,533

 
$
218

 
$
410,838

Direct operating expenses
 
110,477

 
139,155

 
—

 
249,632

Selling, general and administrative expenses (c)
 
23,806

 
47,075

 
15,381

(a)  
86,262

Depreciation and amortization
 
2,528

 
2,769

 
20,608

 
25,905

Operating income (loss) (c)
 
$
44,276

 
$
40,534

 
$
(35,771
)
 
$
49,039

Loss in equity method investments
 
 
 
 
 
 
 
(2,475
)
Interest income
 
 
 
 
 
 
 
1,448

Interest expense
 
 
 
 
 
 
 
(514
)
Miscellaneous expense
 
 
 
 
 
 
(b)  
(4,080
)
Income from operations before income taxes
 
 
 
 
 
 
 
$
43,418

 
 
 
 
 
 
 
 
 
Reconciliation of operating income (loss) to adjusted operating income (loss):
 
 
 
 
 
 
 
 
Operating income (loss) (c)
 
$
44,276

 
$
40,534

 
$
(35,771
)
 
$
49,039

Add back:
 
 
 
 
 
 
 
 
Share-based compensation expense (c)
 
2,088

 
2,453

 
2,613

 
7,154

Depreciation and amortization
 
2,528

 
2,769

 
20,608

 
25,905

Adjusted operating income (loss) (c)
 
$
48,892

 
$
45,756

 
$
(12,550
)
 
$
82,098

 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
328

 
$
1,562

 
$
5,509

 
$
7,399


26


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


 
 
 
Six Months Ended December 31, 2016
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues
 
$
303,183

 
$
323,662

 
$
—

 
$
626,845

Direct operating expenses
 
198,322

 
179,758

 
—

 
378,080

Selling, general and administrative expenses
 
49,882

 
88,859

 
32,540

(a)  
171,281

Depreciation and amortization
 
5,519

 
5,523

 
41,034


52,076

Operating income (loss)
 
$
49,460

 
$
49,522

 
$
(73,574
)
 
$
25,408

Loss in equity method investments
 
 
 
 
 
 
 
(2,182
)
Interest income
 
 
 
 
 
 
 
5,091

Interest expense
 
 
 
 
 
 
 
(901
)
Miscellaneous income
 
 
 
 
 
 
(b)  
1,405

Income from operations before income taxes
 
 
 
 
 
 
 
$
28,821

 
 
 
 
 
 
 
 
 
Reconciliation of operating income (loss) to adjusted operating income (loss):
 
 
 
 
 
 
 
 
Operating income (loss)
 
$
49,460

 
$
49,522

 
$
(73,574
)
 
$
25,408

Add back:
 
 
 
 
 
 
 
 
Share-based compensation expense
 
7,615

 
7,584

 
4,899

 
20,098

Depreciation and amortization
 
5,519

 
5,523

 
41,034

 
52,076

Adjusted operating income (loss)
 
$
62,594

 
$
62,629

 
$
(27,641
)
 
$
97,582

 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
6,794

 
$
2,357

 
$
12,615

 
$
21,766


27


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


 
 
 
Six Months Ended December 31, 2015
 
 
MSG
Entertainment
 
MSG
Sports
 
All
Other
 
Total
Revenues (c)
 
$
258,113

 
$
302,681

 
$
425

 
$
561,219

Direct operating expenses
 
167,478

 
153,504

 
—

 
320,982

Selling, general and administrative expenses (c)
 
41,614

 
83,035

 
19,981

(a)  
144,630

Depreciation and amortization
 
5,102

 
5,629

 
40,414


51,145

Operating income (loss) (c)
 
$
43,919

 
$
60,513

 
$
(59,970
)
 
$
44,462

Earnings in equity method investments
 
 
 
 
 
 
 
204

Interest income
 
 
 
 
 
 
 
2,405

Interest expense
 
 
 
 
 
 
 
(1,054
)
Miscellaneous expense
 
 
 
 
 
 
(b)  
(4,080
)
Income from operations before income taxes
 
 
 
 
 
 
 
$
41,937

 
 
 
 
 
 
 
 
 
Reconciliation of operating income (loss) to adjusted operating income (loss):
 
 
 
 
 
 
 
 
Operating income (loss) (c)
 
$
43,919

 
$
60,513

 
$
(59,970
)
 
$
44,462

Add back:
 
 
 
 
 
 
 
 
Share-based compensation expense (c)
 
3,004

 
4,027

 
3,228

 
10,259

Depreciation and amortization
 
5,102

 
5,629

 
40,414

 
51,145

Adjusted operating income (loss) (c)
 
$
52,025

 
$
70,169

 
$
(16,328
)
 
$
105,866

 
 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
 
Capital expenditures
 
$
917

 
$
3,329

 
$
55,435

(d)  
$
59,681

_________________
(a)  
Consists of unallocated corporate general and administrative costs.
(b)  
Miscellaneous income for the three and six months ended December 31, 2016 consists principally of the recovery of certain claims in connection with a third party bankruptcy proceeding. Miscellaneous expenses for the three and six months ended December 31, 2015 primarily include partial write-down of one of the Company’s cost method investments (see Note 6 ).
(c)  
During the three months ended December 31, 2015, for segment reporting purposes, ad sales commission revenues and associated expenses were allocated 50% to each of our MSG Entertainment and MSG Sports segments. Effective January 1, 2016, the Company began presenting all of its ad sales commission revenues and associated expenses within the MSG Sports segment. The segments’ operating results for the three and six months ended December 31, 2015 have been restated to reflect this change.  
(d)  
Capital expenditures for the six months ended December 31, 2015 are primarily associated with the purchase of an aircraft, as well as certain investments with respect to The Garden.
Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States and are primarily concentrated in the New York metropolitan area.

28


THE MADISON SQUARE GARDEN COMPANY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)


Note 19. Subsequent Events
Rangers Revolving Credit Facility
On January 25, 2017, Rangers LLC , a wholly owned subsidiary of the Company, entered into a credit agreement with a syndicate of lenders providing for a senior secured revolving credit facility. See Note 10 for more information regarding the Company’s new Rangers Revolving Credit Facility .
TAO Group Acquisition
On January 31, 2017 , the Company entered into a transaction agreement pursuant to which it acquired a 62.5% common equity interest and a preferred equity interest in TAOH . See Note 3 for more information regarding the Company’s new acquisition. In addition, in connection with this transaction, TAOIH , TAOG and certain of its subsidiaries obtained a senior secured term loan facility and a senior secured revolving credit facility for working capital and general corporate purposes of TAOG . See Note 10 for more information regarding the TAO Credit Facilities.

29

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“ MD&A ”) contains forward-looking statements. In this MD&A , there are statements concerning the future operating and future financial performance of The Madison Square Garden Company and its direct and indirect subsidiaries (collectively, “ we ,” “us,” “ our ,” “Madison Square Garden,” or the “ Company ”), including higher team personnel compensation and higher revenues as a result of the new NBA national media rights deal. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue,” “intends,” “plans,” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
•
the level of our revenues, which depends in part on the popularity and competitiveness of our sports teams and the level of popularity of the Christmas Spectacular , New York Spectacular and other entertainment events which are presented in our venues;
•
costs associated with player injuries, and waivers or contract terminations of players and other team personnel;
•
changes in professional sports teams’ compensation, including the impact of signing free agents and trades, subject to league salary caps and the impact of luxury tax;
•
the level of our capital expenditures and other investments;
•
general economic conditions, especially in the New York City metropolitan area where we conduct the majority of our operations;
•
the demand for sponsorship arrangements and for advertising;
•
competition, for example, from other teams, other venues and other sports and entertainment options;
•
changes in laws, NBA or NHL rules, regulations, guidelines, bulletins, directives, policies and agreements (including the leagues’ respective collective bargaining agreements with their players’ associations, salary caps, revenue sharing, NBA luxury tax thresholds and media rights) or other regulations under which we operate;
•
any NBA or NHL work stoppage;
•
seasonal fluctuations and other variation in our operating results and cash flow from period to period;
•
the level of our expenses, including our corporate expenses as a standalone publicly traded company;
•
the successful development of new live productions or enhancements to existing productions and the investments associated with such development or enhancements, including the New York Spectacular ;
•
the continued popularity and success of the Tao restaurants and nightlife and hospitality venues, as well as its existing brands, and the ability to successfully open and operate new restaurants and nightlife and hospitality venues;
•
the ability of BCE to attract attendees and performers to its festival;
•
the acquisition or disposition of assets or businesses and/or the impact of, and our ability to successfully pursue, acquisitions or other strategic transactions;
•
the operating and financial performance of our strategic acquisitions and investments, including those we do not control;
•
the costs associated with, and the outcome of, litigation and other proceedings to the extent uninsured;
•
the impact of governmental regulations or laws, including changes in how those regulations and laws are interpreted and the continued benefit of certain tax exemptions and the ability to maintain necessary permits or licenses;
•
financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate;

30

Table of Contents

•
our ownership of professional sports franchises in the NBA and NHL and certain transfer restrictions on our common stock;
•
the tax free treatment of the Distribution; and
•
the factors described under “Risk Factors” in the Company ’s Annual Report on Form 10-K for the year ended June 30, 2016 , and described in this quarterly report under “Part II - Item 1A. Risk Factors.”
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
All dollar amounts included in the following MD&A are presented in thousands, except as otherwise noted.
Introduction
This MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 to help provide an understanding of our financial condition, changes in financial condition and results of operations. Unless the context otherwise requires, all references to “we,” “us,” “our,” “Madison Square Garden” or the “Company” refer collectively to The Madison Square Garden Company, a holding company, and its direct and indirect subsidiaries through which substantially all of our operations are actually conducted. The Company is comprised of two reportable segments: MSG Entertainment and MSG Sports. MSG Entertainment includes live entertainment events such as concerts, family shows, performing arts events and special events, which are presented or hosted in the Company’s diverse collection of venues. MSG Entertainment also includes the Company’s original productions — Christmas Spectacular and New York Spectacular — as well as Boston Calling Events LLC, the live events production company that owns and operates the Boston Calling Music Festival. MSG Sports includes the Company’s professional sports franchises: the Knicks of the NBA , the Rangers of the NHL , the Liberty of the WNBA , the Hartford Wolf Pack of the AHL , and the Westchester Knicks of the NBADL . The MSG Sports segment is also home to a broad array of other live sporting events, including professional boxing, college basketball, professional bull riding, mixed martial arts, tennis and college wrestling, all of which the Company promotes, produces and/or presents.
The Company conducts a significant portion of its operations at venues that it either owns or operates under long-term leases. The Company owns The Garden and The Theater at Madison Square Garden in New York City, the Forum in Inglewood, CA and The Chicago Theatre in Chicago. In addition, the Company leases Radio City Music Hall and the Beacon Theatre in New York City, and has a booking agreement with respect to the Wang Theatre in Boston.
Factors Affecting Results of Operations
The consolidated statement of operations for the three months ended December 31, 2016 and 2015 and for the six months ended December 31, 2016 are presented on a consolidated basis, as the Company became a standalone public company on September 30, 2015. The financial information for the three months ended September 30, 2015 that is included in the results operations for the six months ended December 31, 2015 was prepared on a standalone basis derived from the consolidated financial statements and accounting records of Former Parent and are presented as carve-out financial statements as the Company was not a standalone public company prior to the Distribution. As such, the combined statements of operations for the six months ended December 31, 2015 include allocations for certain support functions that were provided on a centralized basis by MSG Networks and not historically recorded at the business unit level, such as expenses related to finance, human resources, information technology, and venue operations , among others. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of combined revenues, headcount or other measures. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the results of operations for the three months ended September 30, 2015 that are included in the combined financial statements for the six months ended December 31, 2015 may not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone company during the period presented. Actual costs that would have been incurred if the Company had been a separate, standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
This MD&A is organized as follows:
Results of Operations. This section provides an analysis of our unaudited results of operations for the three and six months ended December 31, 2016 compared to the three and six months ended December 31, 2015 on a consolidated and where applicable, combined and segment basis.

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Liquidity and Capital Resources. This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the six months ended December 31, 2016 compared to the six months ended December 31, 2015 , as well as certain contractual obligations and off balance sheet arrangements.
Seasonality of Our Business. This section discusses the seasonal performance of our segments .
Recently Issued Accounting Pronouncements and Critical Accounting Policies. This section discusses accounting pronouncements that have been adopted by the Company, recently issued accounting pronouncements not yet adopted by the Company, as well as the results of the Company’s annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2017 . This section should be read together with our critical accounting policies, which are discussed in our Annual Report on Form 10-K for the year ended June 30, 2016 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recently Issued Accounting Pronouncements and Critical Accounting Policies — Critical Accounting Policies” and in the notes to the consolidated and combined financial statements of the Company included therein.

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Table of Contents

Results of Operations
Comparison of the Three Months Ended December 31, 2016 versus the Three Months Ended December 31, 2015
Consolidated Results of Operations
The table below sets forth, for the periods presented, certain historical financial information.  
 
