The elimination of certain general corporate overhead costs that do not meet the criteria for discontinued operations presentation; however, such expenses will no longer be incurred by the Registrant subsequent to the Distribution, as the majority of the Registrant’s corporate function has transferred to MSG Entertainment. Following the Distribution, certain of these corporate functions will be provided by MSG Entertainment to the Registrant pursuant to a Transition Services Agreement (the “TSA”). Refer to note (o) of the unaudited pro forma condensed combined financial statements for further details regarding the pro forma impact of the TSA.

In connection with the Distribution, the Registrant and MSG Entertainment entered into Sponsorship Sales and Service Representation Agreements. Such agreements provide MSG Entertainment with the exclusive right and obligation to sell the Registrant’s sponsorships for an initial stated term of ten years for a commission. In connection with the Distribution, the Registrant’s advertising sales personnel became employees of MSG Entertainment. The pro forma adjustments included herein reflect the impact of these agreements. Refer to notes (i) and (j) of the unaudited pro forma condensed combined financial statements for further details regarding the pro forma impact of these agreements.

The Registrant’s historical consolidated financial statements reflect expenses associated with the ownership, maintenance and operation of The Madison Square Garden Arena (“The Garden”), which both the Registrant and MSG Entertainment use in their operations and has been transferred to MSG Entertainment. Historically, MSG Entertainment did not charge rent to the Registrant for use of The Garden. In connection with the Distribution, the Registrant entered into Arena License Agreements with MSG Entertainment which require the Registrant to pay venue license fees to MSG Entertainment in exchange for the right to use The Garden for games of the New York Knicks (the “Knicks”) and New York Rangers (the “Rangers”) for a 35-year term. This resulted in pro forma adjustments to the unaudited pro forma condensed combined balance sheet to record a right of use asset and lease liability, in addition to adjustments to the unaudited pro forma condensed combined statements of operations to record incremental rental expense. Refer to note (n) of the unaudited pro forma condensed combined financial statements for further details.

MSG Entertainment extended two delayed-draw term loan facilities (the “Delayed Draw Term Loan Facilities”) to the Registrant on the Distribution date. Two of the Registrant’s subsidiaries, MSG NYK Holdings, LLC and MSG NYR Holdings, LLC, are able to draw up to $110,000 and $90,000, respectively (the “Delayed Draw Term Loans”), under the Delayed Draw Term Loan Facilities for general corporate purposes until October 17, 2021. Each Delayed Draw Term Loan bears interest at a rate equal to LIBOR plus 2.00%, or at the option of the Registrant, a base rate plus 1.00%. The Registrant’s ability to draw down on the Delayed Draw Term Loan Facilities is subject to certain conditions, including (i) that it has less than $50,000 of cash and hand and other available liquidity under its revolving facilities on the date a borrowing is requested, and (ii) in the case of the Delayed Draw Term Loan Facility for MSG NYK Holdings, LLC, the Registrant shall have used commercially reasonable efforts to obtain additional liquidity from other financing sources.

In connection with the Distribution, subsidiaries of the Registrant have drawn $350,000 from their existing revolving credit facilities (the “Existing Debt”), of which $300,000 was contributed to MSG Entertainment. The Existing Debt consists of a credit agreement entered into by the New York Knicks, LLC (the “Knicks Facility”) and another by New York Rangers, LLC (the “Rangers Facility”). The Knicks Facility expires in September 2021 and the Rangers Facility expires in January 2022. The Knicks Facility bears interest at a floating rate, which at the option of New York Knicks, LLC may be either (a) a base rate plus an additional rate ranging from 0.00% to 0.125% per annum (determined based on the Fitch rating of the National Basketball Association), or (b) LIBOR plus an additional rate ranging from 1.00% to 1.125% per annum (determined based on the Fitch rating of the National Basketball Association). Additionally, the Knicks Facility requires New York Knicks, LLC to pay a commitment fee ranging from 0.20% to 0.25% in respect of the average daily unused commitments.