 
Three Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
445,150

 
$
410,838

 
$
34,312

 
8
%
 
 
 
 
 
 
 
 
 
Direct operating expenses
 
266,673

 
249,632

 
17,041

 
7
%
Selling, general and administrative expenses
 
94,260

 
86,262

 
7,998

 
9
%
Depreciation and amortization
 
25,966

 
25,905

 
61

 
NM

Operating income
 
58,251

 
49,039

 
9,212

 
19
%
Other income (expense):
 
 
 
 
 
 
 
 
Loss in equity method investments
 
(1,188
)
 
(2,475
)
 
1,287

 
52
%
Interest income, net
 
2,201

 
934

 
1,267

 
136
%
Miscellaneous income (expense)
 
1,405

 
(4,080
)
 
5,485

 
134
%
Income from operations before income taxes
 
60,669

 
43,418

 
17,251

 
40
%
Income tax benefit (expense)
 
(3,248
)
 
70

 
(3,318
)
 
NM

Net income
 
57,421

 
43,488

 
13,933

 
32
%
Less: Net loss attributable to noncontrolling interests
 
(305
)
 
—

 
(305
)
 
NM

Net income attributable to The Madison Square Garden Company’s stockholders
 
$
57,726

 
$
43,488

 
$
14,238

 
33
%
        
NM — Percentage is not meaningful

During the three months ended December 31, 2015, for segment reporting purposes, ad sales commission revenues and associated expenses were allocated 50% to each of our MSG Entertainment and MSG Sports segments. Effective January 1, 2016, the Company began presenting all of its ad sales commission revenues and associated expenses within the MSG Sports segment. The segments’ operating results for the three months ended December 31, 2015 have been restated to reflect this change.
The following is a summary of changes in segments’ operating results for the three months ended December 31, 2016 as compared to the prior year period.
Changes attributable to
 
Revenues
 
Direct
operating
expenses
 
Selling,
general and
administrative
expenses
 
Depreciation and amortization
 
Operating income (loss)
MSG Entertainment segment (a) (b)
 
$
11,398

 
$
(4,013
)
 
$
2,636

 
$
305

 
$
12,470

MSG Sports segment (a) (b)
 
23,132

 
21,054

 
2,271

 
136

 
(329
)
Other (b)
 
(218
)
 
—

 
3,091

 
(380
)
 
(2,929
)
 
 
$
34,312

 
$
17,041

 
$
7,998

 
$
61

 
$
9,212

        
(a)  
See “Business Segment Results” for a more detailed discussion relating to the operating results of our segments.
(b)  
See Note 17 to the consolidated and combined financial statements included in “Part I – Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of the Company’s refinement of its methodologies used to allocate its corporate, venue operating and other shared expenses .

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Table of Contents

Selling, general and administrative expenses - Other
The increase in Other reflects (i) an increase in employee compensation and related benefits and (ii) higher provision for the Company’s New York State and City capital tax partially offset by lower professional fees.
Operating loss - Other
Operating loss in Other for the three months ended December 31, 2016 increased $2,929 , or 8% , to $38,700 . The increase was primarily due the changes in selling, general and administrative expenses - Other, as discussed above.
Loss in equity method investments
Loss in equity method investments for the three months ended December 31, 2016 decreased $1,287 , or 52% , to $1,188 . Earnings (loss) in equity method investments reflects the Company’s share of the net earnings (loss) of equity method investments, inclusive of amortization expense for intangible assets associated with these investments. The Company’s share of the earnings (loss) of its equity method investments is recorded on a three-month lag basis. The year-over-year decrease in loss reflects a distribution from an equity method investment that was previously written off .
Miscellaneous income (expense)
Miscellaneous income in the current year period consists principally of the recovery of certain claims in connection with a third party bankruptcy proceeding. Miscellaneous expense in the prior year period reflects a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of one of the Company’s cost method investments (see Note 6 to the consolidated and combined financial statements included in “Part I - Item 1. Financial Statements” of this Quarterly Report on Form 10-Q).
Income taxes
Income tax expense for the three months ended December 31, 2016 was $ 3,248 and income tax benefit for the three months ended December 31, 2015 was $70 .
The effective tax rate for the three months ended December 31, 2016 of 5.4% is different when compared to the statutory federal rate of 35% , primarily as a result of a reduction of $22,123 of recorded Federal and state valuation allowances which offsets tax expense that would otherwise have been recorded on operating income. The tax expense also includes $3,126 to reverse tax benefit recorded on operating losses in the three months ended September 30, 2016, as well as tax expense of $1,012 primarily related to non-deductible expenses.
The effective tax rate for the three months ended December 31, 2015 of (0.2)% is different when compared to the statutory federal rate of 35% primarily due to a reduction of approximately $20,800 in the valuation allowance recorded on the Company’s net deferred tax asset established at the time of the Distribution. As part of the Distribution, MSG Networks is responsible for paying taxes on approximately $348,000 of deferred revenue from ticket sales, sponsorship and suite rentals collected in advance related to the Company’s business. This initially created a deferred tax asset for which the Company recorded a full valuation allowance as it was more likely than not that the deferred tax asset would not be realized. In addition, results for the three months ended December 31, 2015 include a benefit from a change in the state tax rates used to value deferred taxes related to indefinite-lived assets in connection with the filing of the December 31, 2014 state tax returns which included the Company’s results. Both the three month and six month results reflect an expense from an increase in the deferred tax liability on indefinite-lived intangible assets that cannot serve as a source of taxable income to support the realization of deferred tax assets.

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Table of Contents

Adjusted operating income
The following is a reconciliation of operating income to adjusted operating income:
 
 
Three Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Operating income
 
$
58,251

 
$
49,039

 
$
9,212

 
19
%
Share-based compensation
 
11,743

 
7,154

 


 
 
Depreciation and amortization
 
25,966

 
25,905

 


 
 
Adjusted operating income
 
$
95,960

 
$
82,098

 
$
13,862

 
17
%
Adjusted operating income for the three months ended December 31, 2016 increased $13,862 , or 17% , to $95,960 as compared to the prior year period. The net increase is attributable to the following:  
Increase in adjusted operating income of the MSG Entertainment segment
$
14,763

Increase in adjusted operating income of the MSG Sports segment
1,454

Other net decreases
(2,355
)
 
$
13,862

Other net decreases reflect (i) an increase in employee compensation and related benefits, excluding share-based compensation expense and (ii) higher provision for the Company’s New York State and City capital tax partially offset by lower professional fees.

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Table of Contents

Business Segment Results
MSG Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Entertainment segment.  
 
 
Three Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
192,485

 
$
181,087

 
$
11,398

 
6
 %
Direct operating expenses
 
106,464

 
110,477

 
(4,013
)
 
(4
)%
Selling, general and administrative expenses
 
26,442

 
23,806

 
2,636

 
11
 %
Depreciation and amortization
 
2,833

 
2,528

 
305

 
12
 %
Operating income
 
$
56,746

 
$
44,276

 
$
12,470

 
28
 %
Reconciliation to adjusted operating income:
 
 
 
 
 
 
 
 
Share-based compensation
 
4,076

 
2,088

 
 
 
 
Depreciation and amortization
 
2,833

 
2,528

 
 
 
 
Adjusted operating income
 
$
63,655

 
$
48,892

 
$
14,763

 
30
 %
Revenues
Revenues for the three months ended December 31, 2016 increased $11,398 , or 6% , to $192,485 as compared to the prior year period. The net increase is attributable to the following:  
Increase in revenues from the presentation of the Christmas Spectacular
$
7,102

Increase in event-related revenues at the Forum
5,106

Increase in event-related revenues at The Garden
1,470

Increase in venue-related sponsorship and signage and suite rental fee revenues
1,231

Decrease in event-related revenues at The Theater at Madison Square Garden
(2,898
)
Decrease in event-related revenues at The Chicago Theatre
(619
)
Other net increases
6

 
$
11,398

The increase in revenues from the presentation of the Christmas Spectacular was primarily due to higher average ticket prices, inclusive of the impact of eliminating high volume buyers, during the current year period as compared to the prior year period. Including performances that took place in January 2017, more than one million tickets were sold during the 2016 holiday season, which represents a low single digit percentage decrease as compared to the 2015 holiday season due to seven fewer scheduled performances partially offset by higher average per-show paid attendance.
The increase in event-related revenues at the Forum was primarily due to additional events and a change in the mix of events held at the venue during the current year period as compared to the prior year period.
The increase in event-related revenues at The Garden was primarily due to a change in the mix of events partially offset by fewer events held at the venue during the current year period as compared to the prior year period.
The increase in venue-related sponsorship and signage and suite rental fee revenues was primarily due to an increase in venue-related sponsorship and signage revenue, as a result of new sponsorship inventory that was not available during the prior year period, as well as increased sales of existing inventory.
The decrease in event-related revenues at The Theater at Madison Square Garden was primarily due to lower performance of a multi-week holiday show as compared to a multi-week holiday show presented during the prior year period.
The decrease in event-related revenues at The Chicago Theatre was primarily due to a change in the mix of events partially offset by additional events held at the venue during the current year period as compared to the prior year period.

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Table of Contents

Direct operating expenses
Direct operating expenses for the three months ended December 31, 2016 decreased $4,013 , or 4% , to $106,464 as compared to the prior year period. The net decrease is attributable to the following:  
Decrease in direct operating expenses associated with the presentation of the Christmas Spectacular
$
(4,876
)
Decrease in event-related direct operating expenses at The Theater at Madison Square Garden
(1,395
)
Decrease in event-related direct operating expenses at The Chicago Theatre
(765
)
Increase in venue operating costs primarily due to higher labor-related costs
1,630

Increase in event-related direct operating expenses at the Forum
1,356

Other net increases
37

 
$
(4,013
)
T he decrease in direct operating expenses associated with the presentation of the Christmas Spectacular was primarily due to a decrease in deferred production cost amortization and lower costs due to operational efficiencies, as well as a decrease in marketing expenses .
The decrease in event-related direct operating expenses at The Theater at Madison Square Garden was primarily due to lower performance of a multi-week holiday show as compared to a multi-week holiday show presented during the prior year period.
The decrease in event-related direct operating expenses at The Chicago Theatre was primarily due to a change in the mix of events partially offset by additional events held at the venue during the current year period as compared to the prior year period.
The increase in event-related direct operating expenses at the Forum was primarily due to additional events partially offset by a change in the mix of events held at the venue during the current year period as compared to the prior year period.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended December 31, 2016 increased $2,636 , or 11% , to $26,442 as compared to the prior year period mainly due to an increase in corporate general and administrative costs and higher professional fees.
Operating income
Operating income for the three months ended December 31, 2016 increased $12,470 , or 28% , to $56,746 as compared to the prior year period primarily due to an increase in revenues and lower direct operating expenses slightly offset by higher selling, general and administrative expenses, as discussed above.
Adjusted operating income
Adjusted operating income increased for the three months ended December 31, 2016 by $14,763 , or 30% , to $63,655 as compared to the prior year period primarily due to an increase in revenues and lower direct operating expenses slightly offset by higher selling, general and administrative expenses, as discussed above. The increase in adjusted operating income excludes an increase in share-based compensation expense for the three months ended December 31, 2016 as compared to to the prior year period.

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Table of Contents

MSG Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Sports segment.  
 
 
Three Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
252,665

 
$
229,533

 
$
23,132

 
10
 %
Direct operating expenses
 
160,209

 
139,155

 
21,054

 
15
 %
Selling, general and administrative expenses
 
49,346

 
47,075

 
2,271

 
5
 %
Depreciation and amortization
 
2,905

 
2,769

 
136

 
5
 %
Operating income
 
$
40,205

 
$
40,534

 
$
(329
)
 
(1
)%
Reconciliation to adjusted operating income:
 
 
 
 
 
 
 
 
Share-based compensation
 
4,100

 
2,453

 
 
 
 
Depreciation and amortization
 
2,905

 
2,769

 
 
 
 
Adjusted operating income
 
$
47,210

 
$
45,756

 
$
1,454

 
3
 %

Revenues
Revenues for the three months ended December 31, 2016 increased $23,132 , or 10% , to $252,665 as compared to the prior year period. The net increase is attributable to the following:  
Increase in revenues from league distributions
$
10,016

Increase in professional sports teams’ pre/regular season ticket-related revenue
7,155

Increase in event-related revenues from other live sporting events
3,926

Increase in professional sports teams’ pre/regular season food, beverage and merchandise sales
981

Increase in local media rights fees from MSG Networks
605

Other net increases
449

 
$
23,132

The increase in revenues from league distributions reflects the impact from the NBA’s new national media rights agreements, which began with the 2016-17 NBA regular season, partially offset by other net decreases .
The increase in professional sports teams’ pre/regular season ticket-related revenue was primarily due to higher average per-game revenue and the Rangers playing one more pre-season game at The Garden during the current year period as compared to the prior year period. Higher average per-game revenue reflects the changes made to ticketing polices, resulting in fewer full season tickets sold and more sales of partial season plans as well as individual and group tickets.
The increase in event-related revenues from other live sporting events was primarily due to a change in the mix of events as well as more events during the current year period as compared to the prior year period.
The increase in professional sports teams’ pre/regular season food, beverage and merchandise sales was primarily due to higher average per-game revenue and the Rangers playing one more pre-season game at The Garden during the current year period as compared to the prior year period.
The increase in local media rights fees from MSG Networks was due to contractual rate increases.

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Direct operating expenses
Direct operating expenses for the three months ended December 31, 2016 increased $21,054 , or 15% , to $160,209 as compared to the prior year period. The net increase is attributable to the following:
Increase in team personnel compensation
$
10,436

Increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
4,346

Increase in event-related expenses associated with other live sporting events
1,638

Increase in other team operating expenses not discussed elsewhere in this table
1,574

Increase in venue operating costs
1,401

Increase in a provision for a team personnel transaction
980

Other net increases
679

 
$
21,054

The increase in team personnel compensation was primarily due to higher overall player salaries during the current year period, inclusive of the impact of roster changes at the Company’s sports teams. In connection with the NBA’s new national media rights agreements, the NBA’s player salary cap for the 2016-17 regular season increased significantly, as compared to the salary cap for the 2015-16 regular season.
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax and a provision for a team personnel transaction were as follows:
 
Three Months Ended
 
Increase
 
December 31,
 
 
2016
 
2015
 
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
$
19,071

 
$
14,725

 
$
4,346

Provision for a team personnel transaction
980

 
—

 
980

The increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax reflects higher provisions for both NBA and NHL revenue sharing expense of $3,457 and lower NBA luxury tax credit of $889. Higher NBA and NHL revenue sharing expense reflects higher estimated NBA and NHL revenue sharing expense for the 2016-17 season and lower estimated net player escrow recoveries partially offset by net adjustments to prior seasons’ revenue sharing expense. The Knicks were not a luxury tax payer for the 2015-16 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. Although the Knicks roster as of December 31, 2016 would not result in luxury tax for the 2016-17 season, the estimated luxury tax receipt is currently anticipated to be lower than for the 2015-16 season. The actual amounts for the 2016-17 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
Team personnel transaction for the three months ended December 31, 2016 reflects a provision recorded for a player waiver/contract termination.
The increase in event-related expenses associated with other live sporting events was due to a change in the mix of events as well as more events during the current year period as compared to the prior year period.
The increase in other team operating expenses was primarily due to higher day-of-event costs, inclusive of the Rangers playing one more pre-season game at The Garden during the current year period as compared to the prior year period as well as higher team travel expenses and league assessments.
The increase in venue operating costs was primarily due to higher operating costs at The Garden driven by an increase in labor-related costs slightly offset by decreases in other venue operating expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended December 31, 2016 increased $2,271 , or 5% , to $49,346 as compared to the prior year period primarily due to an increase in employee compensation and related benefits slightly offset by other net cost decreases.

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Table of Contents

Operating income
Operating income for the three months ended December 31, 2016 decreased $329 , or 1% , to $40,205 as compared to the prior year period primarily due to an increase in revenues largely offset by higher direct operating expenses and, to a lesser extent, an increase in selling, general and administrative expenses, as discussed above.
Adjusted operating income
Adjusted operating income for the three months ended December 31, 2016 increased $1,454 , or 3% , to $47,210 as compared to the prior year period primarily due to an increase in revenues largely offset by higher direct operating expenses and, to a lesser extent, an increase in selling, general and administrative expenses, as discussed above. The increase in adjusted operating income excludes an increase in share-based compensation expense for the three months ended December 31, 2016 as compared to the prior year period.

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Table of Contents

Comparison of the Six Months Ended December 31, 2016 versus the Six Months Ended December 31, 2015
Consolidated and Combined Results of Operations
The table below sets forth, for the periods presented, certain historical financial information.  
 
 
Six Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
626,845

 
$
561,219

 
$
65,626

 
12
 %
 
 
 
 
 
 
 
 
 
Direct operating expenses
 
378,080

 
320,982

 
57,098

 
18
 %
Selling, general and administrative expenses
 
171,281

 
144,630

 
26,651

 
18
 %
Depreciation and amortization
 
52,076

 
51,145

 
931

 
2
 %
Operating income
 
25,408

 
44,462

 
(19,054
)
 
(43
)%
Other income (expense):
 
 
 
 
 
 
 
 
Earnings (loss) in equity method investments
 
(2,182
)
 
204

 
(2,386
)
 
NM

Interest income, net
 
4,190

 
1,351

 
2,839

 
NM

Miscellaneous income (expense)
 
1,405

 
(4,080
)
 
5,485

 
134
 %
Loss from operations before income taxes
 
28,821

 
41,937

 
(13,116
)
 
(31
)%
Income tax expense
 
(314
)
 
(52
)
 
(262
)
 
NM

Net income (loss)
 
28,507

 
41,885

 
(13,378
)
 
(32
)%
Less: Net loss attributable to noncontrolling interests
 
(593
)
 
—

 
(593
)
 
NM

Net income attributable to The Madison Square Garden Company’s stockholders
 
$
29,100

 
$
41,885

 
$
(12,785
)
 
(31
)%
        
NM — Percentage is not meaningful

During the three months ended December 31, 2015, for segment reporting purposes, ad sales commission revenues and associated expenses were allocated 50% to each of our MSG Entertainment and MSG Sports segments. Effective January 1, 2016, the Company began presenting all of its ad sales commission revenues and associated expenses within the MSG Sports segment. The segments’ operating results for the six months ended December 31, 2015 have been restated to reflect this change.
The following is a summary of changes in segments’ operating results for the six months ended December 31, 2016 as compared to the prior year period.
Changes attributable to
 
Revenues
 
Direct
operating
expenses
 
Selling,
general and
administrative
expenses
 
Depreciation and amortization
 
Operating income (loss)
MSG Entertainment segment (a) (b)
 
$
45,070

 
$
30,844

 
$
8,268

 
$
417

 
$
5,541

MSG Sports segment (a) (b)
 
20,981

 
26,254

 
5,824

 
(106
)
 
(10,991
)
Other (b)
 
(425
)
 
—

 
12,559

 
620

 
(13,604
)
 
 
$
65,626

 
$
57,098

 
$
26,651

 
$
931

 
$
(19,054
)
        
(a)  
See “Business Segment Results” for a more detailed discussion relating to the operating results of our segments.
(b)  
See Note 17 to the consolidated and combined financial statements included in “Part I – Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of the Company’s refinement of its methodologies used to allocate its corporate, venue operating and other shared expenses .


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  Selling, general and administrative expenses - Other
The increase in Other reflects (i) an increase in employee compensation and related benefits and (ii) the Company being subject to New York State and City capital tax for two fiscal quarters in the current year period as compared to only one fiscal quarter in the prior year period slightly offset by lower professional fees.
Depreciation and amortization
Depreciation and amortization for the six months ended December 31, 2016 increased $931 , or 2% , to $52,076 as compared to the prior year period primarily due to higher depreciation expense on property and equipment placed into service in October 2015 and amortization expense associated with intangible assets acquired during the six months ended December 31, 2016 .
Operating loss - Other
Operating loss in Other for the six months ended December 31, 2016 increased $13,604 , or 23% , to $73,574 . The increase was primarily due to the changes in selling, general and administrative expenses - Other, as discussed above.
Earnings (loss) in equity method investments
Earnings in equity method investments for the six months ended December 31, 2016 decreased $2,386 to a loss of $2,182 . Earnings (loss) in equity method investments reflects the Company’s share of the net earnings (loss) of equity method investments, inclusive of amortization expense for intangible assets associated with these investments. The Company’s share of the earnings (loss) of its equity method investments is recorded on a three-month lag basis. The year-over-year decrease in earnings reflects the non-recurring gains in the prior year period at one of our joint ventures partially offset by a distribution in the current year period from an equity method investment that was previously written off.
Miscellaneous income (expense)
Miscellaneous income in the current year period consists principally of the recovery of certain claims in connection with a third party bankruptcy proceeding. Miscellaneous expense in the prior year period reflects a pre-tax non-cash impairment charge of $4,080 to partially write down the carrying value of one of the Company’s cost method investments (see Note 6 to the consolidated and combined financial statements included in “Part I - Item 1. Financial Statements” of this Quarterly Report on Form 10-Q).
Income taxes
Income tax expense for the six months ended December 31, 2016 was $314 and income tax expense for the six months ended December 31, 2015 was $52 .
The effective tax rate for the six months ended December 31, 2016 of 1.1% is different when compared to the statutory federal rate of 35% as a result of a reduction of $11,115 of recorded Federal and state valuation allowances which offsets tax expense that would have otherwise been recorded on operating income. The income tax expense also reflects tax expense of $1,342 primarily related to non-deductible expenses.
The effective tax rate for the six months ended December 31, 2015 of 0.1% is different when compared to the statutory federal rate of 35% primarily due to a reduction of approximately $20,800 in the valuation allowance recorded on the Company’s net deferred tax asset established at the time of the Distribution. As part of the Distribution, MSG Networks is responsible for paying taxes on approximately $348,000 of deferred revenue from ticket sales, sponsorship and suite rentals collected in advance related to the Company’s business. This initially created a deferred tax asset for which the Company recorded a full valuation allowance as it was more likely than not that the deferred tax asset would not be realized.

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Table of Contents

Adjusted operating income
The following is a reconciliation of operating income to adjusted operating income:
 
 
Six Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Operating income
 
$
25,408

 
$
44,462

 
$
(19,054
)
 
(43
)%
Share-based compensation
 
20,098

 
10,259

 


 
 
Depreciation and amortization
 
52,076

 
51,145

 


 
 
Adjusted operating income
 
$
97,582

 
$
105,866

 
$
(8,284
)
 
(8
)%
Adjusted operating income for the six months ended December 31, 2016 decreased $8,284 , or 8% , to $97,582 as compared to the prior year period. The net decrease is attributable to the following:
Increase in adjusted operating income of the MSG Entertainment segment
$
10,569

Decrease in adjusted operating income of the MSG Sports segment
(7,540
)
Other net decreases
(11,313
)
 
$
(8,284
)
Other net decreases reflect (i) an increase in employee compensation and related benefits excluding share-based compensation expense and (ii) the Company being subject to New York State and City capital tax for two fiscal quarters in the current year period as compared to only one fiscal quarter in the prior year period slightly offset by lower professional fees.

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Table of Contents

Business Segment Results
MSG Entertainment
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Entertainment segment.  
 
 
Six Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
303,183

 
$
258,113

 
$
45,070

 
17
%
Direct operating expenses
 
198,322

 
167,478

 
30,844

 
18
%
Selling, general and administrative expenses
 
49,882

 
41,614

 
8,268

 
20
%
Depreciation and amortization
 
5,519

 
5,102

 
417

 
8
%
Operating income
 
$
49,460

 
$
43,919

 
$
5,541

 
13
%
Reconciliation to adjusted operating income:
 
 
 
 
 
 
 
 
Share-based compensation
 
7,615

 
3,004

 
 
 
 
Depreciation and amortization
 
5,519

 
5,102

 
 
 
 
Adjusted operating income
 
$
62,594

 
$
52,025

 
$
10,569

 
20
%
Revenues
Revenues for the six months ended December 31, 2016 increased $45,070 , or 17% , to $303,183 as compared to the prior year period. The net increase is attributable to the following:  
Increase in event-related revenues at The Garden
$
17,159

Increase in event-related revenues at the Forum
12,802

Increase in revenues from the presentation of the New York Spectacular  as a result of no scheduled performances in the prior year period
11,187

Increase in revenues from the presentation of the Christmas Spectacular
7,380

Increase in venue-related sponsorship and signage and suite rental fee revenues
1,216

Net increase in event-related revenues at the other venues not discussed elsewhere in this table
850

Decrease in event-related revenues at The Theater at Madison Square Garden
(2,308
)
Decrease in event-related revenues at Radio City Music Hall, excluding the Christmas Spectacular and the  New York Spectacular
(3,068
)
Other net decreases
(148
)
 
$
45,070

The increase in event-related revenues at The Garden was primarily due to a change in the mix of events and additional events held at the venue during the current year period as compared to the prior year period.
The increase in event-related revenues at the Forum was primarily due to additional events and a change in the mix of events held at the venue during the current year period as compared to the prior year period.
The increase in revenues from the presentation of the New York Spectacular was driven by 56 scheduled performances presented in the current year period as compared to no scheduled performances in the prior year period. This was a result of the Company’s decision to shift the timing of the production run from the spring to the summer. The Company is currently undertaking a review of the New York Spectacular from a content, operating and timing standpoint.
The increase in revenues from the presentation of the Christmas Spectacular was primarily due to higher average ticket prices, inclusive of the impact of eliminating high volume buyers, during the current year period as compared to the prior year period. Including performances that took place in January 2017, more than one million tickets were sold during the 2016 holiday season, which represents a low single digit percentage decrease as compared to the 2015 holiday season due to seven fewer scheduled performances partially offset by higher average per-show paid attendance.

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Table of Contents

The increase in venue-related sponsorship and signage and suite rental fee revenues was primarily due to an increase in venue-related sponsorship and signage revenue, a result of increased sales of existing inventory as well as new sponsorship inventory.
The net increase in event-related revenues at the other venues was primarily due to an increase in event-related revenues at the Beacon Theatre primarily driven by additional events partially offset by a change in the mix of events held at the venue during the current year period as compared to the prior year period, as well as revenues from BCE, which was acquired in July 2016. This increase was partially offset by decrease in event-related revenues at The Chicago Theatre and the Wang Theatre driven by a change in the mix of events held at these venues during the current year period as compared to the prior year period.
The decrease in revenues at The Theater at Madison Square Garden was primarily due to lower performance of a multi-week holiday show as compared to a multi-week holiday show presented during the prior year period partially offset by a change in the mix of events held at the venue during the current year period as compared to the prior year period.
The decrease in event-related revenues at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular , reflects the impact from the absence of NBC’s America’s Got Talent , which was presented at the venue during the prior year period. This decrease was partially offset by additional events as well as a change in the mix of events held at the venue during the current year period as compared to the prior year period.
Direct operating expenses
Direct operating expenses for the six months ended December 31, 2016 increased $30,844 , or 18% , to $198,322 as compared to the prior year period. The net increase is attributable to the following:  
Increase in direct operating expenses associated with the presentation of the New York Spectacular  as a result of no scheduled performances in the prior year period
$
21,538

Increase in event-related direct operating expenses at The Garden
10,271

Increase in event-related direct operating expenses at the Forum
5,903

Net increase in event-related direct operating expenses at the other venues not discussed elsewhere in this table
362

Decrease in direct operating expenses associated with the presentation of the Christmas Spectacular
(4,728
)
Decrease in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular
(1,806
)
Decrease in event-related direct operating expenses at The Theater at Madison Square Garden
(1,076
)
Other net increases
380

 
$
30,844

The increase in direct operating expenses associated with the presentation of the New York Spectacular was driven by 56 scheduled performances in the current year period as compared to no scheduled performances in the prior year period. This was a result of the Company’s decision to shift the timing of the production run from the spring to the summer. The Company is currently undertaking a review of the New York Spectacular from a content, operating and timing standpoint.
The increase in event-related direct operating expenses at The Garden was primarily due to a change in the mix of events and, to a lesser extent, additional events held at the venue during the current year period as compared to the prior year period.
The increase in event-related direct operating expenses at the Forum was due to additional events held at the venue during the current year period as compared to the prior year period.
The net increase in event-related direct operating expenses at the other venues was primarily due to expenses from BCE, which was acquired in July 2016, and an increase in event-related direct operating expenses at the Beacon Theatre driven by additional events partially offset by a change in the mix of events held at the venues during the current year period as compared to the prior year period. This increase was partially offset by decrease in event-related direct operating expenses at The Chicago Theatre driven by a change in the mix of events partially offset by additional events held at these venues during the current year period as compared to the prior year period.
The decrease in direct operating expenses associated with the presentation of the Christmas Spectacular was primarily due to a decrease in deferred production cost amortization and lower costs due to operational efficiencies, as well as a decrease in marketing expenses .