In addition, the Arena License Agreements will impact the manner in which the Registrant recognizes revenue in future periods. The impacted revenue streams are listed below and pro forma adjustments are described in more detail in the notes to the unaudited pro forma condensed combined financial statements:

Venue signage and sponsorship revenue — notes (i) and (j)

In-venue sales of merchandise and sports league merchandise revenue — note (k)

In-venue food and beverage sales — note (l)

Suite license and single event revenue — note (m)

Notes

ASSETS

Current Assets:

Cash and cash equivalents

Restricted cash

Short-term investments

Accounts receivable, net

Net related party receivables

Prepaid expenses

Other current assets

Total current assets

Investments and loans to nonconsolidated affiliates

Property and equipment, net

Right-of-use lease assets

Amortizable intangible assets, net

Indefinite-lived intangible assets

Goodwill

Other assets

Total assets

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Current Liabilities:

Accounts payable

Net related party payables

Current portion of long-term debt, net of deferred financing costs

Accrued liabilities:

Employee related costs

Other accrued liabilities

Operating lease liabilities, current

Collections due to promoters

Deferred revenue

Total current liabilities

Long-term debt, net of deferred financing costs

Operating lease liabilities, noncurrent

Defined benefit and other postretirement obligations

Other employee related costs

Deferred tax liabilities, net

Other liabilities

Total Liabilities

Redeemable noncontrolling interests

The Madison Square Garden Sports Corp. Stockholders’ Equity:

Class A Common stock

Class B Common stock

Preferred stock

Additional paid-in capital

Treasury stock

Retained earnings (accumulated deficit)

Accumulated other comprehensive loss

Total The Madison Square Garden Sports Corp. stockholders’ equity

Nonredeemable noncontrolling interests

Total equity

Total liabilities, redeemable noncontrolling interests and equity

Note

Revenues

Operating expenses:

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income (loss)

Other income (expense):

Loss in equity method investments

Interest income

Interest expense

Miscellaneous income (expense), net

Income (loss) from operations before income taxes

Income tax benefit (expense)

Net income (loss)

Less: Net loss attributable to redeemable noncontrolling interests

Less: Net loss attributable to nonredeemable noncontrolling interests

Net income (loss) attributable to The Madison Square Garden Sports Corp’s stockholders

Pro forma earnings per common share

Basic

Diluted

Pro forma weighted-average common shares outstanding:

Basic

Diluted

Note

Revenues

Operating expenses:

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income (loss)

Other income (expense):

Earnings in equity method investments

Interest income

Interest expense

Miscellaneous expense, net

Income (loss) from operations before income taxes

Income tax benefit (expense)

Net income (loss)

Less: Net loss attributable to redeemable noncontrolling interests

Less: Net loss attributable to nonredeemable noncontrolling interests

Net income (loss) attributable to The Madison Square Garden Sports Corp’s stockholders

Pro forma earnings per common share

Basic

Diluted

Pro forma weighted-average common shares outstanding:

Basic

Diluted

Revenues

Operating expenses:

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income (loss)

Other income (expense):

Loss in equity method investments

Interest income

Interest expense

Miscellaneous income (expense), net

Income (loss) from operations before income taxes

Income tax benefit

Net income

Less: Net loss attributable to redeemable noncontrolling interests

Less: Net loss attributable to nonredeemable noncontrolling interests

Net income attributable to The Madison Square Garden Sports Corp’s stockholders

Pro forma earnings per common share

Basic

Diluted

Pro forma weighted-average common shares outstanding:

Basic

Diluted

Revenues

Operating expenses:

Direct operating expenses

Selling, general and administrative expenses

Depreciation and amortization

Operating income (loss)

Other income (expense):

Loss in equity method investments

Interest income

Interest expense

Miscellaneous income (expense), net

Income (loss) from operations before income taxes

Income tax benefit

Net income (loss)

Less: Net loss attributable to redeemable noncontrolling interests

Less: Net income attributable to nonredeemable noncontrolling interests

Net income (loss) attributable to The Madison Square Garden Sports Corp’s stockholders

Pro forma earnings per common share

Basic and Diluted

Pro forma weighted-average common shares outstanding:

Basic and Diluted

Represents the Registrant’s historical consolidated balance sheet as of December 31, 2019 and historical statements of operations for the six months ended December 31, 2019 and the years ended June 30, 2019, 2018 and 2017, respectively, prior to any adjustments for the Distribution and other pro forma adjustments described below.

These adjustments represent the elimination of the historical assets and liabilities (excluding intercompany balances between the Registrant and MSG Entertainment) of MSG Entertainment from the Registrant’s consolidated balance sheet as of December 31, 2019. In connection with the distribution of MSG Entertainment’s assets and liabilities and the pro forma adjustments below, the cumulative additional paid-in capital (“APIC”) of the Registrant was fully depleted. As a result, additional adjustments that would typically be recorded against APIC have been reflected as decreases in retained earnings (accumulated deficit). This includes the impact of other pro forma adjustments discussed in footnotes (c), (d), (e) and (s).

Adjustment reflects the effect of the Employee Matters Agreement, which requires the Registrant to reimburse MSG Entertainment for services provided to the Registrant prior to the Distribution. An adjustment of $807 was recorded to recognize a net related party payable to MSG Entertainment for compensation expense in the unaudited pro forma condensed combined balance sheet as of December 31, 2019.

Adjustment reflects the effects of the incurrence of the Existing Debt (and contribution of a portion thereof to MSG Entertainment in connection with the Distribution) and the debt issuance costs incurred in connection with the Delayed Draw Term Loan Facilities. The following table summarizes those pro forma adjustments:

Drawn amount from revolvers

Cash contribution to MSG Entertainment

Recognition of debt issuance costs incurred in connection with the Delayed Draw Term Loan Facilities

Prior to the Distribution, certain amounts that the Registrant collected for sponsorships, suite rentals and events in advance of performance were recorded as deferred revenue and are recognized as revenues when earned for accounting purposes.

Represents an adjustment to reflect revenues and expenses resulting from transactions between the Registrant and MSG Entertainment that were previously eliminated in the consolidation by the Registrant, but will no longer be eliminated after the Distribution. These transactions relate to (i) the TAO Group Hospitality LLC’s suite license payment for the right to use a specific suite at The Garden for which the Registrant is entitled to a revenue share and (ii) certain suite catering services provided by TAO Group Hospitality LLC to the Registrant.

Represents the results of operations of MSG Entertainment for the six months ended December 31, 2019 and the years ended June 30, 2019, 2018 and 2017, respectively, that qualify as discontinued operations. For the six months ended December 31, 2019 and the years ended June 30, 2019 and 2018, the revenues and expenses of MSG Entertainment include items eliminated in consolidation historically by the Registrant, as described in note (f) above. The six months ended December 31, 2019 and the year ended June 30, 2019 include $4,847 and $0, respectively, of transaction costs incurred by the Registrant, primarily related to accounting, legal and other advisory fees, which are directly attributable to the Distribution and non-recurring in nature. Such costs qualify for presentation within discontinued operations. All transaction costs incurred subsequent to December 31, 2019 were paid by MSG Entertainment; therefore, no pro forma adjustment to the unaudited pro forma condensed combined balance sheet was made for such costs.

Represents the Registrant’s historical results of operations, adjusted to reflect transactions associated with the Distribution that qualify as discontinued operations. Amounts in this column include certain general corporate overhead costs that do not meet the criteria for discontinued operations presentation and thus will

Represents a portion of the impact of the Sponsorship Sales and Representation Agreements and Arena License Agreements. Following the Distribution, the Registrant is required to pay MSG Entertainment a commission related to the sale of Registrant-specific sponsorship assets, which resulted in adjustments of $3,155 and $7,802 to increase selling, general and administrative expenses in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively. Additionally, adjustments of $2,577 and $5,052 were recorded to decrease selling, general and administrative expenses in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively. Adjustments to decrease selling, general and administrative expense resulted from the reversal of overhead costs historically allocated to the Registrant, net of Registrant’s overhead cost reimbursement payable to MSG Entertainment pursuant to the Sponsorship Sales and Representation Agreements (discussed in the preamble note (ii) above).

Represents a portion of the impact of the Sponsorship Sales and Representation Agreements and Arena License Agreements. Following the Distribution, the Registrant will record revenues generated from the sale of venue signage and sponsorship assets that were not specific to the Registrant or MSG Entertainment on a net basis. As a result of the Arena License Agreements, the Registrant’s share of non-specific signage and sponsorship revenues decreased to 47.5% from approximately 53%. Accordingly, adjustments of $4,191 and $9,427 were recognized to reduce revenues in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively. Additionally, adjustments of $269 and $781 were recorded to reduce direct operating expenses that were recognized in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.

As a result of the Arena License Agreements, the Registrant will record revenues generated from merchandise sales on a gross basis. Additionally, the Registrant must pay MSG Entertainment a commission equal to 30% of revenues, net of taxes and credit card fees, generated from the sale of Registrant merchandise sold at The Garden. Adjustments of $1,459 and $2,771 were recorded to increase direct operating expenses in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.

As a result of the Arena License Agreements, the Registrant will recognize revenue generated from in-venue food and beverage sales at Registrant events on a net basis. The agreement entitles the Registrant to receive from MSG Entertainment 50% of the net profits generated from in-venue food and beverage sales at the Registrant’s events, subject to certain exceptions. Adjustments of $12,260 and $25,040 were recorded to decrease revenue in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively. Additionally, adjustments of $8,029 and $16,885 were recorded to decrease direct operating expenses in the unaudited pro forma condensed combined statements of operations for six months ended December 31, 2019 and the year ended June 30, 2019, respectively, to reflect the impact of these agreements.