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Table of Contents

The decrease in event-related direct operating expenses at Radio City Music Hall, excluding the Christmas Spectacular and the New York Spectacular , reflects the impact from the absence of NBC’s America’s Got Talent , which was presented at the venue during the prior year period. This decrease was partially offset by additional events and a change in the mix of events held at the venue during the current year period as compared to the prior year period.
The decrease in event-related direct operating expenses at The Theater at Madison Square Garden was primarily due to lower performance of a multi-week holiday show as compared to a multi-week holiday show presented during the prior year period partially offset by a change in the mix of events held at the venue during the current year period as compared to the prior year period.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended December 31, 2016 increased $8,268 , or 20% , to $49,882 as compared to the prior year period. The increase mainly reflects higher corporate general and administrative costs and professional fees.
Operating income
Operating income for the six months ended December 31, 2016 increased $5,541 , or 13% , to $49,460 as compared to the prior year period primarily due to an increase in revenues largely offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above.
Adjusted operating income
Adjusted operating income for the six months ended December 31, 2016 increased $10,569 , or 20% , to $62,594 as compared to the prior year period primarily due to an increase in revenues largely offset by higher direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses, as discussed above. The increase in adjusted operating income excludes an increase in share-based compensation expense for the six months ended December 31, 2016 as compared to to the prior year period.

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MSG Sports
The table below sets forth, for the periods presented, certain historical financial information and a reconciliation of operating income to adjusted operating income for the Company’s MSG Sports segment.  
 
 
Six Months Ended
 
 
 
 
 
 
December 31,
 
Change
 
 
2016
 
2015
 
Amount
 
Percentage
Revenues
 
$
323,662

 
$
302,681

 
$
20,981

 
7
 %
Direct operating expenses
 
179,758

 
153,504

 
26,254

 
17
 %
Selling, general and administrative expenses
 
88,859

 
83,035

 
5,824

 
7
 %
Depreciation and amortization
 
5,523

 
5,629

 
(106
)
 
(2
)%
Operating income
 
$
49,522

 
$
60,513

 
$
(10,991
)
 
(18
)%
Reconciliation to adjusted operating income:
 
 
 
 
 
 
 
 
Share-based compensation
 
7,584

 
4,027

 
 
 
 
Depreciation and amortization
 
5,523

 
5,629

 
 
 
 
Adjusted operating income
 
$
62,629

 
$
70,169

 
$
(7,540
)
 
(11
)%
Revenues
Revenues for the six months ended December 31, 2016 increased $20,981 , or 7% , to $323,662 as compared to the prior year period. The net increase is attributable to the following:  
Increase in revenues from league distributions
$
10,100

Increase in event-related revenues from other live sporting events
4,075

Increase in professional sports teams’ pre/regular season ticket-related revenue
3,761

Increase in local media rights fees from MSG Networks
1,162

Increase in suite rental fee revenue
1,063

Other net increases
820

 
$
20,981

The increase in revenues from league distributions reflects the impact from the NBA’s new national media rights agreements, which began with the 2016-17 NBA regular season, partially offset by other net decreases .
The increase in event-related revenues from other live sporting events was due to additional events as well as a change in the mix of events during the current year period as compared to the prior year period.
The increase in professional sports teams’ pre/regular season ticket-related revenue was primarily due to higher average per-game revenue, which reflects the changes made to ticketing polices, resulting in fewer full season tickets sold and more sales of partial season plans as well as individual and group tickets.
The increase in local media rights fees from MSG Networks was due to contractual rate increases.
The increase in suite rental fee revenue was primarily due to contractual rate increases partially offset by other net decreases.

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Direct operating expenses
Direct operating expenses for the six months ended December 31, 2016 increased $26,254 , or 17% , to $179,758 as compared to the prior year period. The net increase is attributable to the following:  
Increase in team personnel compensation
$
9,899

Increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
6,365

Increase in net provisions for certain team personnel transactions
5,990

Increase in event-related expenses associated with other live sporting events
1,616

Increase in venue operating costs
976

Increase in other team operating expenses not discussed elsewhere in this table
603

Other net increases
805

 
$
26,254

The increase in team personnel compensation was primarily due to higher overall player salaries during the current year period, inclusive of the impact of roster changes at the Company’s sports teams. In connection with the NBA’s new national media rights agreements, the NBA’s player salary cap for the 2016-17 regular season increased significantly, as compared to the salary cap for the 2015-16 regular season.
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax and for certain team personnel transactions were as follows:
 
 
Six Months Ended
 
Increase
 
 
December 31,
 
 
 
2016
 
2015
 
Net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax
 
$
19,370

 
$
13,005

 
$
6,365

Net provisions for certain team personnel transactions
 
5,990

 
—

 
5,990

The increase in net provisions for NBA and NHL revenue sharing expense (excluding playoffs) and NBA luxury tax reflects higher provisions for both NBA and NHL revenue sharing expense of $5,476 and lower NBA luxury tax credit of $889. Higher NBA and NHL revenue sharing expense reflects higher estimated NBA and NHL revenue sharing expense for the 2016-17 season and lower estimated net player escrow recoveries. The Knicks were not a luxury tax payer for the 2015-16 season and, therefore, received an equal share of the portion of luxury tax receipts that were distributed to non-tax paying teams. Although the Knicks roster as of December 31, 2016 would not result in luxury tax for the 2016-17 season, the estimated luxury tax receipt is currently anticipated to be lower than for the 2015-16 season. The actual amounts for the 2016-17 season may vary significantly from the recorded provisions based on actual operating results for each league and all teams within each league for the season and other factors.
Team personnel transactions for the six months ended December 31, 2016 reflect provisions recorded for a player trade and a player waiver/contract termination of $5,010 and $980, respectively.
The increase in event-related expenses associated with other live sporting events was primarily due to additional events and, to a lesser extent, a change in the mix of events during the current year period as compared to the prior year period.
The increase in venue operating costs was primarily due to higher operating costs at The Garden driven by an increase in labor-related costs slightly offset by decreases in other venues operating expenses.
The increase in other team operating expenses was primarily due to higher day-of-event costs, team travel expenses and league assessments.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended December 31, 2016 increased $5,824 , or 7% , to $88,859 as compared to the prior year period primarily due to higher employee compensation and related benefits and, to a lesser extent, an increase in corporate general and administrative costs, slightly offset by a decrease in marketing expenses.

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Operating income
Operating income for the six months ended December 31, 2016 decreased $10,991 , or 18% , to $49,522 as compared to the prior year period primarily due to an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses offset by higher revenues, as discussed above.
Adjusted operating income
Adjusted operating income for the six months ended December 31, 2016 decreased $7,540 , or 11% , to $62,629 , as compared to the prior year period primarily due to an increase in direct operating expenses and, to a lesser extent, higher selling, general and administrative expenses offset by higher revenues, as discussed above. The decrease in adjusted operating income excludes an increase in share-based compensation expense for the six months ended December 31, 2016 as compared to the prior year period.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash equivalents on hand, cash flows from the operations of our businesses and available borrowing capacity under our $377,000 revolving credit facilities (see “Financing Agreements — Knicks Revolving Credit Facility”, “Financing Agreements — Knicks Unsecured Credit Facility”, “Financing Agreements — Rangers Revolving Credit Facility” and “Financing Agreements — Tao Credit Facilities” below). Our principal uses of cash include working capital-related items, capital spending, investments and related loans that we may fund from time to time, and repurchases of shares of the Company’s Class A Common Stock. The decisions of the Company as to the use of its available liquidity will be based upon the ongoing review of the funding needs of the business, the optimal allocation of cash resources, and the timing of cash flow generation.
The Company plans to continue to grow its live sports and entertainment business, both organically and through acquisition and development, including expanding its portfolio of venues and exploring investments in opportunities that range from new content to adjacencies that strengthen the Company’s position in delivering premium live experiences. For example, in May 2016, the Company announced plans to build a new venue in Las Vegas which is anticipated to be 400,000 square feet and have 17,500 seats.
We regularly monitor and assess our ability to meet our net funding and investing requirements. Over the next twelve months, we believe we have sufficient liquidity, including approximately $1,410,000 in unrestricted cash and cash equivalents as of December 31, 2016 , along with available borrowing capacity under our revolving credit facilities combined with operating cash flows to fund our operations, pursue new business opportunities, including those discussed above, and repurchase shares of the Company’s Class A Common Stock. As a result of the one-time tax payment made by MSG Networks related to the acceleration of taxable income on $348,000 of the Company’s deferred revenue in connection with the Distribution, the Company did not have to make cash income tax payments of approximately $152,000 that would otherwise have been due for the prior fiscal year. This was a one-time event that will not recur. To the extent the Company desires to access alternative sources of funding through the capital and credit markets, weak U.S. and global economic conditions could adversely impact our ability to do so at that time.
On September 11, 2015, the Company’s board of directors authorized the repurchase of up to $525,000 of the Company’s Class A Common Stock once the shares of the Company’s Class A Common Stock began “regular way” trading on October 1, 2015. Under the authorization, shares of the Company’s Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations. The timing and amount of purchases will depend on market conditions and other factors. As of December 31, 2016 , the Company had $347,009 of availability remaining under its stock repurchase authorization.
Financing Agreements
Knicks Revolving Credit Facility
On September 30, 2016, Knicks LLC , our wholly owned subsidiary, entered into a credit agreement with a syndicate of lenders providing for a senior secured revolving credit facility of up to $200,000 with a term of five years to fund working capital needs and for general corporate purposes.
The Knicks Revolving Credit Facility requires Knicks LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . As of December 31, 2016 , Knicks LLC was in compliance with this financial covenant.

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All borrowings under the Knicks Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Knicks LLC may be either (i) a base rate plus a margin ranging from 0.00% to 0.125% per annum or (ii) LIBOR plus a margin ranging from 1.00% to 1.125% per annum.  Knicks LLC is required to pay a commitment fee ranging from 0.20% to 0.25% per annum in respect of the average daily unused commitments under the Knicks Revolving Credit Facility. The Knicks Revolving Credit Facility was undrawn as of December 31, 2016 . 
All obligations under the Knicks Revolving Credit Facility are secured by a first lien security interest in certain of Knicks LLC’s assets, including, but not limited to, (i) the Knicks LLC’s membership rights in the NBA and (ii) revenues to be paid to the Knicks LLC by the NBA pursuant to certain U.S. national broadcast agreements.
Subject to customary notice and minimum amount conditions, Knicks LLC may voluntarily prepay outstanding loans under the Knicks Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Knicks LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Knicks Revolving Credit Facility is greater than 350% of qualified revenues.
The Knicks Revolving Credit Facility contains certain restrictions on the ability of Knicks LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Knicks Revolving Credit Facility, including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Knicks Revolving Credit Facility; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any Knicks LLC’s collateral.
Knicks Unsecured Credit Facility
On September 30, 2016, Knicks LLC entered into an unsecured revolving credit facility with a lender for an initial maximum credit amount of $15,000 and a one -year term. This facility was undrawn as of December 31, 2016 .
Rangers Revolving Credit Facility
On January 25, 2017, Rangers LLC , a wholly owned subsidiary of the Company, entered into a credit agreement with a syndicate of lenders providing for a senior secured revolving credit facility of up to $150,000 with a term of five years to fund working capital needs and for general corporate purposes.
The Rangers Revolving Credit Facility requires Rangers LLC to comply with a debt service ratio of 1.5:1.0 over a trailing four quarter period . Rangers LLC was in compliance with this financial covenant on the closing date.
All borrowings under the Rangers Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings bear interest at a floating rate, which at the option of Rangers LLC may be either (i) a base rate plus a margin ranging from 0.125% to 0.50% per annum or (ii) LIBOR plus a margin ranging from 1.125% to 1.50% per annum.   Rangers LLC is required to pay a commitment fee ranging from 0.375% to 0.625% per annum in respect of the average daily unused commitments under the Rangers Revolving Credit Facility . The Rangers Revolving Credit Facility was undrawn on the closing date.
All obligations under the Rangers Revolving Credit Facility are secured by a first lien security interest in certain of Rangers LLC’s assets, including, but not limited to, (i) Rangers LLC’s membership rights in the NHL, (ii) revenues to be paid to Rangers LLC by the NHL pursuant to certain U.S. and Canadian national broadcast agreements, and (iii) revenues to be paid to Rangers LLC pursuant to local media contracts.
Subject to customary notice and minimum amount conditions, Rangers LLC may voluntarily prepay outstanding loans under the Rangers Revolving Credit Facility at any time, in whole or in part, without premium or penalty (except for customary breakage costs with respect to Eurocurrency loans). Rangers LLC is required to make mandatory prepayments in certain circumstances, including without limitation if the maximum available amount under the Rangers Revolving Credit Facility is less than 17% of qualified revenues.
The Rangers Revolving Credit Facility contains certain restrictions on the ability of Rangers LLC to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the Rangers Revolving Credit Facility , including the following: (i) incurring additional indebtedness and contingent liabilities; (ii) creating liens on certain assets; (iii) making restricted payments during the continuance of an event of default under the Rangers Revolving Credit Facility ; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; and (vi) taking certain actions that would invalidate the secured lenders’ liens on any of Rangers LLC ’s assets securing the obligations under the Rangers Revolving Credit Facility.