As a result of the Arena License Agreements, the Registrant’s share of suite and club license revenue decreased to 67.5% for certain hospitality offerings. As such, adjustments of $325 and $731 were recorded to reduce revenues in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and year ended June 30, 2019, respectively.

Removal of historical direct operating expense in continuing operations

Removal of historical selling, general and administrative expense in continuing operations

Increase in selling commission expense

The Garden is used by both the Registrant and MSG Entertainment in their respective operations. The Arena License Agreements require the Knicks and the Rangers to pay a license fee to MSG Entertainment in exchange for the right to use The Garden. The term of each Arena License Agreement is 35 years and each Arena License Agreement requires the applicable team to pay MSG Entertainment base rent subject to an annual 3% escalator. The Registrant will recognize lease expense on a straight-line basis over the 35-year term based upon the value of total future payments under the Arena License Agreements.

Operating lease ROU asset

Current operating lease liability

Long-term operating lease liability

Removal of historical direct operating expense in continuing operations

Removal of historical selling, general and administrative expense in continuing operations

Increase in operating lease expense

Pro forma results from continuing operations of the Registrant include general corporate overhead costs that were historically recorded as the Registrant’s direct operating expenses and selling, general and administrative expenses, respectively. Certain of these costs will no longer be incurred by the Registrant subsequent to the Distribution, as the majority of the Registrant’s historical corporate overhead functions were transferred to MSG Entertainment. Such costs, however, do not qualify for discontinued operations presentation under GAAP. Accordingly, pro forma adjustments were recorded in the unaudited pro forma condensed combined statements of operations to reflect eliminations of these general corporate overhead costs that do not meet the criteria for discontinued operations presentation for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.

Removal of historical direct operating expense in continuing operations

Incremental direct operating expenses pursuant to the TSA

Net decrease in direct operating expenses

Removal of historical selling, general and administrative expense in continuing operations

Incremental selling, general and administrative expenses pursuant to the TSA

Net decrease in selling, general and administrative expenses

Reflects the impact of the Sublease Agreement for office space that was entered into between the Registrant and MSG Entertainment at the time of the Distribution. As a result of the Sublease Agreement, the Registrant will begin recognizing lease expense from its sublease with MSG Entertainment, as well as an associated ROU asset and corresponding operating lease liability. As such, the following adjustments were recorded in the unaudited pro forma condensed combined balance sheet as of December 31, 2019:

Operating lease ROU asset

Current operating lease liability

Long-term operating lease liability

Removal of historical selling, general and administrative expenses in continuing operations

Increase in operating lease expense

Reflects the impact of the Group Ticket Sales Representation Agreement, pursuant to which MSG Entertainment appointed the Registrant as its sales and service representative to sell group ticket packages related to MSG Entertainment events in exchange for a 7.5% commission. Adjustments of $580 and $1,127 were recorded to increase revenues in the unaudited combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively, based upon tickets historically sold during these periods.

Reflects the impact of new compensation agreements between certain shared executives of the Registrant and MSG Entertainment. These adjustments relate primarily to decreases in the Registrant’s share of the compensation and the modification of certain retirement-eligibility dates to coincide with the date of the Distribution. To reflect the impact of these agreements, adjustments to decrease selling, general and administrative expenses by $10,081 and $17,581 were recorded for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively.

The income tax impact of the pro forma adjustments was determined using blended federal and state statutory tax rates of 32% applied to the Registrant’s pro forma adjustments within the unaudited pro forma condensed combined statements of operations for both the six months ended December 31, 2019 and the year ended June 30, 2019. In addition, incremental adjustments of $1,461 and $2,283 were recorded to increase income tax expense in the unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019, respectively, to adjust the allocation between continuing and discontinued operations for the excess tax benefit related to share-based compensation awards pursuant to the associated pro forma adjustments.

Pro forma earnings per share and pro forma weighted-average basic shares outstanding are based on the number of shares outstanding had the Distribution taken place during the periods presented. Pro forma diluted weighted-average shares outstanding reflect dilution from the assumed vesting of restricted stock units issued by the Registrant, as well as the exercise of stock options granted by the Registrant.

The pro forma results in the unaudited combined statements of operations for the six months ended December 31, 2019 and the year ended June 30, 2019 include share-based compensation expense of $12,391 and $19,935, respectively.