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TAO Credit Facilities
On January 31, 2017 , TAO Group Intermediate Holdings LLC (“ TAOIH ”), TAO Group Operating LLC (“ TAOG ) and certain of its subsidiaries entered into a credit and guaranty agreement with a syndicate of lenders providing for a senior secured term loan facility of $110,000 with a term of five years (the “TAO Term Loan Facility”) to fund, in part, the acquisition of TAOH and a senior secured revolving credit facility of up to $12,000 with a term of five years (the “TAO Revolving Credit Facility,” and together with the TAO Term Loan Facility, the “TAO Credit Facilities”) for working capital and general corporate purposes of TAOG. The TAO Credit Facilities were obtained without recourse to MSG or any of its affiliates (other than TAOIH and its subsidiaries).
The TAO Credit Facilities require TAOIH (i) to maintain, for the relevant TAO entities, a minimum consolidated liquidity of $5,000 at all times, (ii) to comply with a maximum total net leverage ratio of 4.00:1.00 initially and stepping down over time to 2.50:1.00 by the first quarter of fiscal year 2021 and through the remainder of the term of the TAO Credit Facilities, and (iii) to comply with a minimum fixed charge coverage ratio of 1.50:1.00 initially and stepping down over time to 1.15:1.00 by the second quarter of fiscal year 2021 and through the remainder of the term of the TAO Credit Facilities. TAOIH was in compliance with these financial covenants on the closing date.
The TAO entities under the TAO Credit Facilities are also subject to certain limitations with respect to making capital expenditures based upon the total net leverage ratio and other factors. The restrictions on capital expenditures are subject to certain “carry-forward” provisions and other customary carve-outs.
All borrowings under the TAO Credit Facilities are subject to the satisfaction of certain customary conditions, including compliance with a maximum leverage multiple, accuracy of representations and warranties and absence of a default or event of default. Borrowings bear interest at a floating rate, which at the option of TAOG may be either (i) a base rate plus a margin ranging from 6.50% to 7.00% per annum or (ii) LIBOR plus a margin ranging from 7.50% to 8.00% per annum.   TAOG is required to pay a commitment fee of 0.50% per annum in respect of the average daily unused commitments under the TAO Revolving Credit Facility.
All obligations under the TAO Credit Facilities are secured by a first lien security interest in substantially all of the applicable TAO entities’ assets, including, but not limited to, a pledge of all of the capital stock of substantially all of TAOIH’s wholly-owned domestic subsidiaries and 65% of the voting capital stock, and 100% of the non-voting capital stock, of each of its first-tier foreign subsidiaries.
Subject to customary notice and minimum amount conditions, TAOG may voluntarily prepay outstanding loans under the TAO Credit Facilities at any time, in whole or in part (subject to customary breakage costs with respect to LIBOR loans) with premiums due in respect of prepayments of the TAO Term Loan Facility or permanent reduction under the TAO Revolving Credit Facility, in each case, starting at 5.0% initially and stepping down to 0% after three years. TAOG is required to make scheduled amortization payments under the TAO Term Loan Facility in consecutive quarterly installments equal to $687.5 per quarter initially and stepping up over time to $4,125 per quarter commencing March 31, 2021 through the final maturity date of the TAO Term Loan Facility with the final balance payable on such maturity date. TAOG is also required to make mandatory prepayments under the TAO Credit Facilities in certain circumstances, including, without limitation, 75% of excess cash flow, with a step-down to 50% when the total net leverage ratio is less than 2.00:1.00.
The TAO Credit Facilities contain certain restrictions on the ability of TAOG to take certain actions as provided in (and subject to various exceptions and baskets set forth in) the TAO Credit Facilities, including, without limitation, the following: (i) incurring additional indebtedness; (ii) creating liens on assets; (iii) making distributions, dividends and other restricted payments; (iv) engaging in sale and leaseback transactions; (v) merging or consolidating; (vi) making investments; and (vii) prepaying certain indebtedness.
Revolving Credit Facilities with Nonconsolidated Affiliates
In connection with the Company’s investment in AMSGE, the Company provides a $100,000 revolving credit facility to this entity, of which $97,500 had been drawn as of December 31, 2016 .
In connection with the Company’s investment in Tribeca Enterprises, the Company provides a $14,000 revolving credit facility to this entity, of which $13,951 is outstanding inclusive of $451 of PIK interest as of December 31, 2016 . PIK interest owed does not reduce availability under the revolving credit facility. The maximum capacity of the revolving facility may be increased up to $2,000 , subject to certain conditions being met.
The revolving credit facilities to AMSGE and Tribeca Enterprises will end on September 20, 2020 and June 30, 2021, respectively.

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Bilateral Letters of Credit Line
The Company has established a bilateral credit line with a bank to issue letters of credit in support of the Company’s business operations. Fees owed on outstanding letters of credit are credited against interest income the Company receives in return from its investments in notes receivable with the same bank. As of December 31, 2016 , there were letters of credit for $7,085 outstanding.
Cash Flow Discussion

As of December 31, 2016 , cash and cash equivalents totaled $1,410,345 , as compared to $1,444,317 as of June 30, 2016 . The following table summarizes the Company’s cash flow activities for the six months ended December 31, 2016 and 2015 :
 
 
Six Months Ended December 31,
 
 
2016
 
2015
Net cash provided by operating activities
 
$
109,932

 
$
114,282

Net cash used in investing activities
 
(62,691
)
 
(79,130
)
Net cash provided by (used in) financing activities
 
(81,213
)
 
1,509,534

Net increase (decrease) in cash and cash equivalents
 
$
(33,972
)
 
$
1,544,686

Operating Activities
Net cash provided by operating activities for the six months ended December 31, 2016 decreased by $4,350 to $109,932 as compared to the prior year period primarily due to a decrease in net income as compared to the prior year period partially offset by an increase in other non-cash items. The increase in operating cash flows from other non-cash items was primarily due to (i) an increase in share-based compensation expense, (ii) a loss in equity method investments in the current year period as compared to earnings in the prior year period partially offset by a pre-tax non-cash impairment charge to partially write down the carrying value of a cost method investment during the prior year period.
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2016 decreased by $16,439 to $62,691 as compared to the prior year period largely due to (i) lower capital expenditures primarily due to the purchase of a new aircraft during the priory year period, (ii) a decrease in outstanding loans to nonconsolidated affiliates under the revolving credit facilities and (iii) a decrease in the Company's acquisition of its interest in cost method investments offset by the acquisition of available-for-sale securities and a controlling interest in BCE during the current year period.
Financing Activities
Net cash used in financing activities for the six months ended December 31, 2016 was $81,213 as compared to net cash provided by financing activities in the prior year period of $1,509,534 . This change is mainly due to net transfers from Former Parent which were primarily comprised of a $1,467,093 cash contribution during the prior year period and, to a lesser extent, an increase in repurchases of shares of the Company's Class A Common Stock during the current year period as compared to the prior year period.
Seasonality of Our Business
The dependence of the MSG Sports segment on revenues from its NBA and NHL sports teams generally means it earns a disproportionate share of its revenues in the second and third quarters of the Company’s fiscal year. The dependence of the MSG Entertainment segment on revenues from the Christmas Spectacular generally means it earns a disproportionate share of its revenues and operating income in the second quarter of the Company’s fiscal year.

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Recently Issued Accounting Pronouncements and Critical Accounting Policies
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated and combined financial statements included in “Part I — Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements.
Critical Accounting Policies
The following discussion has been included to provide the results of our annual impairment testing of goodwill and identifiable indefinite-lived intangible assets performed during the first quarter of fiscal year 2017 . There have been no material changes to the Company’s critical accounting policies from those set forth in our Annual Report on Form 10-K for the year ended June 30, 2016 .
Goodwill
Goodwill is tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or substantive changes in circumstances. The Company’s two reporting units for evaluating goodwill impairment are the same as its reportable segments and both of them have goodwill. The goodwill balance reported on the Company’s consolidated balance sheet as of December 31, 2016 by reportable segment is as follows:  
MSG Entertainment
$
71,517

MSG Sports
218,187

 
$
289,704

During the first quarter of fiscal year 2017 , the Company performed its annual impairment test of goodwill and determined that there were no impairments of goodwill identified for either of its reporting units .
The Company elected to perform the qualitative assessment of impairment for the MSG Sports reporting unit. This assessment considered factors such as:
•
macroeconomic conditions;
•
industry and market considerations;
•
cost factors;
•
overall financial performance of the reporting unit;
•
other relevant company-specific factors such as changes in management, strategy or customers; and
•
relevant reporting unit specific events such as changes in the carrying amount of net assets.
The Company performed the quantitative assessment of impairment for the MSG Entertainment reporting unit. The estimate of the fair value of the MSG Entertainment reporting unit was primarily determined using discounted projected future cash flows. For MSG Entertainment, this valuation includes assumptions for the number and expected financial performance of live entertainment events and productions, which include, but are not limited to, the level of ticket sales, concessions and sponsorships. Significant judgments inherent in a discounted cash flow valuation include the selection of appropriate discount rates, estimating the amount and timing of estimated future cash flows and the identification of appropriate continuing growth rate assumptions. The discount rates used in the analysis are intended to reflect the risk inherent in the projected future cash flows generated by the respective intangible assets.
Based on these impairment tests, the Company’s reporting units had sufficient safety margins, representing the excess of the estimated fair value of each reporting unit less its respective carrying value (including goodwill allocated to each respective reporting unit). The Company believes that if the fair value of the reporting unit exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.

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Identifiable Indefinite-Lived Intangible Assets
Identifiable indefinite-lived intangible assets are tested annually for impairment as of August 31 st and at any time upon the occurrence of certain events or substantive changes in circumstances. The following table sets forth the amount of identifiable indefinite-lived intangible assets reported in the Company’s consolidated balance sheet as of December 31, 2016 by reportable segment:  
Sports franchises (MSG Sports segment)
$
101,429

Trademarks (MSG Entertainment segment)
62,421

Photographic related rights (MSG Sports segment)
3,000

 
$
166,850

During the first quarter of fiscal year 2017 , the Company performed its annual impairment test of identifiable indefinite-lived intangible assets and determined that there were no impairments identified. Based on results of the impairment tests performed, the Company’s indefinite-lived intangible assets had sufficient safety margins, representing the excess of each identifiable indefinite-lived intangible asset’s estimated fair value over its respective carrying value. The Company believes that if the fair value of an indefinite-lived intangible asset exceeds its carrying value by greater than 10%, a sufficient safety margin has been realized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosures regarding market risks in connection with our pension and postretirement plans, foreign currency risk exposure and commodity risk exposures. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our annual report on Form 10-K for the year ended June 30, 2016 .
The following is an update to our potential interest rate risk exposure:
We have potential interest rate risk exposure related to borrowings incurred under our Knicks Revolving Credit Facility , Knicks Unsecured Credit Facility and Rangers Revolving Credit Facility , collectively, the “ MSG Credit Facilities ”, and under the TAO Credit Facilities through our consolidation of TAOH. Changes in U.S. interest rates may increase interest expense paid with respect to any borrowings incurred under the MSG Credit Facilities or under the TAO Credit Facilities.
Borrowings under our MSG Credit Facilities incur interest, depending on our election, at a floating rate based upon LIBOR, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, a fixed spread. If appropriate, we may seek to reduce such exposure through the use of interest rate swaps or similar instruments. See “ Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financing Agreements ” for more information on our MSG Credit Facilities . We currently have no interest rate risk exposure with our MSG Credit Facilities as we have no debt outstanding under our MSG Credit Facilities.
Borrowings under the TAO Credit Facilities incur interest, depending on its election, at a floating rate based upon LIBOR, the U.S. Federal Funds Rate or the U.S. Prime Rate, plus, in each case, an additional spread which is dependent upon the net total leverage ratio at the time, and thus principal values outstanding approximate fair value. Accordingly, TAO Credit Facilities are subject to interest rate risk with respect to the tenor of any borrowings incurred. The effect of a hypothetical 100 basis point increase in floating interest rates prevailing at January 31, 2017 and continuing for a full year would increase interest expense of the TAO Term Loan Facility amount outstanding by  $1,100 . If appropriate, the TAO entities may seek to reduce such exposure through the use of interest rate swaps or similar instruments that qualify for hedge accounting treatment. See “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financing Agreements” for more information on the TAO Credit Facilities.
Item 4. Controls and Procedures
The Company’s principal executive officer and principal financial officer have performed an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2016 .
In addition, no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 or 15d-15 of the Exchange Act) occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The Company owns 50% of Azoff MSG Entertainment LLC, which in turn owns a majority interest in Global Music Rights, LLC (“GMR”). GMR is primarily a performance rights organization, whose business includes obtaining the right to license the public performance rights of songs composed by leading songwriters to digital and terrestrial radio and other outlets. GMR has been negotiating licensing terms with radio stations and station groups represented by the Radio Music Licensing Committee (“RMLC”), which acts for and on behalf of over 10,000 commercial radio stations. On November 18, 2016, RMLC filed a complaint against GMR in the United States District Court for the Eastern District of Pennsylvania asserting that GMR is violating Section 2 of the Sherman Antitrust Act and seeking an injunction, requiring, among other things, that GMR issue radio stations licenses for GMR’s repertory, upon request, at a rate set through a judicial rate-making procedure, that GMR offer “economically viable alternatives to blanket licenses,” and that GMR offer only licenses that include GMR’s entire repertory. GMR and RLMC agreed to an interim license arrangement through September 30, 2017, which radio stations may elect to join on or before January 31, 2017. GMR has advised the Company that it believes that the RMLC Complaint is without merit and is vigorously defending itself. On January 20, 2017, GMR filed a motion to dismiss or to transfer venue, asserting that the Eastern District of Pennsylvania is not a proper venue for the matter, lacks personal jurisdiction of GMR and that in any event the Complaint fails to state a claim. In addition, on December 6, 2016, GMR filed a complaint against RMLC in the United States District Court for the Central District of California, alleging that RMLC operates as an illegal cartel that unreasonably restrains trade in violation of Section 1 of the Sherman Antitrust Act and California state law, and seeking an injunction restraining RMLC and its co-conspirators from enforcing or establishing agreements that unreasonably restrict competition for copyright licenses.
The Company is a defendant in various other lawsuits. Although the outcome of these other lawsuits cannot be predicted with certainty, management does not believe that resolution of these other lawsuits will have a material adverse effect on the Company.
Item 1A. Risk Factors

On January 31, 2017 , the Company acquired a controlling interest in a holding company that owns, directly or indirectly, all of the equity in the TAO Group . The TAO Group operates 19 restaurants, nightlife and hospitality venues in New York City, Las Vegas and Sydney, Australia (the “TAO Venues”); 17 of which are under its seven brands - Tao, Marquee, Lavo, Avenue, The Stanton Social, Beauty & Essex and Vandal (the “TAO Brands”). The TAO Group also manages the food and beverage operations at the Dream Downtown and Dream Midtown hotels in New York City. We refer to the TAO Venues together with the food and beverage operations at the Dream hotels collectively as the “TAO Business.” In addition, the TAO Group is currently in contract to open five new venues in New York City and eight additional venues in new markets including Los Angeles, Chicago and Singapore.
The TAO Business is subject to certain risks described under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. In addition, our controlling interest in the TAO Group exposes the Company to additional risks. Certain of these additional risks are set forth below:
The TAO Business is Subject to Intense Competition in the Restaurant, Nightlife and Hospitality Industries, Which Could Have a Material Negative Effect on Our Business and Results of Operations.
The restaurant, nightlife and hospitality industries are intensely competitive with respect to, among other things, service, price, food quality and presentation, location, atmosphere, overall experience, and the nature and condition of the setting. Competitors of the TAO Business include a large and diverse group of well-recognized upscale restaurants, nightlife and hospitality venues and brands. Some competitors may have substantially greater financial and other resources, and may be better known and established in the markets where we operate or where we may seek to locate venues in the future. If the TAO Business cannot compete effectively in one or more of its markets, it may be unable to operate successfully and may be required to close one or more of the TAO Venues.
Changes in Discretionary Consumer and Corporate Spending Patterns Due to an Economic Downturn or Otherwise and Changes in Consumer Tastes and Preferences, Could Result in a Material Reduction in the Revenues of the TAO Business.
The restaurant, nightlife and hospitality industries are often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing businesses. The success of the TAO Business depends to a significant extent on discretionary consumer and corporate spending, which is influenced by general economic conditions and the availability of discretionary income.

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Accordingly, the TAO Business may experience declines in sales during economic downturns. If the TAO Business is unable to adapt to changing consumer tastes it may lose customers and may not be able to attract a new customer base to generate the necessary revenues to maintain income from operations. Any material decline in the amount of discretionary spending could have a material negative effect on our business and results of operations.
The Success of the TAO Business Depends in Part Upon the Continued Retention of Certain Key Personnel.
The success of the TAO Business depends, in part, on certain key members of its management, including its four original founders. The expertise of the TAO Group’s senior management team in developing, acquiring, reinventing, integrating and growing businesses, particularly those focused on entertainment and hospitality, have been and will continue to be a significant factor in the growth of the TAO Business and the ability of the TAO Group to execute its business strategy. The loss of such key personnel could have a material negative effect on our business and results of operations.
The TAO Business is Dependent Upon the Ability to Lease Real Estate or Partner with Real Estate Owners Who Rely on the TAO Group to Operate Their Venues, and the Inability to Do So on Acceptable Terms, or at All, May Have a Material Negative Effect on Our Business and Results of Operations.
The TAO Business operates venues under various agreements that include leases with third parties and management agreements. The long-term success of the TAO Business will depend in part on the availability of real estate, the ability to lease this real estate and the ability to enter into management agreements. As many of these agreements are with third parties over whom the TAO Group has little or no control, they may be unable to renew these agreements or enter into new agreements on acceptable terms or at all, and may be unable to obtain favorable agreements with venues. The ability to renew these agreements and obtain new agreements on favorable terms depends on a number of other factors, many of which are beyond the control of us or the TAO Group, such as national and local business conditions and competition from other businesses. There can be no assurance that the TAO Group will be able to renew these agreements on acceptable terms or at all, or that they will be able to obtain attractive agreements with substantive venues or real estate owners, which could have a material negative effect on our business and results of operations.
A Lack of Availability of Suitable Locations for New TAO Venues or a Decline in the Quality of the Locations of Current TAO Venues May Have a Material Negative Effect on Our Business and Results of Operations.
The success of the existing TAO Venues depends in large part on their locations. Possible declines in neighborhoods where the TAO Venues are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced sales in those venues. Further, the growth strategy of the TAO Business is based, in part, on the expansion of TAO Venues into new geographic markets where the TAO Business has not previously operated. Desirable locations for new openings or for the relocation of existing venues may not be available at an acceptable cost when the TAO Group identifies a particular opportunity for a new venue or relocation. In addition, the success of new TAO Venues tends to expand or revive interest in TAO Venues that have been in operation for an extended period of time. Thus, the inability to successfully open new TAO Venues could also negatively impact the existing TAO Business. The occurrence of one or more of these events could have a material negative effect on our business and results of operations.
The Geographic Concentration of the TAO Business Could Subject Us to Greater Risk Than Our Competitors and Have a Material Negative Effect on our Business and Results of Operations.
Eleven of the TAO Venues are currently operating in New York City, including the food and beverage operations at the Dream Downtown and Dream Midtown hotels, and the TAO Group is in contract to open five additional venues in New York City and four venues in Los Angeles. In addition, seven of the TAO Venues are currently operating in Las Vegas. The TAO Business currently operates in three markets and, as a result, may be subject to greater degrees of risk than competitors with more operating properties or that operate in more markets. Therefore, the TAO Business is more vulnerable to adverse events (including acts of terrorism, natural disasters, weather conditions, labor market disruptions and government actions) and economic conditions in New York City, Las Vegas, Los Angeles and surrounding areas, including those labor markets. Any adverse event or conditions in those markets could have a material negative effect on our business and results of operations.
Negative Publicity with Respect to Any of the Existing or Future TAO Brands Could Reduce Sales at One or More of the Existing or Future TAO Venues and Make the TAO Brands Less Valuable, Which Could Have a Material Negative Effect on Our Business and Results of Operations.
The success of the TAO Business depends upon the reputation and popularity of the TAO Venues and TAO Brands. If customers have a poor experience with the TAO Business, whether at a restaurant or nightlife/hospitality venue owned, operated or managed by the TAO Group, the TAO Venues may experience a decrease in customer traffic. Negative publicity

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with respect to any of the TAO Brands could adversely affect the TAO Business. Such publicity could relate to food quality, illness, injury or other health concerns, poor service, negative experiences or other problems and reduce demand in the TAO Business. The risk of negative publicity is exacerbated by the growing influence of social media which can result in immediate and widespread dissemination of information (which may be false) with limited ability on our part to respond or correct such reports.
Increases in Labor Costs Could Slow the Growth of or Harm the TAO Business.
The TAO Business has a substantial number of hourly employees whose wages are determined by factors outside of the control of the TAO Group. Many of such hourly employees’ wages are at or based on the federal or state minimum wage and these employees typically rely on gratuities for a large portion of their income. Governmental entities have acted to increase minimum wage rates in jurisdictions where the TAO Business operates or may operate in the future. Changes to these laws continue to be proposed and implemented. As minimum wage rates increase, the TAO Business may need to increase not only the wage rates of its minimum wage employees but also the wages paid to its employees who are paid above the minimum wage, which will increase the labor costs of the TAO Business. In addition, the TAO Business’ labor costs may increase if its employees were to unionize. The TAO Business may be unable to increase its prices in order to pass these increased labor costs on to customers, which could have a material negative effect on our business and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
 
 
 
As of December 31, 2016 , the total amount of Class A Common Stock authorized for repurchase by the Company’s board of directors was $525,000, and the Company had remaining authorization of $347,009 for future repurchases. Under the authorization, shares of Class A Common Stock may be purchased from time to time in open market transactions, in accordance with applicable insider trading and other securities laws and regulations, with the timing and amount of purchases depending on market conditions and other factors. The Company has been funding and expects to continue to fund stock repurchases through a combination of cash on hand and cash generated by operations. The Company may also choose to fund our stock repurchase program through other funding sources including under our revolving credit facilities. The Company first announced its stock repurchase program on September 11, 2015. During the three months ended December 31, 2016 , the Company did not engage in any share repurchase activity under our share repurchase program.

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Item 6. Exhibits

(a)
Index to Exhibits
EXHIBIT
NO.
 
DESCRIPTION
10.1
 
Employment Agreement, dated September 16, 2016 between James L. Dolan and The Madison Square Garden Company.

31.1
 
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
 
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1
 
Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2
 
Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS
 
XBRL Instance Document.

101.SCH
 
XBRL Taxonomy Extension Schema.

101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase.

101.DEF
 
XBRL Taxonomy Extension Definition Linkbase.

101.LAB
 
XBRL Taxonomy Extension Label Linkbase.

101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase.



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 3 rd day of February 2017 .
The Madison Square Garden Company
 
 
By:    
/ S /    DONNA COLEMAN
 
Name:
Donna Coleman
 
Title:
Executive Vice President and Chief Financial Officer



59

Exhibit 10.1
THEMSGLOGOHIGHRESOLUTIONA03.JPG

September 16, 2016

Mr. James L. Dolan
The Madison Square Garden Company Two Pennsylvania Plaza
New York, NY 10121

Dear Jim:

This letter agreement (the “Agreement”), effective as of July 1, 2016 (the “Effective Date”) will confirm the terms of your employment with The Madison Square Garden Company (the “Company”) following the Effective Date.

1. Your title continues to be Executive Chairman and it is expected that you will continue to be nominated for election as a director of the Company during the period you serve as Executive Chairman. Subject to the provisions of this paragraph, you agree to devote your business time and attention to the business and affairs of the Company. The Company understands that you are entering into an Employment Agreement with MSG Networks Inc. (“MSG Networks”) contemporaneous with your entry into this Agreement and recognizes and agrees that your responsibilities to MSG Networks will preclude you from devoting substantially all of your time and attention to the Company's affairs. However, the Company understands, and you agree, that you will not take on another significant and substantial employment role outside of these two entities and/or their respective subsidiaries, and that you will devote to the Company's affairs a sufficiently substantial portion of your time and attention as may be reasonably necessary to accomplish the objectives of your strategic role for the Company as identified in this Agreement and as mutually agreed between yourself and the Company from time to time. In addition, as recognized in Article Tenth of the Company's Amended and Restated Certificate of Incorporation (the “Overlap Policy”), there may be certain potential conflicts of interest and fiduciary duty issues associated with your dual roles at the Company and MSG Networks. The Company recognizes and agrees that none of (i) your dual responsibilities at the Company and MSG Networks, (ii) your inability to devote substantially all of your time and attention to the Company's affairs, (iii) the actual or potential conflicts of interest and fiduciary duty issues that are waived in the Overlap Policy or (iv) any actions taken, or omitted to be taken, by you in good faith to comply with your duties and responsibilities to the Company in light of your dual responsibilities to the Company and MSG Networks, shall be deemed to be a breach by you of your obligations under this Agreement (including your obligations under Annex A) nor shall any of the foregoing constitute “Cause” as such term is defined herein.

2. Your annual base salary will be not less than $1,000,000 annually, paid bi-weekly, subject to annual review and potential increase by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) in its discretion. The Compensation


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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Committee will continue to review your compensation package on an annual basis to ensure you are paid consistently with the market for other similarly situated executives as well as external peers.

3. You will also participate in our discretionary annual bonus program with an annual target bonus opportunity equal to not less than 200% of your annual base salary (with such target bonus opportunity effective for the current fiscal year). Bonus payments are based on actual salary dollars paid during the year and depend on a number of factors including Company, unit and individual performance. However, the decision of whether or not to pay a bonus, and the amount of that bonus, if any, is made by the Compensation Committee in its sole discretion. Annual bonuses are typically paid in the first fiscal quarter of the subsequent fiscal year. Except as otherwise provided herein, in order to receive a bonus, you must be employed by the Company at the time bonuses are being paid. Notwithstanding the foregoing, if your employment with the Company ends on the Scheduled Expiration Date (as defined below), you shall be paid your bonus for the fiscal year ending June 30, 2019, if any, even if such payment is not made to you prior to the Scheduled Expiration Date, which bonus shall be subject to Company and your business unit performance for that fiscal year as determined by the Company in its sole discretion, but without adjustment for your individual performance. You and the Company agree that, for purposes of the discretionary annual bonus in respect of the fiscal year ending June 30, 2016, the salary paid to you by MSG Networks prior to October 1, 2015 shall be treated as salary paid by the Company.

4. You will also, subject to your continued employment by the Company and actual grant by the Compensation Committee, participate in such equity and other long-term incentive programs that are made available in the future to similarly situated executives at the Company but subject to the terms of this Paragraph. It is expected that such awards will consist of annual grants of cash and/or equity awards with an annual target value of not less than $7,500,000, as determined by the Compensation Committee in its discretion. All awards described in this Paragraph, in addition to being subject to actual grant by the Compensation Committee, would be pursuant to the applicable plan document and would be subject to any terms and conditions established by the Compensation Committee in its sole discretion that would be detailed in separate agreements you would receive after any award is actually made; provided, however, that such terms and conditions shall be consistent with those in awards granted to similarly situated executives. Long-term incentive awards are currently expected to be subject to three-year vesting. You and the Company acknowledge that any amounts payable pursuant to outstanding long-term cash awards that were granted to you under the plans of MSG Networks prior to October 1, 2015 (as adjusted in connection with MSG Networks’ spinoff of the Company) shall be the sole responsibility and liability of the Company.

5. You will also be eligible to participate in all of our benefits and retirement plans and programs, subject to meeting the relevant eligibility requirements, payment of the required premiums, and the terms of the plans themselves. We currently offer medical, dental, vision, life, and accidental death and dismemberment insurance; short- and long- term disability insurance; a savings and retirement program; and ten paid holidays. Notwithstanding the foregoing, your participation in the Madison Square Garden 401(k) Savings Plan will commence on January 1, 2017. Until such time, your full Company base salary will be used to determine your applicable


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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benefits under the Company's Excess Savings Plan. Any Company provided life and accidental death and dismemberment insurance will be based on your Company base salary. You will also be eligible for four (4) weeks of vacation to be accrued and used in accordance with Company policy.

6. If your employment with the Company is terminated on or prior to December 31, 2019 (the “Scheduled Expiration Date”): (i) by the Company (other than for “Cause”); or (ii) by you for “Good Reason” (other than if “Cause” then exists); then, subject to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement (as defined below), the Company will provide you with the following:

(a)
Subject to Annex B of this Agreement, severance in an amount to be determined by the Company (the “Severance Amount”), but in no event less than two (2) times the sum of your annual base salary and your annual target bonus as in effect at the time your employment terminates. Sixty percent (60%) of the Severance Amount will be payable to you on the six-month anniversary of the date your employment so terminates (the “Termination Date”) and the remaining forty percent (40%) of the Severance Amount will be payable to you on the twelve-month anniversary of the Termination Date;

(b)
Any unpaid annual bonus for the Company's fiscal year prior to the fiscal year which includes your Termination Date, and a pro-rated bonus based on the amount of your base salary actually earned by you during the Company's fiscal year through the Termination Date, each of which will be paid to you when such bonuses are generally paid to similarly situated active executives and will be based on your then current annual target bonus as well as Company and your business unit performance for the applicable fiscal year (which performance will be evaluated on the same business unit performance standards as are applied to other executive officers of the Company in respect of the payment of bonuses for such year) as determined by the Compensation Committee in its sole discretion, but without adjustment for your individual performance;

(c)
Each of your then-outstanding and not yet vested long-term cash awards (including any deferred compensation awards under the long-term cash award programs) granted under the plans of the Company, if any, shall immediately vest in full and shall be payable to you at the same time as such awards are paid to active executives of the Company, and the payment amount of such award shall be to the same extent that other similarly situated active executives receive payment as determined by the Compensation Committee (subject to satisfaction of any applicable performance criteria but without adjustment for your individual performance);

(d)
(i) All of the time-based restrictions on each of your then-outstanding and not-yet vested restricted stock or restricted stock unit awards granted to you under the plans of the Company, if any, shall immediately be eliminated, (ii) payment and deliveries with respect to your restricted stock that are not subject to performance criteria or are


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 4


subject to performance criteria that have previously been satisfied (as certified by the Compensation Committee) shall be made immediately after the effective date of the Separation Agreement, (iii) payment and deliveries with respect to your restricted stock units that are not subject to performance criteria or are subject to performance criteria that have previously been satisfied (as certified by the Compensation Committee) shall be made on the 90 th day after the termination of your employment and (iv) payments or deliveries with respect to your restricted stock and restricted stock units that are subject to performance criteria that have not yet been satisfied shall be made on the 90 th day after the applicable performance criteria is certified by the Compensation Committee as having been satisfied; and

(e)
Each of your then-outstanding and not yet vested stock options and stock appreciation awards, if any, under the plans of the Company shall immediately vest and become exercisable, and you shall have the right to exercise each of those options and stock appreciation awards for the remainder of the term of such option or award.

If you die after a termination of your employment that is subject to this Paragraph 6, your estate or beneficiaries will be provided with any remaining benefits and rights under this Paragraph 6.

7. (a) If you cease to be an employee of the Company prior to the Scheduled Expiration Date as a result of your death or your Disability (as defined in the Company's Long Term Disability Plan), and at such time Cause does not exist, then, subject (other than in the case of death) to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement, you or your estate or beneficiary shall be provided with the benefits and rights set forth in Paragraphs 6(b), (d) and (e) above, and each of your outstanding long-term cash awards granted under the plans of the Company shall immediately vest in full, whether or not subject to performance criteria and shall be payable on the 90 th day after the termination of your employment; provided, that if any such award is · subject to any performance criteria, then (i) if the measurement period for such performance criteria has not yet been fully completed, then the payment amount shall be at the target amount for such award and (ii) if the measurement period for such performance criteria has already been fully completed, then the payment of such award shall be at the same time and to the extent that other similarly situated executives receive payment as determined by the Compensation Committee (subject to satisfaction of the applicable performance criteria).

(b) If, prior to or after the Scheduled Expiration Date, you cease to be employed by the Company for any reason other than your being terminated for Cause, you shall have three years to exercise outstanding stock options and stock appreciation awards, unless you are afforded a longer period for exercise pursuant to another provision of this Agreement or any applicable award letter, but in no event exercisable after the end of the applicable regularly scheduled term (except in the case of death, as may otherwise be permitted under the applicable Employee Stock Plan or award letter).

(c) If, after the Scheduled Expiration Date, your employment with the Company is terminated (i) by the Company, (ii) by you for Good Reason, or (iii) as a result of your death or


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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Disability, and at the time of any such termination described in clause (i), (ii) or (iii), Cause does not exist, then, subject (other than in the case of your death) to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement, each of your then outstanding long term cash awards and equity awards (including restricted stock, restricted stock units, options and stock appreciation rights) that was awarded prior to the Scheduled Expiration Date shall vest and/or be payable as set forth in Paragraphs 6(c), (d) and (e) above.

(d) Upon the termination of your employment with the Company, the Company shall pay you any unpaid base salary through the date of termination by no later than the next payroll period, and shall reimburse you for any unreimbursed expenses incurred through the date of termination in accordance with the Company's reimbursement policy. Except as otherwise specifically provided in this Agreement, your rights to benefits and payments under the Company's pension and welfare plans (other than severance benefits) and any outstanding long­ term cash or equity awards shall be determined in accordance with the then current terms and provisions of such plans, agreements and awards under which such benefits and payments (including such long-term cash or equity awards) were granted.

8.      For purposes hereof, “Separation Agreement” shall mean the Company's standard severance agreement (modified to reflect the terms of this Agreement) which will include, without limitation, the provisions set forth in Paragraphs 6, 7 and 9 hereof and Annex A hereto regarding non-compete (limited to one year), non-disparagement, non-hire/non-solicitation, confidentiality (including, without limitation, the last paragraph of Section 3 of Annex A), and further cooperation obligations and restrictions on you (with Company reimbursement of your associated expenses and payment for your services as described in Annex A in connection with any required post-employment cooperation) as well as a general release by you of the Company and its affiliates (and their respective directors and officers), but shall otherwise contain no post­employment covenants unless agreed to by you. The Company shall provide you with the form of Separation Agreement within seven days of your termination of employment. For avoidance of doubt, your rights of indemnification under the Company’s Amended and Restated Certificate of Incorporation, under your indemnification agreement with the Company and under any insurance policy, or under any other resolution of the Board of Directors of the Company shall not be released, diminished or affected by any Separation Agreement or release or any termination of your employment.

9. Except as otherwise set forth in Paragraphs 6 and 7 hereof, in connection with any termination of your employment, your then outstanding equity and cash incentive awards shall be treated in accordance with their terms and, other than as provided in this Agreement, you shall not be eligible for severance benefits under any other plan, program or policy of the Company. Nothing in this Agreement is intended to limit any more favorable rights that you may be entitled to under your equity and cash incentive award agreements, including, without limitation, your rights in the event of a termination of your employment, a “Going Private Transaction” or a “Change of Control” (as those terms are defined in the applicable award agreement).

10. For purposes of this Agreement, “Cause” means your (i) commission of an act of fraud,


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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embezzlement, misappropriation, willful misconduct, gross negligence or breach of fiduciary duty against the Company or an affiliate thereof, or (ii) commission of any act or omission that results in a conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any crime involving moral turpitude or any felony.

For purposes of this Agreement, “ Good Reason ” means that (1) without your written consent and other than by your own causation, (A) your annual base salary or annual target bonus (as each may be increased from time to time in the Compensation Committee's sole discretion) is reduced, (B) you are no longer the Executive Chairman of the Company, (C) you no longer report directly to the Board of Directors of the Company, (D) the Company requires that your principal office be located outside of Nassau County or the Borough of Manhattan, (E) the Company materially breaches its obligations to you under this Agreement; or (F) your responsibilities are materially diminished, (2) you have given the Company written notice, referring specifically to this Agreement and definition, that you do not consent to such action, (3) the Company has not corrected such action within 30 days of receiving such notice, and (4) you voluntarily terminate your employment with the Company within 90 days following the happening of the action described in subsection (1) above.

11. This Agreement does not constitute a guarantee of employment for any definite period. Your employment is at will and may be terminated by you or the Company at any time, with or without notice or reason.

12. The Company may withhold from any payment due to you any taxes required to be withheld under any law, rule or regulation. If any payment otherwise due to you hereunder would result in the imposition of the excise tax imposed by Section 4999 of the Code, the Company will instead pay you either (i) such amount or (ii) the maximum amount that could be paid to you without the imposition of the excise tax, depending on whichever amount results in your receiving the greater amount of after-tax proceeds. In the event that the payments and benefits payable to you would be reduced as provided in the previous sentence, then such reduction will be determined in a manner which has the least economic cost to you and, to the extent the economic cost is equivalent, such payments or benefits will be reduced in the inverse order of when the payments or benefits would have been made to you (i.e. later payments will be reduced first) until the reduction specified is achieved. If the Company elects to retain any accounting or similar firm to provide assistance in calculating any such amounts, the Company shall be responsible for the costs of any such firm.

13. It is intended that this Agreement will comply with Section 409A to the extent this Agreement is subject thereto, and that this Agreement shall be interpreted on a basis consistent with such intent. If and to the extent that any payment or benefit under this Agreement, or any plan, award or arrangement of the Company or its affiliates, constitutes “non-qualified deferred compensation” subject to Section 409A and is payable to you by reason of your termination of employment, then (a) such payment or benefit shall be made or provided to you only upon a “separation from service” as defined for purposes of Section 409A under applicable regulations and (b) if you are a “specified employee” (within the meaning of Section 409A as determined by the Company), (i) any payments will not be made to you and instead will be made to a trust in compliance with Rev. Proc. 92-64 (the “Rabbi Trust”), provided, however, that no payment will


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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be made to the Rabbi Trust if it would be contrary to law or cause you to incur additional tax under Section 409A, (ii) any benefits will be delayed, and (iii) such payments or benefits shall not be made or provided to you before the date that is six months after the date of your separation from service (or your earlier death). Any amount not paid or benefit not provided in respect of the six month period specified in the preceding sentence will be paid to you, together with interest on such delayed amount at a rate equal to the average of the one-year LIBOR fixed rate equivalent for the ten business days prior to the date of your employment termination, in a lump sum or provided to you as soon as practicable after the expiration of such six month period. Each payment or benefit provided under this Agreement shall be treated as a separate payment for purposes of Section 409A to the extent Section 409A applies to such payment. If the Rabbi Trust has not been established at the time of the termination of your employment, you may select an institution to serve as the trustee of the Rabbi Trust (so long as the institution is reasonably acceptable to the Company). You may negotiate such terms with the trustee as are customary for such arrangements and reasonably acceptable to the Company. The Company will bear all costs related to the establishment and operation of the Rabbi Trust, including your attorney’s fees.

14. To the extent you are entitled to any expense reimbursement from the Company that is subject to Section 409A, (i) the amount of any such expenses eligible for reimbursement in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except under any lifetime limit applicable to expenses for medical care), (ii) in no event shall any such expense be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expense, and (iii) in no event shall any right to reimbursement be subject to liquidation or exchange for another benefit.

15. The Company will not take any action, or omit to take any action, that would expose any payment or benefit to you to the additional tax of Section 409A, unless (i) the Company is obligated to take the action under an agreement, plan or arrangement to which you are a party, (ii) you request the action, (iii) the Company advises you in writing that the action may result in the imposition of the additional tax and (iv) you subsequently request the action in a writing that acknowledges you will be responsible for any effect of the action under Section 409A. The Company will hold you harmless for any action it may take or omission in violation of this Paragraph 15, including any attorney's fees you may incur in enforcing your rights.

16. It is our intention that the benefits and rights to which you could become entitled in connection with termination of employment be exempt from or comply with Section 409A. If you or the Company believes, at any time, that any of such benefit or right is not exempt or does not comply, it will promptly advise the other and will negotiate reasonably and in good faith to amend the terms of such arrangement such that it complies (with the most limited possible economic effect on you and on the Company).

17. This Agreement is personal to you and without the prior written consent of the Company shall not be assignable by you. This Agreement shall inure to the benefit of and be enforceable by your legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The rights or obligations of the Company under this Agreement may only be assigned or transferred pursuant to a merger or consolidation in which


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
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the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of Company; provided, however, that the assignee or transferee is the successor to all or substantially all of the assets of Company and such assignee or transferee assumes the liabilities and duties of Company, as contained in this Agreement, either contractually or as a matter of law.

18. To the extent permitted by law, you and the Company waive any and all rights to a jury trial with respect to any matter relating to this Agreement (including the covenants set forth in Annex A and Annex B hereof). This Agreement will be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed entirely within that State.

19. Both the Company and you hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the federal courts of the United States of America in each case located in the City of New York, Borough of Manhattan, solely in respect of the interpretation and enforcement of the provisions of this Agreement, and each party hereby waives, and agrees not to assert, as a defense that either party, as appropriate, is not subject thereto or that the venue thereof may not be appropriate. You and the Company each agree that mailing of process or other papers in connection with any such action or proceeding in any manner as may be permitted by law shall be valid and sufficient service thereof.

20. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. It is the parties' intention that this Agreement not be construed more strictly with regard to you or the Company.

21. This Agreement reflects the entire understanding and agreement of you and the Company with respect to the subject matter hereof and supersedes all prior understandings or agreements relating thereto; provided, however, that you shall be entitled to the benefits under the indemnification agreement between you and the Company.

22. This Agreement will automatically terminate, and be of no further force or effect, on the Scheduled Expiration Date; provided, however, that the provisions of Paragraphs 6 through 10, 12 through 22, Annex A and Annex B, and any amounts earned but not yet paid to you pursuant to the terms of this Agreement as of the Scheduled Expiration Date shall survive the termination of the Agreement and remain binding on you and the Company in accordance with their terms.

[Signature Page Follows]





THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 9


Sincerely,

THE MADISON SQUARE GARDEN COMPANY



/s/ David O’Connor         
By: David O’Connor
Title: President and Chief Executive Officer


Accepted and Agreed:


/s/ James L. Dolan         
James L. Dolan







THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 10


ANNEX A
ADDITIONAL COVENANTS
(This Annex constitutes part of the Agreement)

You agree to comply with the following covenants in addition to those set forth in the Agreement.

1. CONFIDENTIALITY

You agree to retain in strict confidence and not divulge, disseminate, copy or disclose to any third party any Confidential Information, other than for legitimate business purposes of the Company and its subsidiaries. As used herein, “Confidential Information” means any non-public information that is material or of a confidential, proprietary, commercially sensitive or personal nature of, or regarding, the Company or any of its subsidiaries or any current or former director, officer or member of senior management of any of the foregoing (collectively “Covered Parties”). The term Confidential Information includes information in written, digital, oral or any other format and includes, but is not limited to (i) information designated or treated as confidential; (ii) budgets, plans, forecasts or other financial or accounting data; (iii) customer, guest, fan, vendor, sponsor, marketing affiliate or shareholder lists or data; (iv) technical or strategic information regarding the Covered Parties' advertising, sports, entertainment, theatrical, or other businesses; (v) advertising, sponsorship, business, sales or marketing tactics, strategies or information; (vi) policies, practices, procedures or techniques; (vii) trade secrets or other intellectual property; (viii) information, theories or strategies relating to litigation, arbitration, mediation, investigations or matters relating to governmental authorities; (ix) terms of agreements with third parties and third party trade secrets; (x) information regarding employees, talent, players, coaches, agents, consultants, advisors or representatives, including their compensation or other human resources policies and procedures; (xi) information or strategies relating to any potential or actual business development transactions and/or any potential or actual business acquisition, divestiture or joint venture, and (xii) any other information the disclosure of which may have an adverse effect on the Covered Parties’ business reputation, operations or competitive position, reputation or standing in the community.

If disclosed, Confidential Information or Other Information could have an adverse effect on the Company's standing in the community, its business reputation, operations or competitive position or the standing, reputation, operations or competitive position of any of its affiliates, subsidiaries, officers, directors, employees, coaches, consultants or agents or any of the Covered Parties.

Notwithstanding the foregoing, the obligations of this section, other than with respect to subscriber information, shall not apply to Confidential Information which is:

a) already in the public domain or which enters the public domain other than by your breach of this Paragraph 1;

b) disclosed to you by a third party with the right to disclose it in good faith; or


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 11



c) specifically exempted in writing by the Company from the applicability of this Agreement.

Notwithstanding anything elsewhere in this Agreement, including this Paragraph 1 and Paragraph 3 below, you are authorized to make any disclosure required of you by any federal, state and local laws or judicial, arbitral or governmental agency proceedings (including making truthful statements in connection with a judicial or arbitral proceeding to enforce your rights under this Agreement, to the extent reasonably required and made in good faith), after, to the extent legal and practicable, providing the Company with prior written notice and an opportunity to respond prior to such disclosure. In addition, this Agreement in no way restricts or prevents you from providing truthful testimony concerning the Company to judicial, administrative, regulatory or other governmental authorities.

2. NON-COMPETE

You acknowledge that due to your executive position in the Company and your knowledge of the Company's confidential and proprietary information, your employment or affiliation with certain entities would be detrimental to the Company. You agree that, without the prior written consent of the Company, you will not represent, become employed by, consult to, advise in any manner or have any material interest in any business directly or indirectly in any Competitive Entity (as defined below). A “Competitive Entity” shall mean any person or entity that (i) owns or operates a professional sports team in the New York City metropolitan area or any arena or theater with more than 2,000 seats in any area in which the Company or any of its subsidiaries owns or operates an arena or theater, (ii) creates, produces or presents live sporting events or live entertainment in any metropolitan area in which the Company or any of its subsidiaries owns, operates or has exclusive booking rights to a venue, or (iii) directly competes with any other business of the Company or one of its subsidiaries that produced greater than 10% of the Company's revenues in the calendar year immediately preceding the year in which the determination is made. An entity shall be deemed to compete with the on-line content business of the Company, or any of its affiliates only if the entity directly competes against the on-line content business of the Company, or its affiliate(s); provided, however, that an entity's business shall not be deemed to directly compete merely by the fact that the business sells ads on-line, unless the business specifically targets such ads to the same customers or potential customers as being targeted by the on-line content business of the Company, its subsidiary or affiliate. Ownership of not more than 1 % of the outstanding stock of any publicly traded company shall not be a violation of this Paragraph. This agreement not to compete will expire upon the one year anniversary of the date of a termination of your employment with the Company.

3. ADDITIONAL UNDERSTANDINGS

You agree, for yourself and others acting on your behalf, that you (and they) have not disparaged and will not disparage, make negative statements about, or act in any manner which is intended to or does damage to the good will of, or the business or personal reputations of the Company or any of its incumbent officers, directors, agents, consultants, employees, successors and assigns or any of the Covered Parties.



THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 12


The Company agrees that, except as necessary to comply with applicable law or the rules of the New York Stock Exchange or any other stock exchange on which the Company's stock may be traded (and any public statements made in good faith by the Company in connection therewith), it and its corporate officers and directors, employees in its public relations department or third party public relations representatives retained by the Company will not disparage you or make negative statements in the press or other media which are damaging to your business or personal reputation. In the event that the Company so disparages you or makes such negative statements, then notwithstanding the “Additional Understandings” provision to the contrary, you may make a proportional response thereto.

In addition, you agree that the Company is the owner of all rights, title and interest in and to all documents, tapes, videos, designs, plans, formulas, models, processes, computer programs, inventions (whether patentable or not), schematics, music, lyrics and other technical, business, financial, advertising, sales, marketing, customer or product development plans, forecasts, strategies, information and materials (in any medium whatsoever) developed or prepared by you or with your cooperation in connection with your employment by the Company (the “Materials”). For purposes of clarity, Materials shall not include any music or lyrics written (in the past or in the future) by you, and shall not include any documents, tapes or videos that relate to such music or lyrics or the performance of such music or lyrics other than music or lyrics written in connection with your employment. The Company will have the sole and exclusive authority to use the Materials in any manner that it deems appropriate, in perpetuity, without additional payment to you.

If requested by the Company, you agree to deliver to the Company upon the termination of your employment, or at any earlier time the Company may request, all memoranda, notes, plans, files, records, reports, and software and other documents and data (and copies thereof regardless of the form thereof (including electronic copies)) containing, reflecting or derived from Confidential Information or the Materials of the Company or any of its affiliates which you may then possess or have under your control. If so requested, you shall provide to the Company a signed statement confirming that you have fully complied with this Paragraph. Notwithstanding the foregoing you shall be entitled to retain your contacts, calendars and personal diaries and any materials needed for your tax return preparation or related to your compensation.

4. FURTHER COOPERATION

Following the date of termination of your employment with the Company (the “Expiration Date”), you will no longer provide any regular services to the Company or represent yourself as a Company agent. If , however, the Company so requests, you agree to cooperate fully with the Company in connection with any matter with which you were involved prior to the Expiration Date, or in any litigation or administrative proceedings or appeals (including any preparation therefore) where the Company believes that your personal knowledge, attendance and participation could be beneficial to the Company. This cooperation includes, without limitation, participation on behalf of the Company in any litigation or administrative proceeding brought by any former or existing Company employees, representatives, agents or vendors. The Company will pay you for your services rendered under this provision at the rate of $8,400 per day for each day or part thereof, within 30 days of the approval of the invoice therefor.


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 13



The Company will provide you with reasonable notice in connection with any cooperation it requires in accordance with this section and will take reasonable steps to schedule your cooperation in any such matters so as not to materially interfere with your other professional and personal commitments. The Company will reimburse you for any reasonable out-of-pocket expenses you reasonably incur in connection with the cooperation you provide hereunder as soon as practicable after you present appropriate documentation evidencing such expenses. You agree to provide the Company with an estimate of such expense before you incur the same.

5. NON-HIRE OR SOLICIT

You agree not to hire, seek to hire, or cause any person or entity to hire or seek to hire (without the prior written consent of the Company), directly or indirectly (whether for your own interest or any other person or entity's interest) any person who is or was in the prior six months an employee of the Company, or any of its subsidiaries, until the first anniversary of the date of your termination of employment with the Company. This restriction does not apply to any former employee who was discharged by the Company or any of its affiliates. In addition, this restriction will not prevent you from providing references.

6. ACKNOWLEDGMENTS

You acknowledge that the restrictions contained in this Annex A, in light of the nature of the Company's business and your position and responsibilities, are reasonable and necessary to protect the legitimate interests of the Company. You acknowledge that the Company has no adequate remedy at law and would be irreparably harmed if you breach or threaten to breach the provisions of this Annex A, and therefore agree that the Company shall be entitled to injunctive relief, to prevent any breach or threatened breach of any of those provisions and to specific performance of the terms of each of such provisions in addition to any other legal or equitable remedy it may have. You further agree that you will not, in any equity proceeding relating to the enforcement of the provisions of this Annex A, raise the defense that the Company has an adequate remedy at law. Nothing in this Annex A shall be construed as prohibiting the Company from pursuing any other remedies at law or in equity that it may have or any other rights that it may have under any other agreement. If it is determined that any of the provisions of this Annex A or any part thereof, is unenforceable because of the duration or scope (geographic or otherwise) of such provision, it is the intention of the parties that the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.

7. SURVIVAL

The provisions of this Annex A shall survive any termination of your employment by the Company or the expiration of the Agreement except as otherwise provided herein.

*    *    *




THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 14


ANNEX B
MSG NETWORKS QUALIFYING TERMINATION
(This Annex constitutes part of the Agreement)

1. Qualifying MSG Networks Termination While You Remain Em ployed with the Company .

(a)
If you experience a Qualifying MSG Networks Termination (as defined below), then (i) your minimum annual base salary in Paragraph 2 of the Agreement shall be increased to an amount equal to the aggregate annual base salary to which you were entitled from the Company and from MSG Networks at the time of the Qualifying MSG Networks Termination, up to a maximum annual base salary of $2,000,000 (the amount of such increase, the “ Incremental Base Salary ”), (ii) your minimum target bonus percentage in Paragraph 3 of the Agreement shall remain 200% of your annual base salary (the amount of such increase in your target bonus expressed in dollars, the “ Incremental Target Bonus ”), and (iii) the minimum annual target value of the awards that are expected to be granted to you under the Company's long-term incentive programs pursuant to Paragraph 4 shall be increased to an amount equal to the aggregate target value of the long-term incentive awards expected to be granted to you by the Company pursuant to this Agreement and by MSG Networks under its long-term incentive programs at the time of the Qualifying MSG Networks Termination, up to a maximum annual target value of $13,500,000 (the amount of such increase, the “ Incremental Ta rget LTIP ” and together with the Incremental Base Salary and Incremental Target Bonus, the “ Incremental Target Compensation ”); provided , however , that the Compensation Committee may elect within 20 days following your Qualifying MSG Networks Termination to not increase your annual base salary, target bonus or minimum annual long-term incentive award target value, in which case you will have Good Reason to resign your employment with the Company within 20 days following the Compensation Committee's election, and, on such resignation, you will be entitled to the severance payments and benefits set forth in the Agreement plus the MSGN Severance (as defined in Paragraph (b) below), which severance will be paid to you in accordance with Paragraph 6(a) of the Agreement.

(b)
Additionally, if, after a Qualifying MSG Networks Termination and after the Scheduled Expiration Date, your employment with the Company is terminated by the Company without Cause or by you for Good Reason (other than if Cause then exists), or due to your death or disability, then, in addition to any other payments or benefits to which you are entitled from the Company, you shall be entitled, subject to your execution and delivery, within 60 days after the date of termination of your employment, and non-revocation (within any applicable revocation period) of the Separation Agreement, to a severance payment from the Company equal to (i) the cash severance which you would have been entitled to receive from MSG Networks had your employment with MSG Networks and with the Company terminated simultaneously (the “ MSGN Severance ”) less (ii) an amount equal to the aggregate Incremental Target Compensation paid or awarded to you by the Company, or to which you were entitled from the Company, between the date of the Qualifying MSG Networks Termination and the date your employment with the Company terminates. For the avoidance of doubt, the


THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000

Mr. James L. Dolan
Page 15


Incremental Target Compensation shall not include any other increases in your compensation subsequent to the Qualifying MSG Networks Termination. Sixty percent (60%) of such severance payment will be payable on the six-month anniversary of the date your employment so terminates and the remaining forty percent (40%) of the Severance Amount will be payable to you on the twelve-month anniversary of the date your employment so terminates.

2. For purposes of this Annex B, a “ Qualifying MSG Networks Termination ” means a termination of your employment with MSG Networks by MSG Networks without “cause” or by you for “good reason” (other than if “cause” then exists) (as those terms are defined in your employment agreement with MSG Networks at such time) prior to the Scheduled Expiration Date and while you remain employed with the Company.




THE MADISON SQUARE GARDEN COMPANY
TWO PENNSYLVANIA PLAZA, NEW YORK, NY 10121-0091
Tel 212-465-6000



Exhibit 31.1
Certification
I, David O’Connor, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of The Madison Square Garden Company;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: February 3, 2017
/s/ David O’Connor
David O’Connor
President and Chief Executive Officer






Exhibit 31.2
Certification
I, Donna Coleman, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of The Madison Square Garden Company;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: February 3, 2017

/s/ Donna Coleman
Donna Coleman
Executive Vice President and Chief Financial Officer





Exhibit 32.1
Certification

Pursuant to 18 U.S.C. §1350, the undersigned officer of The Madison Square Garden Company (the “Company”), hereby certifies, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 2016 (the “Report”) fully complies with the requirements of §13(a) or §15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: February 3, 2017
/s/ David O’Connor
David O’Connor
President and Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.






Exhibit 32.2
Certification

Pursuant to 18 U.S.C. §1350, the undersigned officer of The Madison Square Garden Company (the “Company”), hereby certifies, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 2016 (the “Report”) fully complies with the requirements of §13(a) or §15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: February 3, 2017
/s/ Donna Coleman
Donna Coleman
Executive Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.